China and Your Checkbook

 

Is the trade war with China going to impact your pocket book? Depends on what you are buying. If you are building a home or remodeling, you will see increased prices over last year for doors and crown molding. Products packaged in aluminum cans have seen cost increases. Questions is how much is absorbed by the manufacturer and how much is passed on to consumers. Farmers are feeling a direct impact of trade wars which will have a ripple effect.

We are about to enter a second round of tariffs applied to Chinese products. China’s response is to impose their own round of tariffs. Why are these trade wars so much different than what we experienced with Canada and Mexico?

The United Stated began trading with an impoverished China. 1980 China began replacing oxen with tractors for farming. China has continued to expand and buy more goods from countries with more advanced technologies.

China had cheap labor; it was less expensive to manufacture in China and ship to other countries. Gradually, China absorbed more of other countries technology as they produced their products. In the last decade, China has become more aggressive. Companies desiring to do business in China must partner with a Chinese company as a minority partner. Their intellectual property is accessed.

The trade wars with China is about piracy of hundreds of billions of dollars of intellectual property from other countries. China consistently violates the policies of the World Trade Organization.

The hunger to do business with China has allowed for transgressions to be overlooked. Now that China has become a super power, the technology competition is critical to national security.

How do you change behavioral patterns that have been allowed for a decade or more? You tell a child NO for the first time – they are going to test you. Do you really mean this? The child will throw tantrums. You place more restrictions in hopes of getting compliance.

Unfortunately, we are at a critical point with China. Beijing sees 5G technology as the strategy to become the world’s dominant tech power. Huawei is China’s main weapon; spending $15 billion in R & D every year. This has created a stockpile of 5G patents.

China has also developed technology in surveillance through Hikvision. China is a surveillance state. Privacy doesn’t exist.

Yet in the U.S. there is a large out cry over the data collected by Facebook and the invasion of privacy.  The current administration is trying to prevent Huawei from installing any more networks in the U.S. The fear is back door access to sensitive information. Why would we want to buy a network that spies on you? I know a lot of people who don’t even want an Alexa.

The trade war with China is also about cybersecurity. There is more at stake here than free trade. Fortunately, other countries such as Australia and Japan are seeing the security threat from China and are aligning with the U.S.

Implementation of the next round of tariffs will be felt by more people. Canvas shoes cost will go from $49.99 to $65.67. Almost all children’s footwear comes from China.   

A trend of moving manufacturing to Vietnam, Singapore and other countries began before Trump took office. Yet supply chains still come from China.

If the Trade War continues, companies will find other sources. More manufacturing will leave China. This would impact China for decades.

China thinks long term – by generations. In this case, the impact could be long term for China. Hopefully, they will be back to the table soon.

Here is hoping for good things at the G20 meeting June 28th.

 

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