Profit Reduction and Commercial War

Within a few months, many companies, of different sizes and dedicated to various activities, will face a completely new situation in which the dangers will abound and opportunities will be scarce and where the search for profits, as the fundamental objective of any business could yield Your position in search of survival.

Indeed, at some point in the years 2020 or 2021, China must formally declare that its economy is entering a cycle of successive contractions of its domestic product. This cycle can be brief and violent, like a shock, or it can be long and smooth; it all depends on the actions carried out by the Asian government authorities; and also, it will leave the Chinese economy in a period of stagnation that should last at least a decade. On the other hand, the rest of the economies of the planet will go into recession one after one after the collapse of the Asian giant and then, in the same way, culminate in a long period of stagnation. Finally, a small group of countries would not be entering the global contractive wave but would fall at once in the period of stagnation.

The exception to the rule will be given by the United States, a nation that will not suffer, immediately, the effects of the Chinese collapse, but which, during the years 2022 or 2023, will begin to feel the consequences of the world recession and will notice the emergence of economic phenomena not seen before related to the pricing of products that will generate much discontent in the American population.

¿ How companies react to this global recession? How businesses have reacted in the past to the contractionary cycles ?. Before 1945, businessmen did not face recessions but simply, if the owners of the companies felt that the losses were projected over a very long period of time, then they decided to liquidate the business. After 1945, the typical strategy of the business sector to face recessions was to support the losses suffered during some quarters while government authorities are busy reactivating the economy.

The novelty present in the global recession that is approaching is that now the government authorities do not have effective economic policy instruments to combat the commercial war, on the other hand, today, to carry out the liquidation of a company can demand a significant amount of legal order requirements that makes this option an expensive alternative.

Within this sea of ​​uncertainty, each company should draw up an action plan designed "to suit", based on the following actions:

• determine if the company is able to withstand the consequences of the commercial war
• determine if the company has instruments to face the consequences of the commercial war.

These action plans should be based on absolutely objective arguments since the uncertainty situation favors confusion and misinformation. Indeed, it is expected that many media outlets dismiss the consequences of the commercial war, while the promoters of the US protectionist current are likely to sponsor the exacerbation of specific social movements, such as feminism, environmentalism or xenophobia; To distract public attention from the consequences of the commercial war, we can also anticipate that the government authorities of many nations will be very busy spreading calls for calm and proclaiming that they will protect their country's businesses from the effects of trade war when, in reality, this is impossible. If any company wishes to protect itself from the commercial war, it must base its actions based on objectivity and not on misinformation.

In the first place, entrepreneurs have to interpret the commercial war as a reduction in sales, reduction in production volumes, increases in unit costs and, therefore, reduction in profits, or, entry into the field of losses in The financial year. In the same way, it is important that they estimate with some degree of precision the moment in which the reduction in sales should begin to get to know the time available to design and execute a successful action plan. Finally, business managers should note that the expected reduction in sales will not occur in a single period, such as when a company faces an occasional shock, therefore, it is vital to determine the amount of periods with a level of success in which the company will see its sales decrease.
Go to: A Chinese recession is inevitable - don't think it won't affect you - Kenneth Rogoff - The Guardian
The instinctive reaction of the human being to a tragic situation is the denial of it. The negacionismo can take over a company, take it to the paralysis and demise. It is necessary that those who make the decisions in the company have all the information elements to conclude that the global recession is inevitable. Even in the case of a China-United States agreement there will be a global recession. The American protectionist discourse suggests that there is a commitment by the Trump Administration to reduce imports in a margin that would be between 30% and 50% at the end of the term.

This is how, before the imminent arrival of the effects that the commercial war will produce, each company must carry out the corresponding corporate planning and financial planning exercises that are necessary to build the plans that will allow it to face said eventuality.

The relevant parameters or milestones that provide the appropriate context for these planning exercises cannot reach identical values ​​for all companies. Obviously, there are elements and conditions that will give each company a greater or lesser degree of exposure or vulnerability to the effects that will be caused by the commercial war. However, we believe that it is necessary to establish a benchmark that allows us, indirectly, to quantify the level of risk that the company's operations have acquired.

We believe that the fundamental parameters that quantify, evenly, the impact of the commercial war on the daily operations of the company will be:

• percentage of reduction in net sales for a given period of time
• number of time periods in which the reduction in net sales occurs.

Of course, each company will have its own values ​​in the aforementioned fundamental parameters and, from them, you should obtain figures that will allow you to make sound decisions, as well as design and implement the corresponding action plans. However, there must be a reference point from which each company, in its planning exercise, introduces those elements that personalize it, reflecting its particular condition.

We believe that this benchmark or starting point should be the "worst case scenario" of expected behavior of net sales. This scenario should be considered valid and applicable to all companies that could be affected by the commercial war. So, we think that the "worst possible scenario" for a company is the successive contraction of sales for five years in the following sequence: 10%, 10%, 10%, 5% and 5%. Then, from this starting point, each company will introduce the corresponding adjustments, dictated by common sense, until reaching the "specific scenario" that corresponds to the company. These adjustments will aim to reduce or maintain the number of periods of contraction of net sales and reduce the percentage values ​​corresponding to each contract period.

So, it is the differentiation factors that allow the company to distance itself more and more from a planning scenario similar to the benchmark, that is, the "worst possible scenario." Some of these differentiation factors are:

• productive sector where the company is located: manufacturing, services, mining, etc.
• percentage of external sales with respect to total sales
• composition of the client portfolio
• composition of the group of suppliers, etc.

It lowered which premises we managed to build the "worst possible scenario" ?

• the Chinese recession will be the trigger for the next global recession
• the Chinese recession is inevitable
• the Trump Administration has the inescapable commitment to the US protectionist current to reduce imports in a range that ranges from 30% to 50%
• the Chinese government will make all the efforts that are required so that the contractive rate never exceeds 5% per year

In this way, we can assume that the Chinese economy will contract for three consecutive years at rates of 1%, 3% and 5% and then enter a period where growth rates will never exceed 0.5%.

However, the entrepreneur, when carrying out his planning exercise, cannot consider that his sales will contract in a measure proportional to the contraction of the Chinese economy; nor can it be assumed that the company will go through the same amount of contraction periods as the Chinese economy should show. The entrepreneur must start his analysis from the "worst possible scenario", which should consider that the global economy now has abundant collateral factors that will increase the damage caused by the Chinese economic contraction to the global economy.

Obviously, the planning exercise carried out by the entrepreneur must quantify the sensitivity of his clients to the commercial war at the time of carrying out the projection of the magnitude of future sales, as well as measure the impact that the commercial war could cause on its suppliers in order to rule out possible threats to the supply chain that could jeopardize the company's operations.

Global supply chain risk grows

There may be cases in which it is absolutely impossible to make an adequate projection in sales because the company is located within a productive sector where they are extremely volatile or is located in countries where there are superior contracting forces, including the commercial war. ; as is the case of companies located in Argentina or Great Britain. In this situation it is advisable to directly assume the "worst possible scenario" as the projected sales to be considered.

Return on Asset and on Sales Volatility, that we measured with the standard deviation of the percentage change in operating income, after the peak reached in 2014, has settled on more moderate values in the last two years and close to those recorded in 2012 and 2013

After having considerably realistic figures about the projected sales of the company, it is possible to determine how much annual production will be reduced and to what extent the average unit costs will increase, and then know the magnitude of the gains or losses that the company as a result of the commercial war.

Projected sales must include all discounts, price reductions, promotions and commercial strategy that the company deems to be carried out within the periods to be considered. On the other hand, the magnitude of the increase in average unit costs cannot be underestimated because it is an essential fact to reach the expected profit or loss. This information will be the fundamental input to design the corresponding plans and make the decisions that allow the company to survive the commercial war, hence the relevance in terms of data quality.

Indeed, the reduction in production will increase average unit costs by way of higher average unit fixed costs. Exporting companies usually have a considerable physical plant because export is a phenomenon that is more frequent in large companies; hence, we can determine that employers notice substantial increases in their average unit costs.

Non-North American exporting companies from all over the world will be affected, in one way or another, by the commercial war: reduction in profits or entry into the land of losses will be a constant within this group of companies. However, the corresponding government authorities of the countries where they come from should be implementing aid and incentives to them so that they do not close.

Can a company continue to operate normally after having suffered five consecutive years of losses ? Is the expectation formed in the directors of these companies about the possible transformation of many international markets from the competition format to the monopoly or oligopoly format ? How many managers will decide to close the company they represent when determining that the next few years can only achieve losses?

How to correct the US trade deficit?

One of the most notable facts of the US economy in recent years lies in the accelerated growth of the trade deficit, caused by the disproportionate increase in imports. This dizzying growth in purchases made by the United States from the rest of the world seems to have no brake; Hence, this phenomenon threatens to become a serious problem for the normal functioning of this economy.

American public opinion and protectionist discourse attribute this accelerated growth in foreign product inflows to the United States to the hypothetical subsidies granted by China and other countries to its exporters, as well as to the extremely low wages observed in these nations; in such a way that, according to them, the fundamental cause of the impressive growth of imports made by the United States lies in the "unfair competition" that other countries carry out in order to place their products in the North American market.

But why foreign companies are eager to place their products in the United States ? Quite simply, it is the market with the highest purchasing power on the planet: 300 million people with one of the highest average incomes in the world; which means that, in this market, marketing and sales determine that the perceived profits are much higher compared to other nations. This immense purchasing power allows the United States to reach very high import figures.

United States GDP per capita PPP

So, really, why does this sharp increase in US purchases of foreign products appear ? Without a doubt, this was the result of the simultaneous, almost fortuitous manifestation of some factors. As we can see, the explosive growth of the US trade deficit begins during the first half of the previous decade. ¿ Which is what happened in those years?

At that time the Clinton Administration ended with an excellent performance in economic matters attributed to the growth driven by the rise of the telecommunications sector and the digital economy, but which, when assuming the Bush Administration, shows signs of cooling; So this government is forced to look for innovative mechanisms that increase aggregate demand since traditional monetary and fiscal tools have lost effectiveness. This is how the Bush Administration achieves the necessary political agreements for the Federal Reserve to establish extremely low interest rate schemes: thus, the application of low real interest rates appears as an economic policy measure .

The rates low real interest rates boosted largely, growth in aggregate demand, but best of all was that this was non - inflationary growth, as the economy was on its level of potential output. While traditional economic policy tools allowed growth to be achieved accompanied by uncomfortable increases in the prices of goods and services, now, low real interest rates provided what seemed impossible: growth with inflation rates of around 5%, even when the economy was above its level of potential product.

Having, in the economy, low real interest rates is an economic absurdity. The facts that make it possible for industrialized countries to turn an economic absurdity into a successful economic policy were the presence of an extremely efficient and adequately supervised financial system and the existence of an overvalued dollar . Even so, the economic crisis of 2008 appears due to the application of low real interest rates in an inefficient and poorly supervised branch of the US financial system.

Indeed, an overvalued dollar allows you to import all the amount of goods needed to contain inflation that could generate an expansive economic policy. Thus, the massive imports made by the United States since approximately 2004 stopped the inflationary pressures created by such an unusual way of doing economic policy.

Thus, the excessive growth of US foreign purchases cannot be attributed to the "harmful voracity of foreign companies" but to the urgent need to drain the excess aggregate demand generated by the application of a policy of real interest rates casualties during the Bush Administration and then continued by the Obama Administration. The application of such a bold policy was not a mere whim but an urgent need given the obsolescence of traditional economic policy instruments along with the cooling of "autonomous" growth generated by the push of the telecommunications sector and the digital economy.
Go to: George W. Bush administration economic policy - Wikipedia
With the Trump Administration, the policy of low real interest rates disappears , but is replaced by another policy of expansion of aggregate demand, such as the reduction of taxes to the business sector. Therefore, the push is maintained for US economic agents to acquire foreign goods. However, since the pressure exerted by the tax reduction, unlike the scheme of low real interest rates , disappears over time, it is possible that the reduction we are currently observing in the value of imports is not the result of the application of successive batteries of tariff increases, but to a reduction in the influence exerted by aggregate demand.

Therefore, if we wanted to reduce the US trade deficit, based on the above, we would have to start by proposing measures that reduce imports or increase the value of exports.

If what is desired is to reduce the volume of imports, it is not recommended to apply measures of massive tariff increases since the effectiveness of this policy has not been proven, it has only been verified that the tariff increases applied in a particular economic sector reduce the volume of imports in that particular sector.

It is clear that the volume of external purchases can only be reduced using two ways, both aimed at decreasing the purchasing power of the population. The first is to reduce the pressure exerted by greater aggregate demand and the second refers to depreciating the value of the currency, or what is the same, reducing the overvaluation of the currency. Both are unpopular measures because they create unemployment or introduce cost inflation into the economy. As we can see, appealing to the decrease in imports as a tool aimed at improving the trade deficit implies assuming a huge political cost.

The presence of an overvalued dollar , although it favors the arrival of foreign products to the North American market, at the same time, greatly hinders the exit of North American products to foreign markets. On the other hand, the huge difference between the US purchasing power and the purchasing power of other countries in the world represents another factor that discourages the export of goods by the United States.

At first glance it seems that, while the capital account of the United States receives large resources from the rest of the world and the public external debt along with the private external debt grows steadily, we must forget to increase exports, given that these resources are abundant Monetary are the cause of the overvaluation of the dollar. In any case, a strategy of substantial increase in exports and eradication of the trade deficit must be located within a fairly long timeline, such as 10 years.

Any project to increase exports that is applied in the United States must start from a notorious fact, such as the rupture between the global value chains and the North American value chains. Obviously, American production systems have very little interaction with global production chains because the evolution of the former was absolutely autonomous and independent, so much so that its origins date back to the early 19th century.

The integration of the North American productive system with the global value chains means that each of the components of the system will import intermediate goods, add a level of added value to it and then export it as an intermediate good to another country where the process will continue productive. In this operation there will be an increase in exports and an increase in imports, where the former will always exceed the latter. For every process like this one that takes place in the United States, the trade deficit will be reduced by a very small fraction; if the volume of these operations becomes larger then the trade deficit will be significantly reduced and; If these giant operations are carried out within a prolonged period of time, then we will have eradicated the US trade deficit.

The integration of North American production systems into global value chains can be carried out through the application of tax incentives and through tariff exemptions, that is, any foreign product that has a certain level of North American added value could be duty-free.

The great difference between the costs managed by the global value chains and the costs generated by the North American productive system stands as the most important obstacle that intervenes between the coupling of these two productive platforms. However, we believe that the high productivity of the US production system, the tax incentives that apply, as well as the tariff exemptions, will grant sufficient advantage to the North American productive apparatus to allow it to overcome the obstacles that stand in the way.

Perhaps the protectionist discourse would not have gained such force if the leadership in the matter of North American imports had not been occupied by China. If the distribution of the origin of these imports had been more equitable, analysts would have quickly noticed that the root of the problem is within the United States and not outside it. But, as China led North American imports, the hypothesis immediately emerged that the United States was the victim of Asian predatory behavior. So why does China lead US foreign purchases ?

In the late 70s and early 80s the "formal" Chinese communism ends with more than 100 million people able to work completely excluded from linking with any productive process. In the next two decades, Asian reformists manage to attract investors and incorporate, little by little, all that human mass into daily productive activity. In this way, China manages to increase its product and exports its goods based on low price strategies. At the same time, it manages to increase the added value of these goods, although without being able to match its peers in Korea and Japan.

China Foreign Direct Investment

In such a way that, at the time of applying the scheme of low real interest rates in the United States , China struggled to have a presence in the international markets of products because neither China nor other countries dared to make a gigantic expansion of its demand added. China was not only able to meet the voracious US demand but could do so by offering fairly low prices. In conclusion, we have that the economic policies implemented by the Bush Administration and the Obama Administration did not produce a substantial increase in the US economy but stimulated China's economic growth. Indeed, it is in the long period of Chinese growth where, for the first time in modern history, we observe that an economy is growing continuously at annual rates that exceed 7%.

China GDP Annual Growth Rate

Current situation and expectations of the current commercial war

A then I show the chronology of the current trade war, for simplicity we omit the actions taken against Mexico and Europe. 

Go to Diario El Mundo - Chronology of the Commercial War

2018: STARTING POINT

March 8

The United States announces a rise in tariffs on steel. For its part, the EU denotes its concern about a possible trade war: "it would be a real disaster for both of us and for the world." The Trump administration imposes a 25% tariff on steel imports and a 10% tariff on aluminum.

April 3

The government of President Donald Trump makes public a list of Chinese goods whose importation would have a total value of 50,000 million dollars. The main sectors affected will be mechanics, appliances, chemicals and electrical equipment. The 58-page document includes a total of 1,333 products. According to statements by the White House, this punishment is imposed for the theft of their trade secrets, including software, patents and other technologies.

April 4

The Asian giant imposes tariff sanctions of 25% on 106 products imported from the United States worth 50,000 million dollars. The affected products are soy, cars and airplanes.

June 2nd

China and the United States open to a new round of negotiations with the intention of appeasing the spirits and avoiding a possible trade war.

July 6th

The negotiations of the past days do not reach a midpoint. The White House announces new levies on Chinese imports for a total amount of 4,000 million dollars. China strikes back with similar measures, mainly attacking the technology sector.

July 11

Five days later, Trump orders new levies for China, of 10% on imported products, worth 200,000 million dollars.

August 23rd

The administrations of both countries launch the second phase of tariffs on a total of goods worth 50,000 million dollars. Its actions reach a group of imports worth 16,000 million dollars.

August 27

After several months of attacks, China denounces the US to the WTO for the various tariffs imposed on its products.

24th September

The United States imposes levies of 10% worth 200,000 million dollars on Chinese products, affecting this time the textile sector. In this context. Beijing attacks US $ 60,000 million in levies on US products, with direct effects on liquefied natural gas.

December 1st

Washington and Beijing announce an agreement to stop trade war and tariff escalation after the G20 meeting in Buenos Aires. They also commit to generate negotiations to finalize a commercial agreement, setting a limit until March 1. In case of not reaching an agreement until that date, the US indicates that it will raise tariffs on Chinese products again by a value of 200,000 million dollars.

2019: VOLTAGES INCREASE

February 25

The US president decides to postpone the rise in tariffs to China thanks to the progress of the negotiations. Internationally, the decision of the White House to delay the increase in levies on Chinese products worth 200,000 million dollars. According to Trump, both countries had made "substantial progress" in trade negotiations, which caused Chinese stocks to rise almost 5%.

May 10

The deterioration of the relations of both powers is evident and the truce ends when Donald Trump announces the increase of 10% to 25% of tariffs for Chinese imports of more than 5,000 products.

may 13th

Through Twitter, Trump states that he found "no reason for the US consumer to pay for the tariffs on China that come into force today. China should not retaliate. It will only make it worse!"

15 th of May

The US president declares his country in a national emergency and prohibits companies in his country from using telecommunications equipment manufactured by Chinese companies, under the argument that they were spying and threatening the national security of the United States, thus attacking the Asian giant Huawei .

May 20

The main technology companies in the US, including Google, will stop selling components and software to Huawei and begin to lower sales of electronic devices of the Asian giant.

May 21th

Huawei denies that US restrictions are going to affect its products or the deployment of 5G technology, in which the Chinese company says to outperform its competitors.

June 1

China increases tariffs. There is a difference of 14 percentage points in the average tariff imposed by China on its US imports compared to other partners.

June 30th

Both powers decide to take a break in the commercial war, after the G20 meeting in Osaka and undertake to restore trade talks between the two nations, interrupted since May. The United States decides not to impose new tariffs on its Chinese imports and will allow its companies to sell Huawei technology products.

July 9th

The United States announces anticipates the end of the blockade to Huawei and that US companies can resume their relations and sell their products.

August 2nd

The US ends the truce and imposes more sanctions on China. Trump announces the imposition of new 10% tariffs on Chinese imports valued at $ 300 billion as of September 1.

August 5

China defies the White House and depreciates the Yuan at levels that have not been seen since 2008. The exchange rate is 7 to 1. The stock markets around the world are going down.

Since the beginning of the Trump Administration, the media have been carriers of news related to the events of the commercial war. Worldwide, expectations have been generated about the impact this phenomenon will cause on the behavior of economic agents and the fluctuations of the most important variables. It is these expectations that have exerted relevant economic influence in the real world since the direct effects of the current commercial war have not yet materialized in the global economic development.

That is why, for example, the exchange rates and the indicators of the Mexican and Chinese stock exchanges, fundamentally, have suffered falls in their quotes since they fully reflect the expectations formed since the beginning of the commercial war .

In the same way, this influence has been felt on the Euro, some European currencies and some European exchanges; However, the effects have been overlapped by other factors outside the commercial war.

These negative expectations have also left their mark on the prices of raw materials, especially oil, thus exercising the commercial war its influence on Latin America. Middle East and Russia.

Oceania and the rest of Asia do not escape devaluations and contraction in stock market indicators, since they are suppliers of food, raw materials and intermediate goods in China.

The other side of the coin we notice when we see that, since the beginning of the trade war, the dollar strengthens, the indicators of the New York stock market are rising more and more, unemployment practically does not exist and even wages rise. This is due to the fact that, in the United States, the expectations associated with the commercial war are absolutely void since the economic and political agents have perceived that the commercial war will not have any effect on the economy and on the political equilibriums established in that nation. However, sometimes, expectations do not become rational.

Since 2016, numerous analysts have pointed out the danger that Trump's triumph in the presidential elections and the subsequent execution of his commercial war would represent for the United States, but in 2019 it is the moment when the spokesmen of the Federal Reserve they affirm that the world economic recession that is approaching will have a negative influence on the United States and, even President Trump has said that he will work to increase trade with Great Britain and Brazil, suggesting that, possibly, US trade relations will be guided, simultaneously, by protectionism in the case of some countries and by free trade in the case of others.

During the year 2019 there is a decrease of about 10% in the US trade deficit with respect to China and it is expected that during the fourth quarter of that year there will be significant increases in the price of imported products, especially those from China.

The sharp decline in Asian imports does not yet generate real negative effects on the global economy since it is assumed by the companies affected as a reduction in production and sales volumes that, while decreasing the profits of Chinese entrepreneurs, will not cause the closure of Asian companies or their commercial transfer.

The companies that should be bankrupt in the second half of the year 2019 and first quarter of 2020 due to the commercial war, will be those small or medium-sized companies that provide services to business conglomerates that, in turn, supply intermediate products or materials premiums to Chinese corporations that are selling their products in the United States. In this sense, the economic sectors formed by small and medium enterprises located in Oceania, Asia and Latin America, which are suppliers of China, will be the first victims of the commercial war.

However, we do not believe that the Trump Administration is satisfied with the magnitude of the trade deficit reduction achieved so far; in such a way that the batteries of tariff increases against China, Mexico, some European countries and some Asian countries should continue. This will continue until foreign companies located in these territories and who sell their products in the United States leave the US market, either to close their doors permanently, or to move their commercial operations to other markets.

At this time, the effects of the commercial war are an exclusive consequence of the role of expectations and it is likely that the effect of these expectations will end long before the actual effects begin to appear, in fact, it is expected that certain values ​​of type of Exchange and stock market indicators stabilize quickly despite the continuing commercial war, but always before the real effects appear.

The initial real effects of the commercial war will be felt throughout the planet except in the United States, with greater or lesser intensity depending on the case. High inflation, product contraction , unemployment and high interest rates will be a universal constant. This negative outlook will be enhanced and accelerated by new expectations that will once again depreciate many currencies and discourage investment.

The beginning of the global economic recession, as a consequence of the real influence of the commercial war, must be announced by a panic situation, such as maxi-devaluations , a sharp fall in stock market indicators or a transcendent political event, such like coups. For some time we will see how , while the world is suffering from the rigors of a major economic crisis, the United States will continue to enjoy its economic boom.

Finally, the real effects of the commercial war will reach the United States, but without being announced by a panic situation since they will enter the US economy very slowly. Little by little it will be increasingly evident that American companies will not be able to adequately meet the needs of the American consumer and the shortage-inflation binomial would be being installed for a long season in the United States with many American companies receiving fabulous profits.

The characteristics of the inflationary process looming in the United States as a result of the commercial war will be such that they will prevent the Federal Reserve from carrying out effective actions that control it. At most, policy makers will be able to choose between continuous inflation or permanent recession; since it is not an inflation created by the difference between the aggregate demand and the aggregate supply but it will be an inflation caused by the creation and consolidation of a gigantic number of captive markets governed by corporations and large American companies, or by medium or small companies that can lift barriers to entry in the markets they control.

The general discontent that results from an extremely long, if not permanent, inflationary process must activate the political channels for the end of the commercial war; if American society succeeds in establishing a partnership between permanent inflation and commercial warfare.

As we can see, US inflation will acquire such characteristics that it will be very difficult to combat it. We do not say that the entire economy of the United States will become an immense captive market, we say that a large number of specific markets will become captive markets. We do not say that in these specific markets monopolies or oligopolies will appear, we say that all the companies that supply a specific market will be surpassed by an uncontrollable demand. We do not say that the commercial war will create a new demand in some specific sectors, we say that the demand will remain intact, only that, due to the departure of foreign bidders, there will be a demand that cannot be absorbed by US bidders, pressing with this to the rise in prices in these specific markets.

In the same way, the shortage that will appear in the United States as a result of the commercial war will not be an absolute shortage , but will only be limited to the specific markets to which reference has already been made. Nor will this be a definite shortage because US companies will not stop producing, but will not have the capacity to make a quick replenishment of inventories at the time of exhaustion. On the other hand, as the North American consumer is warning of the shortage situation, he will replace the products used to buy with others with similar properties. In any case, these are elements that are part of a situation of widespread discontent.

Of course, the North American authorities can create a system of indicators that allows to detect which are the specific markets that are generating scarcity and inflation to be able to apply the corrective measures, but, given that for the first time in history a process of mass expulsion of foreign products, there is no knowledge or experience about what these corrective measures could be.

Thus, the phenomenon of permanent inflation in specific markets in the United States will appear because in these markets it will be extremely difficult for an increase in the number of bidders to meet the demand "released" by the reduction in imports. On the other hand, given that the US economy will find its potential product , it will be increasingly expensive for producers established in these markets to find the necessary elements for production. This is how the permanent US inflation will be formed by two components: one that allows to discriminate customer in a market in which demand greatly exceeds supply and another that allows to cover the increasing unit production costs.