On May 28, 2019, Jeremy Andrews writes on Quora:
I think the US can survive a trade war with China, if that’s what you mean.
Wages in China were rising anyway, and it was becoming less profitable to do business there. It’s very likely that manufacturing would have started flowing out of China within a few years even without a trade war. Contingency plans have been in place to relocate manufacturing to South America, Vietnam, Bangladesh, and other such places for a while now. It might be awkward for a while until we can move all the operations over, we’ve just had to speed up the time table. That’s not the big issue, though.
The really big issue there is American exports to China. There’s really not another market as big as China for things like soybeans. So prices of those things we were exporting to China are going to drop like a rock, and the producers of such goods are going to have to downsize.
What I believe will happen is that both countries will focus more on domestic manufacturing and consumption to some extent, and both will do less trade around the world and experience some degree of awkwardness.
The question is, is severing economic ties with China and reducing our dependency on China a good thing? I would say yes.
I believe that China is reaching a point where they’re about to move from being a manufacturing economy to being more design-oriented, and that they’ve been stealing our intellectual property over the years to help facilitate this shift. In other words, they’re going to be competing directly with the US and other advanced economies on the kind of specialized manufacturing we do here, as well as our services and design segment. I think China is going from being the world’s manufacturer to the world’s R&D lab.
China is already looking at Africa for a place to manufacture cheaply, showing that they no longer find it profitable to do domestic manufacturing in-house. That means we are now in competition with China to find the cheapest places to manufacture our goods and develop ties with those countries. If China gets to them first, we could be shut out of those markets for diplomatic reasons, have the best locations for factories already taken, and in general have a hard time dislodging the Chinese influence.
The other problem is that R&D is one of the main things that stayed in the US after we lost our manufacturing base. That’s why technology is one of the biggest things in the US. Notice that even though US has 5 of the top 5 most valuable companies in the world, we aren’t diversified at all. Most Valuable Companies in the World – 2019
Amazon, Microsoft, Alphabet, and Apple are all technology/services companies, and our economy is almost completely dependent on them. Number 5 is an insurance and financial services company (Berkshire Hathaway), which isn’t very reassuring. Going down the list to number 6 is Facebook, a social media company. Now when you get to number 7 and 8… you see the problem. Alibaba and Tencent, rising fast. These aren’t big manufacturers, they’re technology and service companies. Do you see where I’m going with this?
f not, let me spell it out for you. Whether we fight this trade war or not, China is about to eat our lunch. Tencent has already moved into the gaming industry outside of China through Epic Games and Riot Games. If Chinese tech/services companies manage to gain a foothold outside of China and create internationally targeted products that are successful, guess what happens to the US economy? We are going to have a bad time if China is successful in transitioning from a manufacturing economy to an R&D-based one.
That’s why we thought for a long time the best idea was to keep them focused on manufacturing and enrich their economy at the expense of our own manufacturing sector, so that they wouldn’t try to break out into services and technology where the real money is. Only thing is, we miscalculated. China is going to move in that direction anyway, they’ve already started. And if we don’t change course, China is going to leave us in a situation where we have neither manufacturing nor technology services to rely on. So the thing you have to understand is that from a long-term perspective… there’s not much difference between losing this trade war and maintaining the status quo. We end up in roughly the same position either way. There’s no winner in a trade war, but given the circumstances, just surviving it might put us in a better position than we’re in now.
Why did we have to fight China now? This was our last chance to inflict any kind of damage on China and slow them down. If we waited much longer, China would already be too independent and too far along in this process for losing US technology like ARM or Google Play to make a big difference to them. They’re already developing their own tech and pulling ahead, 5G is just the beginning of that. We’re hoping to buy own technology companies more time to catch up with China, and also hoping to delay adoption of Chinese tech by the rest of the world.
So the problem is basically that the US economy has all its eggs in one basket more or less. So, if you knew the future of the US economy was almost entirely dependent on Amazon, Microsoft, Google, and Apple remaining on top, what would you do if you saw companies like Tencent, Huawei, and Alibaba were rising up to challenge them, with the unique advantage of being protected domestically by the Great Firewall, and having the world’s biggest domestic market as a test market? Well, if you don’t want to settle for a graceful economic decline, and you’re feeling desperate enough to gamble on a long shot… I suppose you start a trade war with China while you still can.
