How is Trump restructuring the world's geopolitics and preparing for a trade war with China?

When Mr. Trump took office, all eyes were focused on the costly U.S.-China trade war. Has Mr. Trump made any preparations regarding the 60% tariffs on Chinese goods, and how is the U.S. preventing Chinese goods from circumventing the tariffs? Domestically, the national debt is a pressing issue for the United States. The U.S. national debt has reached $35.46 trillion. This is a very difficult problem because reducing taxes decreases government revenue, but if U.S. government spending does not decrease, the budget deficit remains. If the Federal Reserve lowers interest rates, it can easily lead to inflation. Trump's economic policies are currently facing many questions or could create major pitfalls for the U.S. economy. So how can these pitfalls be avoided? But before entering the commentary section, we invite our esteemed audience to like and subscribe to Decoding China to stay updated with the most unique analyses. What is Trump preparing for the trade war with China? On November 7, Chinese General Secretary Xi Jinping sent a congratulatory telegram to the newly elected President Trump. In the letter, he emphasized that China and the U.S. cooperating is beneficial to both, while confrontation would lead to mutual defeat in the trade war. If confrontation leads to mutual defeat in the trade war is a veiled threat to Trump, warning him not to raise tariffs and not to launch a U.S.-China trade war. Otherwise, China might take significant actions as well. Given Trump's personality, such words are completely ineffective. On one hand, Trump can do what he wants because he has the image of a strong leader. On the other hand, the tools Xi Jinping has are very limited, as he does not possess many Furthermore, in early 2020, Trump signed a preliminary trade agreement with Xi Jinping. As a result, the sudden outbreak of the pandemic caused trade and logistics activities to come to a halt. When signing the preliminary trade agreement with Xi Jinping, Trump did not see Xi fulfilling the agreement. This is equivalent to Xi violating the contract. Trump is a businessman, right? When we sign a contract, we must fulfill it. If you do not, what will happen? Therefore, when Trump takes office, he is certain to raise tariffs. At the same time, I think that to deal with China, Trump might also need to ally with some allies. For example, if Trump raises tariffs and states that a product is not produced in China but is produced in Mexico or Spain, and then labels it made in Spain or made in Mexico, this could avoid the tariffs Trump imposes. This requires Trump to negotiate with various countries. Especially after the US-China trade war broke out, China has adopted a very effective method by routing goods through ASEAN. Chinese businesses have also shifted their production lines to ASEAN and then manufacture there. Thus, the product is not made in China, so Chinese businesses can make profits. After making money, they transfer the money from those countries back to China. Therefore, you will see that as the trade volume between the US and China decreases, trade between China and ASEAN increases rapidly. Therefore, I think that when Trump takes office, economic issues will still be related to politics. Trump can implement three things. First, align closer with Russia and distance from China. This is entirely possible. Putin might also try to distance from China, but Xi Jinping does not want that. Xi cannot control Putin. Second, European countries that are part of the European Union and NATO will be forced to strengthen their defense capabilities, fearing that after Russia occupies Ukrainian territory, they might continue to eye the former Soviet countries, including Eastern European nations like Poland, Romania, etc. Thus, they will also need to purchase weapons from the US and will have more military cooperation with the US. This can truly help the US increase its revenue while reducing the burden on the US. Although this is a political issue, it could benefit the US economy. Another thing is that Asian countries like Japan, Taiwan, the Philippines, and ASEAN countries may also strengthen their defense capabilities and purchase weapons from the US. This will also benefit the US economy. Therefore, experts believe that Trump will not withdraw from organizations, will not leave NATO, and will not pursue an isolationist foreign policy. He is only using such rhetoric to reach agreements. What about Trump's major economic policies? Pitfalls in Donald Trump's Economic Policies Trump will implement several major policies. One of them is imposing uniform tariffs ranging from 10% to 20% on imported goods. This would not only apply to China but also to the EU and other regions. However, this is difficult to execute because Trump has signed the United States-Mexico-Canada Agreement, USMCA, which clearly defines the tariff rates. He cannot unilaterally increase tariffs. Additionally, raising tariffs could lead to retaliation from other countries, which would be disastrous. The consequences would be severe, making it infeasible to impose tariffs uniformly on all imported goods. Is it possible for Trump to impose a 60% tariff on Chinese goods? For products that do not affect the daily lives of Americans or can be substituted, a 60% tariff might be applied. Then, it depends on how China responds. Trump will not actually impose a 60% tariff on all goods from China. In reality, we see that Trump has a long list of items exempted from tariffs on Chinese Generally, the products that are taxed remain taxed, and Biden has not increased tariffs on untaxed items. Another of Trump's policies is to maintain long-term tax cuts. Trump plans to sustain the personal income tax cuts from the Tax Cuts and Jobs Act of 2017, hoping that these personal income tax reductions will be maintained long-term since the law is set to expire in 2025. If these tax cuts become widespread, what issues might arise? The real problem is that reducing taxes decreases government revenue, but if government spending does not decrease, the budget deficit will increase. This was a problem President Reagan faced when implementing economic stimulus plans, including the Star Wars program, officially known as the Strategic Defense Initiative, announced in 1983 to protect the United States from the threat of Soviet intercontinental ballistic missiles. At that time, the government spent a lot of money, which was financed by increasing the budget deficit and the national debt. Currently, the U.S. national debt is excessively high at $35.46 trillion. So will Trump's tax cuts increase the U.S. national debt? Some economists predict that if Trump reduces taxes, it could increase the U.S. budget deficit by an additional $4.6 trillion, which is indeed a very dire situation. Another tax cut policy targets corporate taxes, reducing them from 21% to 15%. This reduction would also cause similar issues, namely increasing the U.S. budget deficit. Essentially, the cause of the budget deficit is reduced revenue coupled with increased spending. If the government can cut spending, it might not result in such a large budget deficit. This issue will depend on a familiar figure, Elon Musk. Speaking of Elon Musk, there is something very interesting. Some say Musk is like Lao Baiwei, who invested in entrepreneurs to become a king, and later became a national general. Regardless, Elon Musk has bet everything, going all in on Trump to save the United States. Elon Musk is very intelligent. When he bought Twitter, he spent $44 billion. He believed Twitter was only worth about $20 billion. Some people might think Musk lost money on the Twitter deal. If you only look at this transaction, it might seem that Musk incurred a loss. However, in reality, Musk made a significant profit. Why? Because with Twitter, Musk now has a platform to support Trump's rise to power. When Trump takes office, he will create favorable conditions for businesses, reduce corporate taxes, and as a result, Tesla's stock price will rise. Currently, Tesla's stock price has increased, allowing Musk to earn an additional $100 billion in Tesla stock. So Musk spent $44 billion to buy Twitter, but has recouped $100 billion in Tesla stock. Elon Musk is a genius. When evaluating a deal, we cannot just see one aspect, or only look at short-term or long-term benefits to conclude whether it is good or bad. In reality, economics is a very complex issue. Tax cuts make everyone happy. People have more money in their pockets, businesses have more funds, and the economy becomes more vibrant. However, this can also lead to a serious problem, the budget deficit. Previously, Reagan still had room to reduce the budget deficit, but now he does not, because fixed costs like healthcare and pensions already take up a large portion of the government budget. Therefore, Elon Musk will try his best to cut spending while minimizing the impact on politics. Trump will promote the extraction of natural gas and oil. Trump's slogan is, Drill Baby Drill, which means drilling into shale rock using fracking methods to extract oil from shale formations. He strongly advocates for oil extraction. This is very beneficial, because it will surely reduce gasoline prices. Additionally, building oil pipelines will lower transportation costs, thereby helping to reduce the prices of goods. This is a very good strategy. For example, Pennsylvania is an important state for oil extraction from shale, and New York also has a lot of natural gas and oil underground, but the state prohibits extraction in its regions. If the government can promote oil extraction, oil prices will significantly decrease. When energy prices drop, the prices of other goods will also decrease. This will deal a major blow to Putin, because Russia heavily relies on oil and gas exports, and a drop in oil prices will be a significant shock to Putin's government. Another action Trump might need to take is the expulsion of illegal immigrants. Trump has stated that he will carry out the largest deportation campaign in history, aiming to deport 11 million illegal immigrants. Since Biden took office, about 12 million illegal immigrants have entered the US. In reality, the Biden administration has already deported 1 million people, leaving approximately 11 million remaining. Trump wants to deport all of them. Is this feasible? The likelihood is not high. Trump will certainly start by deporting illegal immigrants who have committed crimes. During Trump's four-year term, how many illegal immigrants were deported? About 1.5 million. So in the next four years, Trump could deport between 3 to 5 million people, which would be considered a success. Therefore, deporting all 11 million illegal immigrants is unlikely. In reality, many illegal immigrants come to the US, especially from Mexico. Many immigrants from Mexico come to the US with very low wages and perform many jobs for Americans. This has reduced the cost of living for many Americans. Of course, it can also affect many white American workers, but it has significantly reduced production costs for many Americans. Therefore, the issue of deporting illegal immigrants needs to be monitored further. Another issue is that Trump hopes to reduce interest rates to stimulate the economy. However, we need to understand one thing. If interest rates are reduced, it is not Trump who decides this. It is the Federal Reserve, Fed, and independent agency separate from the US government. The US president does not have the authority to interfere with the Fed. Once the Fed chair is appointed, the Fed chair has a fixed term, and the president cannot dismiss them before the term ends. Therefore, the decision to reduce interest rates is not in Trump's hands. However, the Fed may lower interest rates in the future. On November 7, they reduced rates by 25 basis points, or 0.25%, bringing the federal funds rate down to 4.75%. When the Fed lowers interest rates, the US dollar weakens. A weaker dollar is beneficial for the US because it stimulates US exports and reduces imports. This is very advantageous for increasing the US trade surplus. However, lowering interest rates can also lead to a side effect. When the dollar weakens due to lower interest rates, energy prices will correspondingly increase because people need to use US dollars to purchase oil. As the dollar depreciates, energy prices will naturally rise. In reality, this could cause inflation, and as inflation increases, the Fed might be forced to raise interest rates again. This could happen. Therefore, the above economic policies still have both benefits and drawbacks, and careful consideration is needed to make decisions. Please leave your comments below to let us know your view. If you find this video useful, please support us with a subscribe, a like, and a comment to help us improve this channel. We sincerely thank you and look forward to seeing you in the next commentary.