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Trump needs to be very, very careful about confronting China

Trump
Photo: Jabin Botsford | The Washington Post | Getty Images

Donald Trump's actions in the past week suggest he is determined to confront China and not simply follow standard convention and precedent.

He took a congratulatory call on Friday night from Taiwan's leader and followed that a few days later with a couple of tweets aimed at China about its currency devaluation, taxes on imports and maneuvering in the South China Sea.


Rhetoric is perhaps morphing into a new policy towards China.

The concept of free trade assumes that market dynamics dictate prices without intervention; such is not the real world. We all know that free trade is more a goal than reality as there are a myriad of restrictions, tariffs, and side agreements that impact trade around the world. This certainly is the case for Chinese-American trade agreements.

Automatically imposing tariffs is not necessarily the first choice for others in Washington, DC, to address current trade inequities. House Majority Leader Kevin McCarthy said this week he prefers that economic strength come through revisions in the tax code rather than through a trade war or protectionist policies. Trade wars are negative for economic growth and, for that reason, it makes sense to be deliberate and carefully consider the unintended outcomes of accelerating a tariff based policy.


"We all know that free trade is more a goal than reality as there are a myriad of restrictions, tariffs, and side agreements that impact trade around the world. This certainly is the case for Chinese-American trade agreements."

Given that trade will likely be a significant issue going forward in the new administration, it's reasonable to ask what the likely impact will be on U.S. multinational companies doing business with China. Examples of complicated arrangements abound. The entanglements are significant and not a simple as firing a warning shot across the bow of a manufacturer seeking to import/export goods from/to China. There are real jobs at stake here and it's important that one is very careful to avoid the temptation to make blanket assessments of what might be a prudent course of action.

Analysts continue to calculate the impact of Apple being compelled to bring manufacturing back to the United States if Chinese outsourcing is punished through tariffs and other restrictions. Will they sell as many phones in China?

Walmart and other distributors of low-cost consumer goods wonder how their profit margins will be impacted if low-cost products begin to be replaced with higher priced goods manufactured in the United States. Already, Carrier parent UTX said it is raising prices for heating and cooling equipment after Trump convinced the company to keep 1,000 jobs in the U.S. To be clear, those jobs were likely headed to Mexico, not China, but the point is the same – prices could very well go up when companies are forced to keep or move operations to the U.S.

A stigma towards trade imbalances with China could very well negatively impact the Chinese economy and that could impact companies selling product into this country with a rapidly emerging middle class and significant population of luxury goods purchasers and this could very well have real impact on corporate earnings.

It's fair to say that other corporations may be resistant to forming new trade relationships with China. Trade policy is now up for debate and the consequences of actions must be measured. The massive interconnectedness that already exists between the United States and China is sure to be a messy fight with many unexpected outcomes. The policy positioning is just beginning.


Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. Follow DWM on Twitter @DestinationWM.

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