Escalating US-China trade rift risks causing ‘bad’ Black Friday

By: John C.

You’ve heard of Black Friday. That’s a good day for business because consumers start their Christmas shopping.

Well, May 10 is also a sort of Black Friday — but the bad kind.

It’s the day that President Trump says he’ll increase tariffs on some Chinese goods and add taxes on other products coming into the US from that country.

And if that happens it will definitely be bad for some businesses and will slow down the economies of both the US and China.

Don’t get me wrong. The Trump Administration needs to correct the imbalance of trade with China.

In the first two months of 2019, the Chinese shipped $59 billion more in goods to the US than American companies sold in China. That figure is actually a little better than the $66 billion trade deficit the US had with China in the first two months of 2018.

And it’s not because Chinese consumers don’t have an appetite for — or can’t afford — American goods. It’s due to China’s protectionism.

Meanwhile, the annual deficit has been growing, which shows that US firms aren’t getting as much access to the billion-plus people in the Chinese market as companies based there are getting in our country.

In 2018, for instance, there were $419 billion more in products coming from China to the US than flowed in the other direction. That was up from $375 billion in 2017 and $346 billion in 2016.

There are other issues in the trade talks between the Americans and the Chinese that have been going on for months.

One is the bad habit of China stealing our technology, whether it be some new electronic device that took many millions of dollars for a US company to develop or a simple handbag design that is being knocked off and sold in the US as the genuine thing.

There is also the problem of what happens after all these goods are sold.

In exchange for their products — knockoffs included — Chinese companies receive dollars. And those dollars are inevitably used by the Chinese to purchase US government bonds and notes.

Because of the trade deficit, China now holds $1.13 trillion in US government securities. That makes China the biggest financier of the US debt and, depending on whom you talk with, that leaves the US vulnerable to outside interference in our financial affairs.

Some say this is unlikely, but if the trade talks got out of hand China could threaten to sell the US debt it holds. That would force the US to seek financing elsewhere for new issuance and would likely cause interest rates to rise in this country.

And that would hurt our economy.

In other words, President Trump can gripe all he wants to the Fed about keeping interest rates too high. If China starts selling large amounts of the US debt it owns, the Fed would be powerless to do anything.

That’s the setup to the last-minute meetings that may, or may not, be held on Thursday and Friday in an effort to avoid the imposition of the taxes on China goods.

Trump prides himself as a savvy negotiator. Say what you will about the guy, he’s done a lot of negotiating during his years in real estate.

Is it different negotiating a trade deal between super powers than the concrete work for a garage in Atlantic City? Sure.

The garage can’t lead to a worldwide disruption in trade and kick the global economy to the curb. And trade negotiations that have gone awry in the past have led to physical confrontations, even wars.

But the President is nothing if not confident. When I brought up the issue of trade wars and tariffs with him before he was elected he simply said, “Don’t worry about it.”

OK, so I won’t.

But farmers in the Midwest who rely on selling their crops to China will. As will Apple and other technology firms for which China’s population is a huge potential market.

To be sure, trade talks are a little like playing poker. You never want to show your emotions or your vulnerabilities.

That’s why China probably plays fast and loose with its economic data. China needs to look like it is playing from a position of strength and a weak economy doesn’t help with that.

But President Trump may have also goofed.

It has become very clear that Trump wants the stock market to remain at lofty levels. Over the past year, the President and his associates have talked stocks up whenever Wall Street took a hit or even looked like it was about to.

Last December, for instance, Trump railed against the Federal Reserve for raising interest rates. Was he really concerned about the cost of borrowing money or was his problem with the fact that the Fed’s actions seemed to be hurting the stock market?

And whenever Wall Street needed to be perked up recently someone — usually Larry Kudlow, head of the president’s National Economic Council — would step forward and say something optimistic about the Chinese trade talks.

This week, however, nothing good could be said. Trump apparently didn’t like how the talks were going and set a quick deadline of Friday for the imposition of tariffs.

Then China threatened not to show up for the latest round of talks — but later seemed to change its mind.

My guess is that the problems will all be resolved, maybe even before you read this column.