China-Based Think Tank: China Would Crush the US in a Trade War

At present, perhaps the biggest element of tension between the US and China arises from Beijing’s sluggishness in allowing the yuan to strengthen appreciably. The debate is at times heated in both the East and the West, and now, a China-based think tank has gone public with its analysis of a potential trade war which, unsurprisingly, suggests “the US is in decline and that China’s rise as an exporter of goods and capital give it the upper hand.”

According to the Telegraph:

“However, the mood is hardening on both sides of the Pacific. The dispute risks escalating if China’s trade surplus with the US climbs further and more US jobs are lost. US Treasury Secretary Tim Geithner, who has taken a softly-softly line in the past, said on Friday that China had done “very little” to correct the undervaluation of the yuan since ending the dollar peg in June.

“Mr Ding [Yifan, a policy guru at the Development Research Centre,] reflects thinking among some in the Poltiburo, who seem convinced that the US is in decline and that China’s rise as an exporter of goods and capital give it the upper hand.

“‘They are utterly wrong,’ said Gabriel Stein from Lombard Street Research. ‘The lesson of the 1930s is that surplus countries with structurally weak domestic demand come off worst in a trade war.’ He described the implicit threat to sell Treasuries as ’empty bluster’ because Beijing’s purchase of these bonds is a side-effect of its yuan policy. ‘Bring it on: it will weaken the dollar, which is what the US wants. The interest rate effect can be countered by the Fed.'”

This finding should least surprise US trade strategists, given that the Pentagon has already run economic war games between the US and China showing that a trade war would likely “spell disaster” for the States. Of course, the economies of both countries would be damaged extensively, so it hardly seems prudent to suggest China “bring it on.” It’s probably too much to hope for, to have such a levelheadedness prevail… what’s one more war anyway?

You can read more coverage in a Telegraph article on how a Chinese think tank is warning the US it will lose in a trade war.


Rocky Vega,
The Daily Reckoning