In a recent SCMP article, Andy Xie opined that as the US steps up support for national industries and expands tariffs on China, its high-income allies could lose their pricing power.
Here are some highlights:
Restrictions on China’s access to the equipment needed for making chips are perhaps the best illustration. They shrink the market for these high-income powers. As China develops its own supply chain, it will compete in overseas markets, further denting their revenues.
US sanctions haven’t worked out well so far. China’s technological advancements show no sign of slowing down. However, the next US administration, whether it is run by the country’s vice-president Kamala Harris or former president Donald Trump, is likely to expand tech sanctions on China.
US chip equipment manufacturers have been able to sell more products that existing sanctions don’t apply to yet, more than likely compensating for any lost sales. But if the US expands the sanctions list sharply next year, revenues could significantly decline.
The loss of access to China’s market, increased Chinese competition and decreased exports to the US could hollow out the economies of middle powers. They could also be pressured into buying energy and minerals from the US. Their terms of trade are on a slippery downward slope.
The strength of currencies in high-income economies depends on their terms of trade. When they lose industries with pricing power, they are arguably no different from middle-income economies. In the current geopolitical environment, their currencies are facing a downward trend. What is happening to the yen will expand to other middle power currencies.
Read the rest of the article here.
Dr Andy Xie 謝國忠, is an independent economist, director of Rosetta Stone Advisors and is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.
He was a part of Morgan Stanley in 1997 and the Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. He also spent two years with Macquarie Bank in Singapore, an associate director in corporate finance and five years as an economist with the World Bank.
Dr. Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.
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