What is left after one has all the money they need? In the case of incoming President Donald Trump who has ego as big as Boeing 757-200, the answer is “power”. Not ordinary power where he can fire and hire as in his TV-reality show “The Apprentice”, but the real power as the President of the United States, supposedly the most powerful man on planet Earth.

 

But some said Trump is not a successful businessman but merely a successful con man. If that is true, it would only make Trump a more dangerous president – to be feared by all his rivals – since he have had conned all his way to the White House. Get ready to see how his ego runs the most powerful machine in the world and has all U.S. assets at its disposal.

He doesn’t need (bias) mainstream media because he has a twitter account. He doesn’t need to suck up to powerful defence contractors because he knew Boeing and Lockheed Martin need him more. He doesn’t need to play balls with Ford, General Motors or even BMW because he could easily slap them with border tax on cars built in Mexico.

 

More importantly, Donald Trump doesn’t need to be political-correct simply because he’s playing unconventional political games. Heck, he might even invite talk radio hosts and bloggers to White House press briefings, a highly irregular strategy, in order to counter about 200 often-bias journalists from liberal mainstream media such CNN or Washington Post.

He has already threatened and warned many powerful people, companies and agencies even before his inauguration on January 20. Besides CEOs of Boeing, Lockheed Martin, Ford, General Motors, BMW, and whatnot, Trump has even insulted intelligence agencies CIA, FBI, NSA and DNI by likening them to Nazi Germany during a press conference last week.

 

Facing a U.S. president who is not only ego but also vengeful and confrontational, would it be wise for other leaders to underestimate Donald Trump? Since the early 1990s, China has been one of the countries on a U.S. watch list that manipulate their currencies in order to keep their exports cheap. But no drastic step has ever been taken. President Trump has vowed to do so.

Beijing is taking very seriously Trump’s threat to impose a 45% tariff on imports from China. Based on the type of people he hires for his administration, the Chinese has finally realized that Trump’s initial threat isn’t just election rhetoric, especially after the recruitment of Peter Navarro as director of National Trade Council and fellow China critic Robert Lighthizer as U.S. trade representative.

 

Previously, it was thought that badass Trump could do little harm, even if he goes bonkers on trade war with China. At first, experts had complacently believed that United States law only allowed a president to unilaterally impose tariffs of up to 15% for as long as 150 days. Now, they aren’t sure anymore that as the 45th POTUS, Trump’s power is limited.

U.S. presidents have more power to unilaterally raise tariffs than previously thought. Apparently, a section of the Tariff Act of 1930 (otherwise known as the Smoot-Hawley Tariff) last referred to in 1949 – ironically in relation to China – remained in the statute books and could allow a president to impose tariffs of up to 50% and then, if escalation was required, block imports completely.

 

In actual fact, both the U.S. and China are already at trade war. The US currently applies anti-dumping penalties to 102 Chinese products and China does the same to 34 US products. Therefore, when President Trump decides to impose a 45% tariff on imports from China, President Xi Jinping is expected to retaliate and do the same.

A 45% tariff on imports from China means between 50% and 87% of its exports to the U.S. (estimated to be US$385.2 billion based on 2016 data) would be affected. The U.S. is China’s biggest export market, accounting for 18% of total exports. China’s overall exports are expected to shrink at least 9% if Trump carried through with his tariff threat.

 

According to Daiwa Capital Markets, China’s gross domestic product could be trimmed by 4.8%. Meanwhile, Mizuho Securities estimated that the Chinese exports had created 120 million jobs, including 20 million making products for the US market. However, a full-blown trade war between Washington and Beijing is not what concerns China.

What worries China the most is the chain reaction where other countries may follow big brother U.S. in slapping similar tariff. European Union, China’s second-biggest export market, is getting increasingly frustrated with a flood of cheap Chinese products and limits on access to the Chinese market. The EU is waiting for a signal from the U.S. to possibly start a trade war on China.

 

China-Japan bilateral trade isn’t sexy too due to mistrust between both countries since World War II. And thanks to THAAD (Terminal High Altitude Area Defense) deployment to South Korea by the U.S., Beijing has been limiting imports from Seoul. Once known as the world’s factory, China is now facing the issue of slowing overseas demand and increasing domestic costs.

Back in June 2014, China had a mouth-watering US$4-trillion of foreign-exchange reserves. However, a fifth-straight monthly decline last year had wiped out a cool US$1-trillion, thanks to US dollar appreciation and consistent capital outflows from the country. Suddenly, having trillions of US dollars doesn’t make China invincible and immune to an economic meltdown.

 

Trump administration could create serious havoc not because he can slap a 45% tariff on imports from China, but the aftermath of such action could wipe out China’s hard-earned foreign-exchange reserves. For that matter alone, it’s rather risky for Beijing to call Trump’s bluff and go for a full-blown trade war. It’s wiser for China to offer to buy more US products to pacify Trump.

 

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January 17th, 2017 by financetwitter

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