Wen Smoot-Hawley

The first shot in the coming trade wars has been fired by the Chinese by the raising of export incentives.

I admire the calm of commentators who are now talking about what carrots they will have to offer China to get them to cut the surplus, now that the other evil twin, the US deficit, looks like it is being involuntarily tackled.

Nothing much will work and I fear we are heading into a showdown with les Chinois who, to go by the noises they are making on the India border, are feeling their oats.

The reasons are simple:

1) Dictatorships, whether of plutocrats (the Great Depression) or the proletariat, feel no need to help the common man get a bit more of the pie. They have tin ears.
2) The Chinese ought to consume more the pundits say. But consume what?
a) Not housing because the buggers need an immigration visa to move anywhere nice in their own country. Which means no furniture, bathrooms with tin plated taps etc. Investor visas for Beijing, anyone?
b) Not the stuff the country makes - how many toys or DVD's can a Chinese person buy?

The US will adjust - a few carmakers will go bust, but the country has the dough and the flexibility to get its ass out of a sling. Manufacturing will once again be fashionable (and cheap compared to Europe). Good people become available again proving that sometimes what is bad for Wall Street can sometimes be good for Main Street. The one will indeed kick start green energy, which is no bad thing and that should help.

China has no such options. It is locked into other people's consumption economies and supply chains.

Prepare for the fall of the bamboo curtain. Just remember these are usually brought about by mad elephants rampaging around in the enclosure just beyond.