Trade War Not Necessarily Innocuous To Us

https://www.wsj.com/articles/best-buy-to-stop-selling-huawei…

This is not good. Our bread and butter is high tech. If Trump can use security in consumer cell phones as a reason to get American companies to exclude Huawei phones, then the Chinese can certainly do the same in the name of “security”.

I brought this up a few months ago in regard to Arista. Can an American company truly trust a Chinese company in such a complex, security imperative field? Conversely will the Chinese trust American companies in the same way?

China may hurt our manufacturing, but they still cannot compete with much of our high tech, which is a far better business to be in.

If this continues, China will have no choice but to become less dependent on our high tech, which translates into more world competition against us, and less open market opportunity in China. This will hurt all American high tech companies, even if it helps save or bring back a few manufacturing plants to the rust belt.

Politically I understand this. Trump won the rust belt, blue collar vote. He thus must make good on his promises to them. But in doing so what might be wrought elsewhere?

TBD.

Tinker

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I think Tinker has a good point. By analogy, as a patent attorney I saw many times that a company facing a threat of injunction from a patent lawsuit would go back to the drawing boards to come up with a design around. In the process, that company would sometimes come up with innovations that not only avoided the patent but were improvements giving it a competitive advantage. When you corner someone and force them to think about their options, you sometimes regret the outcome.

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Art of Warfare
“Never back your enemy into a corner they can’t get out of”

Then again, I’m no expert in this stuff.

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are you saying that is some sort of unintended consequence?

I am not sure how far you can go with that line. Chinese tech competition has been rising over the past few years and that is precisely why the US is taking such measures. They are ok for Apple and other US corporations to exploit the cheap Chinese manufacturing but the US government has always been careful about letting the key high techs flow into China. As far as manufacturing, China is no longer so low cost so the US government can use that for their domestics issues.

All told and said, the chinese competition is something that has to be contended with now and in future. When you think about the high-tech businesses we are talking about, competition is competition regardless if it comes from Boston or Dallas or from Shanghai or Beijing.

tj

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Yes, exactly, unintended consequence, though I am not saying it is a dispositive factor, just something to think about and take into consideration before acting rashly. As I always told clients, if you back someone into a corner and don’t give them a way out, don’t expect them to just give up and go away; expect them to fight like their lives depended on it. However, that would be true in this case only if a trade war went on indefinitely. I don’t expect that to happen. I think it will be fairly short lived because Trump is more show than substance. Just as with the steel and aluminum tariffs, I think he wants to make his mark as a negotiator and deal-maker, get some concessions, declare victory, and move on.

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“Yes, exactly, unintended consequence…”

I would tend to agree that is not very important in the broader scheme of things. Like you say it is all show.

Niall Ferguson, the Harvard historian called the relationship between China and the US ‘Chimerica’. Essentially, China does the cheap manufacturing and the US gets the cheap consumer goods. Everyone is happy.
Chimerica is definitely ending and a new relationship needs to be defined. It will serve no purpose to go back to a backward mercantile view of the world like this current administration seems to be taking.

The rise of China has been on its way and this is the reality. There is no point in trying to suppress that. You have to work with it.

tj

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