Based on China’s mercantilist strategy to dominate the world by maximizing exports and minimizing imports, China strategically chooses its trading partners, favoring those who it wants as partners, particularly with countries like Brazil and Argentina. This strategy allows China to accumulate vast wealth and control global markets to supplant the United States as the world leader.
The United States must counteract this massive dollar surplus that China gains from its unfair trade practices. However, it’s crucial to avoid destabilizing the dollar as the world’s reserve currency. If the dollar becomes toxic and scarce in too many countries, the world may abandon it. Argentina, Pakistan, Sri Lanka and other countries already see the Yuan as supplanting the dollar in local trade due to the fact the world imports too little from these countries and dollar scarcity has taken a toll on their economies.
Therefore, the US faces a complex challenge. While imports from countries like Japan and Germany also contribute to the trade deficit, the primary concern is China. President Trump should focus on addressing the imbalance with China strategically and China’s full throttle effort to become wealthy via maximizing exports.
Step 1: Achieve Balanced Trade with China
Balanced trade with China should be a top priority. Currently, China imports $1 from the United States for every $3.50 that the USA imports from China. China has the capacity to buy more from the United States but chooses not to, prioritizing geopolitical alliances trading partners over fair trade with the United States.
To address this, the United States needs to immediately place a 100% tariff on all Chinese products that can be manufactured or imported from other countries. For products that cannot be easily manufactured elsewhere, the tariff should be more gradual, with a clear four-year plan to wean the United States off these items.
Should China devalue its currency to maintain exports to the United States, the tariff should adjust accordingly. If the currency devalues by 50%, the tariff increases by 50%.
China may reduce it purchases from the United States to zero and the United States should be prepared to do the same. China will certainly increase purchase that were coming from the United States from places like Brazil and Argentina, however as the United States completely stops importing from China, the United States will have about $500 billion dollars in imports that need to come from somewhere, and these should focus on Southeast Asia and South American (President Trump should pick the winner and loser countries), and this new trade relationship would result in the USA beating China in trade in these countries, as the United States will easily be able to out purchase China in all of them if it stops purchasing from China.
China could also retaliate by dumping trillions of dollars in US treasuries, which would spike interest rates and cause short-term pain in the stock market. However, the United States could absorb this. A potential consequence of this action is that the US dollar could drop in value against the Yuan, hurting Chinese exports worldwide. Therefore, China is unlikely to take this step without harming itself.
Is it unreasonable for the USA to demand balanced, fair trade with China? They are mercantilists so they factually do not practice a policy of fair trade.
Step 2: A Global Tariff Strategy
President Trump has stated his desire to impose tariffs on numerous countries to address trade imbalances. However, there’s a less aggressive approach towards allies: target Chinese components, regardless of the country of origin.
Virtually all manufactured goods today contain Chinese components. China plays a dominant role in the production of legacy microchips, which are ubiquitous in electronic devices. To effectively address the trade imbalance with China, the United States should implement tariffs on all imported products containing Chinese content, components, and sub-assemblies.
For example, if a German car imported to the United States has Chinese content, it will face a 10% tariff in year one, a 20% tariff in year two, and a 30% tariff in year three. This is because one of the most expensive sub-components of almost all BMWs is the radio, which is made in China. By year three it is guaranteed the radios will no longer be made in China.
While it may seem harsh to impose tariffs on allies like Germany, England, or France, it is less damaging than directly targeting these countries. This strategy indirectly benefits them by reducing their reliance on China. Free markets will naturally avoid sourcing from China if those components are destined for the US market. President Trump can simply state: We have no Tariffs on your country, we only have Tariffs on Chinese products. Thus cut the Chinese components and there is no Tarriff. This way it is less logical for a reciprocal trade retaliation by the European Union.
Bonus Prize
Countries worldwide will be incentivized to eliminate Chinese components from their exports to the U.S. This shift will have a ripple effect. For instance, if a South Korean car manufacturer removes Chinese parts to comply with U.S. tariffs, those changes will likely apply to cars sold in all other markets as well. This simplifies manufacturing and potentially reduces costs for the South Korean company.
Retaliation is Hard
What is Germany going to do: Retaliatory tariffs of US products entering Germany that have China content as well?
The United States’ position is clear: eliminate Chinese components from your products, and you’ll face no tariffs. This provides a strong incentive for countries to restructure their supply chains and reduce reliance on China.
Conclusion
President Trump needs to stop the trade imbalance all over the globe being created by China. This strategy does that without hurting allies and friends.
The United States should strategically redirect the morjority portion of the $500 billion currently spent on Chinese goods each year. This investment should be diversified across South America and Southeast Asia, fostering economic growth and development in those regions. This would serve to counter Chinese influence by providing an alternative source of investment and partnership.
