Trump wants US businesses to cut all ties with China: why that’s a lose-lose plan

The loss of the huge Chinese market and supply chains would hit US firms and consumers hard. China’s strengths and a tech boost would see it bounce back, while service-oriented America would face long-term suffering and sustained decline

4-MIN READ4-MIN

US President Donald Trump arrives at a US military base in Houston, Texas, in May 2018. The US simply cannot replace, or find viable replacements for, China’s huge and uniquely competitive production machinery without taking major steps backwards. Photo: AFP

Published: 1:00am, 11 Sep 2019Updated: 5:20am, 11 Sep 2019

Donald Trump has “ordered” American companies by tweet to stop doing business with China. Even with the US president’s shifting whims, what if his wish were to come true?

In an extreme scenario, if US-China trade and US manufacturing in China were to grind to a halt – when US companies no longer had any business with or in China – what would be the implication for American consumers, its companies, workers and innovation?

US consumers would suffer considerably, with a narrower selection of shoddier goods costing more, driving up inflation.

Had Trump not delayed tariffs for the not-yet-targeted Chinese goods until mid-December, US consumers would have had a foretaste of US-China decoupling this Christmas.

Without the Chinese supply chain and the vast China market, many US companies would be displaced by non-US rivals. In decoupling, the US would not be isolating China, but itself, from the global production network.

Could Vietnam and Mexico replace China? Not for the breadth and depth of goods made in China, nor for the price, quality and value combination.

Smuggling into the US of otherwise legitimate consumer items would be rampant. Shopping trips to Canada and Mexico would become popular. US consumers would face a declining standard of living. The middle class and the working class would be hardest hit.