WalMart China Assistance Program, or One Way To Avoid A US-China Trade War

The drums are beating louder for some sort of retaliation against China and its currency regime. Martin Wolf has a sobering column in today’s Financial Times-Currencies clash in new age of beggar-my-neighbour; Michael Pettis just wrote another very pessimistic column-Retaliation is Likely, and Robert Samuelson has a strident op-ed in The Wasington Post in which he calls for a starting a trade war with China if they do not revalue the RMB-The makings of a trade war with China.

Unfortunately it appears that everyone is talking past each other, while heading for a high speed train wreck (China’s trains are now the fastest in the world, for what it is worth). We need some creative thinking.

China can divert a portion of its annual purchases of US Treasuries, say $100 Billion, to a new WalMart China Assistance Program (WMCAP). Every American receiving food stamps or unemployment assistance would be eligible for a monthly card, issued by WalMart, paid for by China, applicable only to goods made in China. By limiting the card to Made in China products, China might be able to quell some of the likely domestic anger at such a program, as a good portion of the money will be recycled back to China and its factories and workers. Rinse, repeat, kick the can down the road until a real recovery kicks in.

The sovereign funds (SAFE and CIC) that manage China’s foreign exchange surplus may need to expand their mandates to include this type of a program, but that can be easy in China. The direct financial returns will be hard if not impossible to calculate, but whatever losses China sees may be more than justified if this helps avoid a much more damaging trade war.

In addition, China gets a big soft power win, as many unemployed Americans may form a better opinion of China, since it is the Chinese now putting money directly into their pockets.

No, I am not really serious. But we better start getting creative soon if we want to avoid a very damaging trade war.

Please tell me what you think in the comments.

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4 thoughts on “WalMart China Assistance Program, or One Way To Avoid A US-China Trade War

  1. I’ve always had the impression that while China’s integration into the world economy has generally benefited developed nations (reduced prices, exporting deflation), there are still “losers” whose industries have been destroyed by low-wage competition, and that taxes and tariffs on Chinese goods should be used to help those hurt by globalization move into new sectors..

    I like the gist of the idea, but obviously there are problems, for example, if China starts sending hand-outs directly to foreign consumers, when will this end? Why only send hand-outs to American consumers? Why not Canadians? The Dutch? Why only food stamp recipients? When should this program be stopped? Can it still be stopped once a recovery has fully kicked in, or will people continue to be upset?

  2. I’ve always had the impression that while China’s integration into the world economy has generally benefited developed nations (reduced prices, exporting deflation), there are still “losers” whose industries have been destroyed by low-wage competition, and that taxes and tariffs on Chinese goods should be used to help those hurt by globalization move into new sectors..

    I like the gist of the idea, but obviously there are problems, for example, if China starts sending hand-outs directly to foreign consumers, when will this end? Why only send hand-outs to American consumers? Why not Canadians? The Dutch? Why only food stamp recipients? When should this program be stopped? Can it still be stopped once a recovery has fully kicked in, or will people continue to be upset?

  3. How about this one. Why don’t they finance high speed rail? China funds the bulk of the project with low interest, unsecured debt (structured so that it is unlikely to ever be repaid unless the project makes a significant return). The railroads will use as much Chinese technology / content as possible. However, the construction would be done as expensively as possible, using US unionized labor, US legal / accounting / engineering teams, environmental impact studies, the whole nine yards. The rail routes would also try to incorporate connections to areas with high unemployment and depressed housing markets for optimal job creation and to facilitate labor mobility.

    What would China get in return? A shift to high value exports, a nice reference for the PRC high speed rail industry, and perhaps a good deal on rail passes for Chinese tour groups. The whole deal would be packaged as an enormous win for the Chinese rail firms, limiting domestic blowback. As a bonus, it would help make the US transportation system more efficient, allowing China to use more of the world’s dwindling petroleum supplies. I see little downside… a true win-win!

  4. How about this one. Why don’t they finance high speed rail? China funds the bulk of the project with low interest, unsecured debt (structured so that it is unlikely to ever be repaid unless the project makes a significant return). The railroads will use as much Chinese technology / content as possible. However, the construction would be done as expensively as possible, using US unionized labor, US legal / accounting / engineering teams, environmental impact studies, the whole nine yards. The rail routes would also try to incorporate connections to areas with high unemployment and depressed housing markets for optimal job creation and to facilitate labor mobility.

    What would China get in return? A shift to high value exports, a nice reference for the PRC high speed rail industry, and perhaps a good deal on rail passes for Chinese tour groups. The whole deal would be packaged as an enormous win for the Chinese rail firms, limiting domestic blowback. As a bonus, it would help make the US transportation system more efficient, allowing China to use more of the world’s dwindling petroleum supplies. I see little downside… a true win-win!

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