As we all are very much aware of the fact that when the mention of tariffs occurs in the mouth of Donald Trump the world takes a gasp. Remember 2018? Steel tariffs that caused tremors through the world markets? Buckle up, fellow travelers, because here comes another warning shot fired by the former president at BRICS countries and the reaction of China says it all, as to how epic a game of economic chicken is about to be played.
The catalyst which has been jostling the financial markets of the world.
At a recent rally which seemed more of an WWE promo than a campaign speech, Trump promised that should he win the election, he would impose what he described as the mother of all tariffs on BRICS countries and most particularly on China. His reasoning? It is the same playbook he used during the first term: “They are taking our jobs and laughing on the way to bank.”
However, there is something which is different this time: BRICS is no longer the same club as it was in 2018. Added to this is the latest entry into the stage by the heavy weights, Saudi Arabia, Iran and Ethiopia, hence an economic coalition controlling close to fifty percent of the world oil deposits. It is no longer only an American-China showdown, it is turning into a confrontation of the West against the Global South.
Surprisingly measured comeback of China
The interesting bit is the response of Beijing. As opposed to the typically hot-blooded rhetoric, they have chosen an approach that I can find no other way to describe but thirsty parent energy. In fact their foreign ministry spokesperson said:
We have been believers in win-win partnerships. Tariffs as weapons can only impact those who are simple people and families in two countries.”
Translation: Not us who are the bad guys, but you are.
This is the Sun Tzu tactic 101, and this is making yourself seem weak when you are actually strong. China is well aware that they have quite some strong cards:
Uncommon mineral resources (luckily you can use rare earth minerals to make smart phones or electric vehicles)
A base of manufacturing that could still not be reproduced at scale in other places
Increasing power in Africa and Latin America
The reasons Your Wallet should care
Now I want to get down to brass tacks about this — this is what it means to real people:
This new iPhone that you are saving up? May become 200 dollars extra-expensive overnight
Gas prices? It may shoot up in case of BRICS oil producing countries playing hardball
Your 401(k)? Pinch your hats – markets despise this type of uncertainty
One of my Wall Street analyst friends said to me yesterday: “this is no longer a trade question but one of who can hold out longer in a game of economic Mutually Assured Destruction.”
The Phantoms of the Trade Wars Past
Don you recall when the Trump 2018 tariffs were going to bring manufacturing back to America? And this is the way it was worked out:
Extra expenditures incurred by U.S. businesses amounted to 46 billion dollars (not China)
The farmers required bailing out 28 billion dollars because China had ceased purchasing soybeans
The three months saw an increase in the price of washing machines by 12 percent.
Just imagine that situation with more countries added to the mix and supply chains already stressed out due to pandemic-related issues.
So What Will Happen?
I will predict as follows: Assuming Trump wins, there will be a market panic at first then tangled negotiations ensue. China will respond in kind, just not loudly so think of not receiving shipments as planned, inspection held by the customs, or just generally throwing a wrench in the day to day functioning of the companies based there (especially, the American ones). BRICS unity will be challenged- Not every member will want to take this battle- BRICS is united The joker? Well, how the typical American will respond when his or her Walmart receipts begin to resemble those of Whole Foods.
The bottom line
The answer is simple though, as politicians play politics, ordinary people bear the cost, in the form of increased price and lost employment. China has noticed this hence they are playing the long game. Says a Beijing-based trade attorney When I was talking to geer the other night over (pretty expensive) imported bourbon:
