The latest instance is threatening a trade war, particularly with the world’s second largest economy, China. Despite the predictable over-reaction of stock markets worldwide, it is a battle the U.S. is likely to win. Remember: Nineteen percent of China’s exports goes to the U.S. while only two percent of our exports go to China, plus China’s economy is export-based and needs exports more than the service-based U.S. economy. They need us far more than we need them!
There is considerable fear that we are dependent on China’s continued purchasing of U.S. Treasury Bonds to finance our ballooning deficit, especially since the Republican tax cut. In truth, the Chinese have not been significant purchasers in years, maintaining a relatively stable portfolio. But remember, we don’t need foreigners to buy our Treasury bonds. The Fed spent four years buying our bonds, to finance the monetary stimulus known as quantitative easing. If the Chinese dump our bonds, the Treasury will not redeem them — the Fed will buy them on the open market, thus stabilizing interest rates. A very unsatisfactory alternative in the long term but works in the short term.
“Strum and Drang” may be the right approach to negotiating with China, but is it therefore the right approach with Mexico, China, Korea, et al.? Or, is it merely the only approach?
Please let there be method to the madness, as there is certainly an ocean of madness . . . and embarrassment . . . and anger too!