Is China Overplaying its Hand?
If there's any point in history where the US economy could reduce trade with China, it's probably now.
Modern technology has made the world's economies more global than ever before. As a result, we're very much dependent on each other for our survival. To an extent, socioeconomic interdependence is a good thing. It helps foster peace. It also creates a more efficient economy, in general. But there are some down sides.
Much of the base materials and final products consumed by the United States comes from China. And when that supply chain is cut off or otherwise restricted, it's very painful. For this reason, there has been few options in limiting trade between the United States and China, even if the United States wanted to limit trade. However, COVID-19 is chaning things. I am not a fan of a trade war, and I don't want to see one. But China's confidence in the matter is probably an overestimation of its worth right now.
Because the COVID-19 epidemic has already limited trade between the two nations, now would be the "perfect" time to engage in extreme measures to permanently reduce the United States' reliance on the country. There would still be a negative effect, but it would be greatly dampened. Trump could leverage the short term decline in dependence on Chinese goods and services, with a call for more domestic production. As it stands, there are already reports that Intel and Trump are pushing to open more chip manufacturing in the United States. And I'm sure that it's just the beginning.
Nuclear Option
China does still have a nuclear option that it could use. And while it would probably hurt like hell for everyone, it would hurt the United States the most. This nuclear option is ditching the USD. Right now, the US dollar is the reserve currency of the world. There have been rumors that China and Russia are interested in dethroning the USD. Such an action would slash demand for the dollar, and probably lead to hyper-inflation.
Under such a scenario, the United States would see skyrocketing prices, especially for the price of oil and foreign goods and services. Given how reliant on the rest of the world the United States is, that would be very painful for us. It would be painful for the rest of the world too, as one of the largest economies in the world collapses onto its knees. But it is an option that China and others could take.
Whether they'll actually take this option will depend on a lot of factors, including how far each pushes the other, and how much the current economic downturn has impacted either's willingness to cooperate. But, given the state of the global economy, both sides might consider it a now or never decision.
Globalism vs Localism
As I said, I don't want to see a trade war. Trade wars are bad for everyone. And the collapse of the dollar would be very painful for anyone who doesn't see it coming. But at the same time, in some ways we have become far too dependent on supply chains that can easily be cut off for various reasons. I am also a fan of supporting local. At the very least, our supply chains need to become more pandemic resistant, especially in the case of supply chains related to medicine and testing.
However, rather than trying to create economic wars, the world needs to work together to create a more resilient form of globalism. There is no reason to forgo the benefits of a global economy. Even in its current form, the global economy is more of a benefit than a threat. But we should also work to create a slightly more distributed system that's more adaptable. And even if we maintain specialization within a given region, other regions should be able to have the capacity to pick up the slack.
Further Reading
Some of the ideas used in my article about improving the public health system can also be applied to the problem of globalism. Both our heath systems and our supply chains need greater flexibility. Newer technology, such as 3D printing, can help.
About the Creator
Daniel Goldman
Visit my homepage. I am a polymath and a rōnin scholar with interests in many areas, including political science, economics, history, and philosophy. I've been writing about all of these topics, and others, for the past two decades.
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