Trade war 3
Trade war 3
In the examples presented in previous articles, we assumed that trade war will go to the end, till there is no trade. Obviously they do not have to go all the way. Some trade could remain. If there is an agreement, trade will remain but deficit will be reduced. Let's explain this better with USA - China trade example. USA seems determined to bring deficit with China down to almost zero.
So no matter what China does, what the two countries export to each other will be roughly equal. The question is at what level their exports to each other will be. USA exports 143,5 billion dollars to China and imports 438,9 billion dollars. If there is an agreement, China's exports should be gradually reduced to roughly 143,5 billion and trade between the two countries will be fair.
If there is a trade war, this level will go down. It the war is to the end, it will reach almost zero. Both countries benefit if they can keep the trade level at 143,5 billion or above. Deficit can also be reduced by increasing USA's exports to China. Russia should intervene. It has good relations with China and is trying to establish good relations with USA. It is a GOOD OPPORTUNITY to IMPROVE RELATIONS with both countries, USA and CHINA.
Trump or Xi Jinping will not make the call first. They are both expecting the other to do it. The one to receive the call will have a psychological advantage in the negotiation. PUTIN should PICK UP the PHONE and call both of them. Most EU governments do not want Xi back down because they are NWO fanatics, free movement of people, products, services, capital and all this nonsense. INSTEAD of SOOTHING the SITUATION, most EU GOVERNMENTS will FUEL IT.
There will be lots of NEGOTIATIONS regarding USA's TARIFFS. It is a also a very good opportunity to also discuss NEW YALTA AGREEMENT which is MUCH MORE IMPORTANT ISSUE. China, USA, India, Russia are expected to manage New Yalta Agreement. It will be very bad if two of them, USA and China are in a trade war. Russia and India should intervene and stop the trade war. Russia seems more suitable to do that.
NWO - EU fanatic Sanchez visited China after Vietnam. Xi should be careful not to associate with the wrong kind of people. NWO - EU fanatics are silly and ignorant people. Sanchez lured Vietnam's prime minister into a really silly behavior. Mexico and Ireland will be saved by Mexican and Irish Americans. They are 11 - 12% and 9 - 10% of USA's population. Vietnamese Americans are only 0,6%.
USA should consider that Vietnam is a poor country. The also had a long civil war a few decades ago in which USA was involved. USA should not try to ruin them although Vietnam has been very unfair towards USA regarding trade. But Vietnam's PM should make a complete turn. His behavior is infuriating. Instead of hosting NWO - EU fanatics like Sanchez and stressing the importance of free trade, you should go to USA and discuss a long term trade surplus reduction plan.
We examined what will happen if USA and China have a fast trade war. USA's growth rate could have a drop that could be close to 0,47%. Suppose that there is a war with all countries in Table C of Appendix 22. The sums of imports, exports and deficits, as percentage of USA's GDP are 4,42%, 8,64%, -4,22%. EU and ASEAN are not included so that there is no double counting.
If there is a trade war to the end with all these countries, USA's exports would drop 4,42%. At the same time, these countries will lose 8,64% of USA's market. If the trade war is slow, domestic producers will take these market shares and USA will add 4,22% to its growth rate, the deficit it has with these countries. But if trade war is very fast, domestic companies will not be able to take the market shares and USA's growth rate could drop as much as 4,42%.
The increase of 4,22% will not be annual but overall. If this is accomplished in three years, the annual increase will be 4,22 / 3 = 1,4%. We see that total deficit with the eighteen countries is higher than USA's overall deficit which is 2,99%. This is because USA has overall surplus with all the rest countries equal to the difference 4,22 - 2,99 = 1,23%.
In the example of USA - EU trade war, there are two extreme positions. In the one end, domestic companies in USA will not take any of the market shares EU companies will lose. On the other end, they will take it all. Both are unrealistic. Domestic producers will take some of the market shares just by operating at full production capacity. Operating at 80% production capacity is considered good. Often it is below that.
Production capacity can be easily understood in a hotel or restaurant example. All people all familiar with hotels and restaurants but most people are not familiar with factories. Let's say that a hotel has 100 rooms or a restaurant has 100 tables. Most of the time hotels and restaurants are not full. If there are customers in 70 of the rooms or tables, they are operating at 70% production capacity.
The other extreme position is that domestic producers in USA will take all the market shares from EU companies. Even if EU made products become very expensive with very high tariffs, there will be some wealthy customers that will buy sports cars, champagne, wine, designers clothes etc made in EU. Also there may be some products and services that domestic producers in USA can't make.
Let's assume that domestic producers in USA take 90% of EU's imports which are 2% of USA's GDP. It will be 2% X 90% = 1,80%. The difference is 2 - 1,8 = 0,2% of GDP which is very small. So it will not make much difference if they do not take all the market shares from EU companies but a very large percentage of it. The more time domestic producers have, the more of these market shares they will take.
In industry, in order to increase production capacity, new investments will be required for factories and machinery. In services it is easier because they need to hire new employees and give them desks PCs and telephones. Probably they would need to get additional space. Alternatively, they could use distance work which will make it even easier to increase production capacity fast.
Also a shift of the production factors will be required. In a trade war to the end, USA will not export anything to EU. But EU will not export anything to USA and they will lose market shares which domestic producers will take if they have adequate time for adjustment. USA exports to EU different products and services than those imported from EU. So production factors will have to change uses if for instance they need to produce more automobiles and less machinery.
Lastly, there is some misconception regarding production factors. Some people consider materials and energy as factors of production. These are factors of production but secondary. They are produced by primary factors of production; land, labour, capital, entrepreneurship. Land does not include only the sites of production bur also what is above or below soil.