I have wondered why Warren Buffet took his shares from BYD. And my thinking is that he is an American who loves his country. The escalation of current tariff war between China and the war on Ukraine really makes many American business men in a tough position.
And now, we see the tariff war stretched out to the whole world including all of the US allies.
A video by Money and Marco defined it better:
This war on tariff was actually a first stage of a plan, MAGA plan. Scott Bessent, the current Trump economic advisor was writing the essay about it in The Economist article.
You see, the US has made Bretton Woods system and made currency exchange based on US dollar. To help the world and to leverage US positions, the US put incentive using Marshall Plan. To help the devastated world post-WW2, the US open its market to imports while allowing the said countries
This is okay, because all the world were in low economy status. US needed them to be grown at the level where US could export their goods. At the time, only the US industry that was not devastated by the war and everybody was struggling.
As the world recovered, the US then leveraged by implementing a neoliberal economy. This economy was spearheaded by floating currency exchange rate, low tariff, and lo behold, the globalization.
The US Perspective
This globalization, which would hurt the US because the exported economy, should have strengthen US and its allies. However, the status quo, according to Bessent, was making the Chinese Communist Party (CCP) leveraging its position. He also believed that CCP leveraging its position by disrupting other country's economies by witholding critical inputs.
I get it. The looming of BRICS spearheaded by China threatens the US dollar supremacy. The US dollar was having an exorbitant privilege by having the best value in term of exchange rates. This exorbitant privilege enable US to support its military. In turns, they can watch and protect the global trade routes.
I mean, have we ever wonder where were the pirates at the 20th century? The protection was not perfect, we still have the Somalian pirates, but the world shipping were relatively safe.
Anyway, the US was hoping for the trade would balance in the long run when other countries prosper.
This, however, did not happen. Many of the countries, especially China, did something to stay imbalance. As Bessent said:
Such overt policies include tariff and non-tariff barriers to market access, currency manipulation, subsidies for preferred industries, forced technology transfers and outright theft of intellectual property.
Biden administration has tried the soft retaliation by providing financial aids to their clean industry. Unfortunately, the US government was already in the red. This was not working for the long run.
In new Trump era, the US chose a hard option: putting tariff on all countries, especially those with US trade deficits. The new tariff regulation, Reciprocal Tariff Calculations, made a formula to determine each country's tariff:
The idea is to balance out the US and foreign country trade. They actually made the numbers based on the tariff that the US would have to charge Other Country in order to get Trade Balance. It would make the trade deficits by calculating the demand and the import prices.
The Impact
However, as explained by Stand-up Math, the elasticity of demand is not linear and this is not counting other variables such as the repciprocal tariff by other country!
Amity et. al., made a study based on last Trump trade war on 2018. It estimated that because of the tariff war,
imply a reduction in aggregate US real income of $1.4 billion per month by the end of 2018. We see similar patterns for foreign countries that have retaliated with their own tariffs against the United States, which suggests that the trade war has also reduced the real income of these other countries.
They want the industries come back to the US soil. They want a fairer trade that currently hurt the US. I get it. The US currently is going to bankruptcy and they want to survive that.
Retaliation
The world would not sit on this. Nobody accept slap in one's face gracefully. May be some loose mind, but not normal people.
The obvious retaliation is of course by the Chinese government. They put 84% tariff for US exports. The EU also retaliates back. The stock market also retaliates back with the massive downfall. And I don't want to write this so long because the news about this is everywhere.
The thing that surprise me the most is actually the French! They suddenly have movements against the US. The Prime Minister said to stop investment in US. They have learned from the first selective tariff on some wine products, in the first Trump administration, that those products was getting 25% cut. And now they gathered their companies for retaliation.
Oh, boy!
Don't forget, the BRICS also there where they want to create a new currency replacing the US dollar. Wow! Why Trump making these kind of stupid move just for them to justify the move?
My Comment on This
Amity et. al. already made the point: this will hurts. Everybody will take the hit. Why the US not use the best approach:
Tax the wealthy like in the 50s!
Unfortunately, as a billionaire himself, I don't think Trump would like to take that approach. LOL.
The world is really unfair right now. If I can make an analogy in MOBA games, the GDP is being hard carried by selective 1% of people. The middle income is getting hit and they are getting poorer.
I wish the US can come clean with their corporate CEOs to invest on American soil. It's time for those lavish rich men and women to prove their patriotic spirit.
Come one, why not ask them to give back to the US? Ask them to lift some of the funds in their Panama and Christmas Island banks to build industries in US soil. I wish the US president can take that route instead of this hard route.
As a man living in the third world country, I don't care about these things. I just want the world for peace. I don't want to get involve on some stupid wars because of this instability.
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