Category Archives: Trade

A Dolorous Imbalance, by Fred Reed

The Chinese are kicking America’s butt in a lot of different fields of economic endeavor. From Fred Reed at unz.com:

First, America increasingly relies on strong-arm tactics instead of competence. For example, in the de facto 5G competition, Washington cannot offer Europe a better product at a better price, so it forbids European countries to buy from China. The US cannot compete with China in manufacturing, so it resorts to a trade war. The US cannot make the crucial EUV lithography equipment to make advanced semiconductors, as neither can China, but it can forbid ASML, the Dutch company, from selling to China. Similarly, the US cannot compete with Russia in the price of natural gas to Europe, so by means of sanctions it seeks to keep Europe from buying from Russia. This is not reassuring.

Second, the Chinese are a commercial people, agile, fast to market, cutthroat, known for this throughout Asia. America is a bureaucratized military empire, torpid by comparison. America has legacy control over a few important technologies, most notably the crucial semiconductor field and the international financial system. Washington is using these to try to cripple China’s advance.

A consequence has been a realization by the Chinese that America is not a competitor but an enemy, and a subsequent explosion of investment and R&D aimed at reducing dependence on American technology. There is the well-known 1.4 trillion-dollar five-year plan to this end. One now encounters a flood of stories about advances in tech “to which China has intellectual-property rights” or similar wording.

They seem deadly serious about this. Given that Biden couldn’t tell a transistor from an ox cart, I wonder whether he realizes that every time the US pushes China to become independent in x, American firms lose the Chinese market for X, and later get to compete with Chinese X in the international market. Anyway, give Trump his due. He lit this fuse.

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Deflation Threat Looms As China Suffers First Population Decline Since 1949, by Tyler Durden

China will not grow at anywhere the rate it has been if its population is shrinking. From Tyler Durden at zerohedge.com:

China is battling not one but three vicious demons. The interconnected issues of insurmountable debts, deflation, and demographics threaten to sap the world’s future growth potential. 

Fending off the 3 D’s: debts, deflation, and demographics requires the People’s Bank of China to slash borrowing costs and unleash an enormous amount of credit into the local economy to cover up the faltering demand that usually persists with demographic challenges.

The question we should be asking is China really on the “rise,” as President Xi Jinping believes: “the East is rising and the West is declining” or if the coming demographic crisis derails Xi’s global takeover plans.

Beijing desperately attempts to recover from its decades of disastrous ‘one-child policy,’ which officially ended in 2015 and was replaced by the current two-child policy.

According to FT’s sources, the latest Chinese census data, which was completed in December and has yet to be publicly released (the issue is reportedly so sensitive that it won’t be released until many government agencies reach a consensus on the data and its consequences), is expected to show the country’s first population decline since records began in 1949.

China’s total population is expected to print less than 1.4 billion, according to people familiar with the census report, and if it is reported, the peak in China’s population came five years earlier than the United Nations predicted.

But, as Bloomberg notes, the trend is hardly surprising. China’s birth rate has been in decline for years and the introduction of the two-child policy in 2016 failed to make a dent. The number of newborns in 2019 fell to 14.65 million, a decrease of 580,000 from the year before. To cope with the shrinking population, a PBOC study last month urged a drastic overhaul of the policy to encourage “three or more” children per household. It called for a total lifting of any restrictions to “fully liberalize and encourage childbirth” to reverse the current four-year straight decline in births nationwide.

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Flexport: Trans-Pacific deteriorating, brace for shipping ‘tsunami’, by Greg Miller

Between Covid-19 restrictions and massive fiat debt issuance, supply lines are frayed and the effects are ratcheting throughout the economy. From Greg Miller at freightwaves.com:

US importers face even more extreme delays ahead as container capacity maxes out

The number of container ships stuck at anchor off Los Angeles and Long Beach is down to around 20 per day, from 30 a few months ago. Does this mean the capacity crunch in the trans-Pacific market is finally easing? Absolutely not, warned Nerijus Poskus, vice president of global ocean at freight forwarder Flexport. “It’s not getting better. It’s getting worse,” he told American Shipper in an interview on Monday.

“What I’m seeing is unprecedented. We are seeing a tsunami of freight,” he reported.

“For the month of May, everything on the trans-Pacific is basically sold out. We had one client who needed something loaded in May that was extremely urgent and who was ready to pay $15,000 per container. I couldn’t get it loaded — and we are a growing company that ships a lot of TEUs [twenty-foot equivalent units]. Price doesn’t always even matter anymore.”

Restocking driving volumes higher

Poskus said that trans-Pacific import volumes are still rising. He noted that January trans-Pacific imports were up 10% versus 2019 (comparisons to 2020 numbers are skewed by COVID) and 13.5% in February, then jumped 51% in March. “So, we’re now at 1.5 times pre-pandemic levels.”

With imports far outpacing retail sales growth, he attributed volumes to inventory restocking. “The restocking is actually affecting the trade even more than growth in demand. That tells me that this will last even longer. Let’s say U.S. consumer demand slows down in Q3 and Q4. That’s not expected, but even if it does, [capacity availability and rates] shouldn’t improve quickly, simply because of the huge restocking demand.”

Poskus also believes there is a growing export backlog piling up each day in Asia, awaiting available ship slots. If that backlog grows too big, he said, “I honestly don’t know what’s going to happen.”

As a result of the backlog and restocking demand, he thinks “prices will remain high and shipping will probably remain difficult for the rest of this year. And then after that, you have the peak for Chinese New Year in 2022.”

About to get even worse

He said that the situation today is the worst he’s witnessed — and he believes it’s about to get even more severe.

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Journey To The End Of San Pedro Bay, by MN Gordon

If you want to see what a monetary-fueled trade imbalance looks like, check out the ports in the Los Angeles area. From MN Gordon at economicprism.com:

Have you recently bought furniture, auto parts, clothes, electronics, plastic wares, doofers, doodads, or other doohickeys?  Chances are, they were made overseas.

The U.S. monthly trade deficit in February scored a new record.  According to the Commerce Department, the U.S. imported $71.1 billion more goods and services than it exported.  Of this, $30.3 billion was from China alone.

What’s more, the month of February only had 28 days.  At a daily gap of $2.54 billion, had it been a full 31-day month, the monthly trade deficit would have been over $78 billion.  What to make of it…

A trade deficit is not inherently bad.  Remember, countries as a whole do not trade with each other.  Individuals and businesses trade with other individuals and businesses between countries.  Presumably they do so because it’s advantageous for both sides.

Sound money, of limited supply and market determined interest rates, would provide natural limits to how wide a trade deficit could expand.  But we don’t live in a world of sound money and market determined interest rates.  We live in a world of fake money where interest rates are set by central planners.

The gargantuan trade deficit is a byproduct of the insanity of central economic planning.  Let’s follow the fake money and see where it leads…

The Federal Reserve creates credit from thin air and loans it to the U.S. Treasury in the form of Treasury bond purchases.  At the same time, commercial banks extend credit via fractional reserve banking.  The Federal Reserve encourages the over issuance of credit by artificially suppressing interest rates for extended time periods – often a decade or more.

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China Rises in Latin America as Sun Sets on the Monroe Doctrine, by Martin Sieff

China has quietly made substantial inroads into Latin America. From Martin Sieff at strategic-culture.org:

China’s rise in trade, business and influence in Latin America has been comparatively ignored. But it is happening. It is real.

China is rapidly surpassing the United States as the most influential nation across Latin America, in the U.S.’s own backyard. This is not a boast by the Chinese government. It is the considered assessment of the five star admiral who heads U.S. Southern Command (SOUTHCOM) in his testimony on March 16 to the SenatUe Armed Services Committee.

For almost 200 years since President James Monroe first adumbrated it in a regular message to Congress in December 1823, successive generations of U.S. policymakers and the American people have taken it for granted that the entire vast continent of South America, as well as giant Mexico, the small and much-put-upon nations of Central American and the Caribbean have been and should always remain the United States’ backyard, with all the supposedly evil and repressive powers of the Old World kept out of them — in the sacred names, of course, of Democracy, Freedom and Free Trade.

In fact, with the exception of a handful all too brief eras of genuine shining idealism and goodwill under Presidents Ulysses S. Grant (1869-77), Franklin D. Roosevelt (1933-45) and John F. Kennedy (1961-63), U.S. domination of the Spanish- and Portuguese-speaking Western Hemisphere has been characterized, not by benign neglect but rather by a monstrously malign attention.

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From the Notebook: Archegos Bikini Atolls, by Tom Luongo

Is Archegos a Chinese financial shot across the American bow? From Tom Luongo at tomluongo.me:

Do you remember the end of Dr. Strangelove? When the Russian ambassador reveals the existence of the Doomsday device Strangelove makes the point that such weapons only have deterrent power if everyone knows about them.

Secret weapons have no ability to deter cataclysmic violence.

The reply from the Russian ambassador is one for the ages, “It was to be announced at the Party Congress on Monday.”

Remember this when we consider the curious question of the demise of Archegos Capital.

Becuse sometimes I watch something unfold and I have zero opinion on it whatsoever.  The Suez blockage was one of them.  I had to will myself to care beyond the obvious, “this is bad” reaction. The more I think about it, however, the more significant it becomes (more on that in future posts).

On the other hand, the minute I read a single article about the vaporization of Archegos capital on Moday morning I smelled a rat, or least something vaguely rat-like.  And what immediately popped into my head was this thing is important, but not for the reasons anyone will admit to on CNBC or in the financial press.

In fact, they would go out of their way to demonize Bill Hwang, the head of Archegos, who ‘acted irresponsibly,’ ‘ran a scam,’ et cetera while everyone goes into cover thine own ass mode.

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The Iran-China Axis Is A Fast Growing Force In Oil Markets, by David Messler

The Chinese and Iranian governments are sealing their alliance with oil and a shared antipathy towards the US. From David Messler at oilprice.com:

One of the things that doesn’t get a lot of discussion in the press is the under-the-table relationship Iran and China have had when it comes to oil. At first glance, they wouldn’t seem to have a lot in common. One is a theocracy with a radical view of non-believers and the other is probably the only example of a successful communist dictatorship since this form of government was created. But, if you look a little deeper they have a couple of things that align their mutual interests strongly. The first is they are both absolute dictatorships, meaning the institutions of government and national policies can be changed at the whim of those at the top. The second thing they have in common, and this is the main takeaway, both countries have serious geopolitical issues with the United States.

Iran suffers from years of sanctions imposed primarily by the U.S. to compel them to comply with U.N. resolutions regarding their atomic program. China views this century as the one in which they displace America as the world’s dominant Super Power. The place where these two authoritarian government’s worldviews align is in their opposition to the U.S.

It’s worth noting China’s apparent success has been funded by western economies over the last 75-years, thanks to our desire to buy everything as cheaply as possible. In that time, China has become the manufacturing center for the world and amassed immense wealth in doing so. The pandemic has caused a rethinking of the wisdom of outsourcing strategic commodities to despotic regimes, but for now, if you buy something other than food odds are it was made in China.

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Suez Canal Megaship “Partially Refloated” Ahead Of US Navy Assessment, by Tyler Durden

Here’s a comprehensive, up-to-date account of the ship that’s blocking the Suez Canal. From Tyler Durden at zerohedge.com:

Here’s today’s overview of the continued logjam at the Suez Canal:

  • Ever Given Partially Refloated At Stern
  • At Least 20 Vessels Carrying Livestock Stuck At Canal
  • IKEA Warns Containers Filled With Goods Blocked By Suez Crisis
  • Vessels Already Diverting Course from Suez Canal To Cape Of Good Hope
  • US Navy Arrives Saturday To Assess Ever Given
  • 300 Vessels Waiting To Traverse Canal
  • Tanker Rates For Suezmax Vessels climb to $17k Per Day
  • Suez Blockage Results In Rising Container Prices From China To Europe
  • Tugboats And Dredging Ships Were Unsuccessful In Refloating Ever Given
  • Bloomberg Report Process To Refloat Ever Given Could Take Until Next Wednesday
  • Shoei Kisen, The Japanese Owner Of Ever Given, Aims To Dislodge Vessel From Canal Bank By Saturday
  • Suez Canal Authority (SCA) To Cooperate With US To Refloat Ever Given

* * *

Update (1654): So just how stuck is Ever Given?

The Suez Canal’s engineering documents show a cross-sectional diagram of the channel where the container ship is stuck.

An overlay of the container ship and the channel’s cross-sectional piece suggests the vessel is more stuck than what meets the eye via ground-based footage and satellite imagery.

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Why Corporations Are Terrified Of China: Nike, H&M Tumble After Boycott Begins Over Xinjiang Criticism, by Tyler Durden

Nobody wants to be excluded from the world’s largest market. From Tyler Durden at zerohedge.com:

China may be a closed, authoritarian, militant, “reverse-engineering” society. But even more importantly, China has the world’s largest consumer army, and that – more than anything else – is why China is feared by countless corporations around the globe, all of whom desperately seek access to this army of rabid buyers.

For the latest example of that look no further than the plunge in H&M shares, which fell as much as 3.1% in Stockholm, while Nike dropped 3.6% in U.S. premarket trading, with the brands facing possible boycotts in China over their stance on using cotton sourced from the contentious Xinjiang region.

As Reuters reports, Nike and Adidas came under fire on Chinese social media on Thursday after Beijing’s propaganda offensive against Swedish fashion brand H&M sparked by the company’s expression of concern about labor conditions in Xinjiang. The sportswear companies were the latest to be caught up in a backlash prompted by a government call to stop foreign brands from tainting China’s name as internet users found statements they had made in the past on Xinjiang.

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Do We Not Have Enough Enemies? by Patrick J. Buchanan

With the US government being the most hated institution on the planet, it seems like a wise move to make more enemies. From Patrick J. Buchanan at buchanan.org:

Asked bluntly by ABC’s George Stephanopoulos if he believes Russian President Vladimir Putin is “a killer,” Joe Biden answered, “Uh, I do.”

Biden added that he once told Putin to his face that he had “no soul.”

Biden also indicated that new sanctions would be imposed on Russia for the poisoning of dissident Alexei Navalny and for meddling in the 2020 U.S. election to allegedly help Donald Trump. Russia also faces U.S. sanctions for building the Nord Stream 2 pipeline under the Baltic to deliver natural gas to Germany.

With its president being called a “killer” by the U.S. president, Russia called Ambassador Anatoly Antonov home “for consultations.” In other times, such an exchange would bring the two nations to the brink of war.

What is Biden doing? Do we not have enough enemies? Does he not have enough problems on his plate?

The May 1 deadline for full withdrawal of U.S. troops from Afghanistan, negotiated a year ago with the Taliban, is just six weeks off. Do we stay and soldier on or depart? No decision has been announced.

If we stay, our forces in Afghanistan could, again, come under fire. If we leave, the Kabul regime could be shaken to its foundation and fall.

Leaving would be an admission that the U.S. failed, and the war is lost.

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