Idle Rambling -- The Chinese Trade War -- August 15, 2018

Updates 

Later, 6:28 p.m. CDT: after writing the note below, it suddenly dawned on me. If relatively mild sanctions -- some of which have not even been implemented yet -- are supposedly hurting China this much, think what much stricter sanctions are doing to Iran: a much smaller nation, and a much less diverse economy. Something tells me the big story below has to do with the country not mentioned: Iran.

Original Post

I promised a reader I would get back to him regarding this article in yesterday's New York Times: Trump's trade war is rattling China's leaders.

For now, I'm going to assume folks can get to the article who want to see the article. If unable due to a paywall, the lede:

Trump’s tariffs and trade threats. But as it becomes clear that a protracted trade war with the United States may be unavoidable, there are growing signs of unease inside the Communist political establishment. 

In recent days, officials from the Commerce Ministry, the police and other agencies have summoned exporters to ask about plans to lay off workers or shift supply chains to other countries.

With stocks slumping and the currency dropping 9 percent against the dollar since mid-April, censors have been deleting a torrent of criticism online, some of it directed at President Xi Jinping’s leadership.

I found the article fascinating, and "right on target."

These are some random data points that pinged around in my little mind when I read the article.

• most recently, about four weeks ago (?), Scott Adams mentioned in passing but very clearly stated that China will blink / acquiesce / drop tariffs / come back to the bargaining table once we see one or two large banks in China fail -- Scott Adams didn't pick that out of thin air -- his source was impeccable, no doubt, only because it seemed to be such an odd prognostication
• despite the media trying to convince us otherwise, Trump is a very, very smart man -- he would not take serious action on any issue without really understanding the issue -- and unlike most presidents, he is not politically ideological -- he is laser-focused on American business
• Trump is a business man; he is an international businessman; he knows what's going on in China, Russia; his detractors are not business men, they do not know what is going on in China, Russia
• unlike most politicians: no "bridge is too far." He is willing to meet one-on-one with anyone, and willing to bargain
• several years ago, I commented that China's Achille's heel is its huge young, male population. A legacy of the one-child mandate, China has a huge, male population -- China needs to keep them employed; even a small country like Saudi Arabia knows they can't have a dispossessed young male population; this bullet, by the way, should be the #1 bullet in this list, but I put it here for a reason
• a lot of folks don't think a country can implode overnight; hellooooo -- take a look at Venezuela; Chinese leaders know that no country is "too big to fail"
• because China is autocratic / dictatorial, anti-Trumpers think China can outlast Trump; perhaps China can, but there are a lot of very, very rich, strong, influential business leaders and political leaders that are more worried about numero uno (themselves) than their leader -- a very, very rich banker whose bank fails ...
• and, finally, a lot of Chinese probably don't like the idea of a premier who is now "premier-for-life"

From the linked NY Times article:

If the trade war escalates — and Mr. Trump has shown no sign of backing down — some worry that the public’s faith in the economy could be shaken, exposing the nation to much more serious problems than a drop in exports. New economic data on Tuesday showed slower growth in investment and consumer spending, and there are fears that the financial crisis in Turkey could spread.

China’s leaders have argued that they can outlast Mr. Trump in a trade standoff. Their authoritarian system can stifle dissent and quickly redirect resources, and they expect Washington to be gridlocked and come under pressure from voters feeling the pain of trade disruptions.

But the Communist Party is vulnerable in its own way. It needs growth to justify its monopoly on power and is obsessed with preventing social instability. Mr. Xi’s strongman grip may be hindering effective policymaking, as officials fail to pass on bad news, defer decisions to him and rigidly carry out his orders, for better or worse.

Wouldn't it be ironic if North Korea turned out not to be the big story of the year, but rather talk of regime change in Beijing?

A bridge too far? From the linked article:

“All of this coming together suggests Xi’s grip on authority has been loosened,” said Willy Wo-lap Lam, a longtime observer of Chinese politics at the Chinese University of Hong Kong. “He’s unable to fill his function as the final arbiter who settles differences among his closest advisers.”

It is unlikely Mr. Xi’s position is in any jeopardy. But the trade dispute, along with a scandal over tainted vaccines and protests over failed investments, have already emboldened some critics of his sweeping centralization of power.

And Scott Adams' comment on banks?

The worst case for China, however, is that the trade war undermines economic confidence. The nation’s housing market teeters on a mountain of debt, and low-interest loans from state banks have built overcapacity in many industries. The worry is that prolonged trade tensions could cause money to rush out of China despite currency controls and prompt much bigger financial and economic troubles.

And so it goes.