E Very Clever, Those Chinese Folks

Before I get to the main point I want to make today, it's important to bring out that Larry Kudlow gave an interview last week, I think it was on CNBC. And for those of you who don’t know who he is, Larry Kudlow is a brilliant economist and he is Trump’s chief economic advisor. So Kudlow gave an interview and they pressed him on the wisdom of the tariffs. And in that interview, he reluctantly admitted that it’s like I have said all along, the Chinese aren’t paying any of the tariffs that Trump has implemented.  Instead it is actually being paid by the very consumers who buy those products from China, and you and I will see higher prices because of it.

But regardless of Kudlow’s interview, the important point that I want to make is that I said last week that the Chinese are much more clever than anyone is giving credit for.  And in that vein, you’ll notice that of all the tariffs they’ve now imposed on American goods, which will begin less than two weeks from now on June 1, they’ve not so oddly left out energy. And they buy lots of it from America in oil, LNG, and other forms.

What I think is going on here is not only that they are not showing all their tricks.  But also they know that the American economy is not as strong as neither our media outlets here nor our government officials want us to believe.  If they would implement a tariff on our energy, their consumers would buy less of it, causing extra supply to remain in American markets. If we have a recession in conjunction to that tariff on our energy, that will leave even more excess supply here in the States.  Ceteris paribus, the extra supply combined with lower demand in a recession will cause the price of energy to fall precipitously.

But they have not imposed a tariff which means that they can keep up the demand for our energy. So even if we go into a recession, that means that the demand for our energy will be elevated, causing the prices to stay elevated as well here at home. And that will cause far more damage to the American economy than the tariffs ever will.

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Craig Newman 1 month ago Member's comment

I am no Adam Smith, but I don't believe any one thinks that China will pay the tariffs. Tariffs always mean higher prices by the end consumer, meaning us. BUT, what tariffs do, is they create a situation where foreign imported goods become more expensive than domestically produced goods. So fewer items are bought from China (bad for them) and more products are bought from the US (good for US). So overall it can help the economy.

Gary Anderson 1 month ago Contributor's comment

According to surveys, most companies do not intend to move out of China and few plan to return to the USA of those who may move.

Ayelet Wolf 1 month ago Member's comment

Craig Newman and Dick Kaplan, you are both correct. But don't forget, this isn't 1950 any more. Today's more sophisticated products contain a multitude of components from all over the world. So even mostly made domestic products could have a single processor, microchip, screen, etc, that is made in China. And a tariff on the would make the entire product more expensive.

Harry Goldstein 1 month ago Member's comment

That's a good point Ayelet. I recently read an article, can't remember about which company though, that said they tried to have their products 100% made in the USA. But their production was severly delayed because they simply couldn't get enough screws locally. So they had to go back to buying them from China. Every component is critical in a final product, even a simple screw.

Dick Kaplan 1 month ago Member's comment

While that's true Craig, that's when the tariffs are one-sided. In a #tradewar, China reciprocates with tariffs of it's own. Meaning higher prices for Americans who buy Chinese products (which is almost everything) and for Chinese citizens, they'll buy more of their own products (good for them) and fewer of our products (bad for us).

Gary Anderson 1 month ago Contributor's comment

Interesting article. The Chinese bailed us out of the Great Recession and now are keeping us from recession? Then why does POTUS treat them so badly?

Alpha Stockman 1 month ago Member's comment

Part of the problem is that apparently Chinese products are filled with Spyware. For example, I just read an article about drones on CNN. 80% of the drones are made by a DJI, a Chinese company. And those drones are actually sending everything they see to Chinese intelligence. Scary.

Gary Anderson 1 month ago Contributor's comment

But there is no proof that Huawei has done any spying. Even Israel laughs at the US criticism of that nation for allowing China to operate its port. We are a bit of a laughingstock. And all major nations, including the UK have invested in the Asian Infrastructure Investment Bank. Oh, except for the USA!

Bill Johnson 1 month ago Member's comment

I admit, I've been very concerned about these allegations about China spying on us through the items we buy. That being said, I've also wondered where the proof is.

Danny Straus 1 month ago Member's comment

What about how #Google and #Facebook spies on us ever day? And for proof? Just have a conversation about anything and then look as you are shown ads about what you were talking about on your phone, or how the very question you were asking a friend is now automatically appearing in the Google search bar. That's downright creepy!