Category Archives: Trade

Shanghai Plunges 3.2%, below 3,000 for 1st Time in 2 Years, After Trump Threatens to Massively Escalate Trade War and China Threatens to Massively Retaliate, by Wolf Richter

Trump’s threat to levy 10% tariffs on another $200 billion of China’s exports to the US is causing financial turmoil. From Wolf Richter at wolfstreet.com:

Apparently, the trade talks have collapsed.

On May 20, Treasury Secretary Mnuchin declared that the US-China trade war was “on hold” while the trade talks were being conducted. That didn’t last long. Apparently, those talks have collapsed. And Monday evening, President Trump threatened to hit another $200 billion of imports from China with 10% tariffs.

The Shanghai Composite Index plunged 3.2% by midday in China on Tuesday, to 2,924, the lowest level since June 2016. The index is down 12% since the end of February. Hong Kong’s Hang Seng fell 2.4% by midday. Tokyo’s Nikkei fell 1.5%. US futures edged down.

It would be the second wave of tariffs, following the already decided first wave of 25% tariffs on $50 billion in goods, with $34 billion of imports to be hit on July 6, and $16 billion to be hit at a later date.

But instead of buckling under Trump’s first wave and addressing the IP-theft issues brought forth by the US, China vowed to retaliate in equal measure, which caused the infuriated White House to massively escalate the trade war with the second wave of threats.

“This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable,” Trump said.

“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.”

“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said.

And Trump threatened a third wave of tariffs – 10% on another $200 billion of Chinese goods – if China retaliates against the second wave. But that threat also fell on deaf ears.

To continue reading: Shanghai Plunges 3.2%, below 3,000 for 1st Time in 2 Years, After Trump Threatens to Massively Escalate Trade War and China Threatens to Massively Retaliate

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Trump Wants To Free America From “Fool Trade” And Flip The Tables On The EU, by Andrew Korybko

Trump is suggesting that Europe pay more for its own defense, and have the same terms of trade with the US that the US has with Europe. From Andrew Korybko at orientalreview.org:

Trump promised to replace what he termed as “fool trade” with fair trade when it comes to America’s economic partnerships, especially those with NAFTA and the EU.

Tweeting from Singapore after the failed G7 Summit in Canada, the President wrote that “Fair Trade is now to be called Fool Trade if it is not Reciprocal”, before explaining how Canada and Germany “rip off” the US through their own protectionist tariffs and insufficient contributions to NATO, respectively. Trump’s sour that their leaders attacked him for his “Make America Great Again” steel and aluminum tariffs while hypocritically ignoring their own lopsided economic relations with the US, and he believes that now is the time to make right for what he truly believes are the historic wrongs that his predecessors committed in voluntarily handicapping American power. Proverbially speaking, the President conceptualizes America as Gulliver the “giant” tied down by a bunch of Lilliputian dwarves, albeit having previously put itself in this submissive position out of some sort of ideological masochistic-sadism that Trump wants to free it from.

The Cold War-era quid pro quo of the US providing costly security assistance to its NATO allies in order to enable them to concentrate more fully on building their utopian welfare states is no longer relevant because of the changing nature of geopolitics and the rise of asymmetrical threats, though Clinton, Bush, and Obama perpetuated this state of affairs because it advanced the Liberal-Globalist model that all three of them were pursuing at the expense of average Americans. Having entered into office because of the desperation that millions of regular folks in Middle America are experiencing as a result of the domestically catastrophic consequences of globalization on the American Heartland and especially the Midwest, Trump feels obligated to do something about this massive self-inflicted economic wound that’s bleeding hundreds of billions of dollars from the country each year for voluntary reasons that are impossible for this businessman to fathom.

Trump hits back at G7

To continue reading: Trump Wants To Free America From “Fool Trade” And Flip The Tables On The EU

China Warns US Corporations: You Are About To Become Victims Of A Trade War, by Tyler Durden

China certainly has ways of retaliating against US trade sanctions. From Tyler Durden at zerohedge.com:

Now that China has released details on its planned retaliation to President Trump’s Section 301 tariffs – a list that contains, predictably, agricultural goods like soybeans, orange juice and beef as well as energy products like crude oil (though surprisingly not yet aircraft, though sanctions could be imposed in the next round) – we get to watch as US corporations who will be negatively impacted by the tariffs ratchet up their lobbying of the Trump administration (that is, if they haven’t already given up) practically beginning the president not to let tensions escalate much further.

Of course, the Chinese aren’t stupid. They know that one way to pressure Trump into backing off would be aggressively lobby US businesses with threats – both veiled and obvious – that their businesses could come to harm, or perhaps ruin, if the conflict escalates. Already, the Wall Street Journal has published a story about China’s efforts to browbeat American businesses, recounting a meeting between a group of executives and Chinese Vice President Wang Qishan that reportedly took place in late March.

When a group of American executives and other global corporate chieftains met with Chinese Vice President Wang Qishan in late March, they received a stern message about the simmering U.S.-China trade conflict: If tensions escalate, buckle up.

“The message was pretty clear,” said a person who attended. “A lot of companies would become victims in a U.S.-China trade war.”

And some companies say they’re already experiencing problems with the customs process as US goods pile up at Chinese ports.

Already, some U.S. companies are facing increased regulatory scrutiny in China, according to Jacob Parker, vice president of China operations at the U.S.-China Business Council. For instance, he said, it takes longer for their products to clear Chinese customs; in other instances, Chinese regulators are putting advertisement slogans by U.S. firms under review. Some automobiles and farm products such as pork from the U.S. have piled up at ports.

“Maintaining a low profile in the China market and ensuring that you’re completely compliant are more important now than in the past,” Mr. Parker said.

To continue reading: China Warns US Corporations: You Are About To Become Victims Of A Trade War

Mr. Trump Attacks Aluminum, Russia Attacks the Debt, by Tom Luongo

Is Russia selling its US government debt to retaliate against US sanctions? From Tom Luongo at tomluongo.me:

Looking at the unfolding trade war between Donald Trump and the world the phrase that should come to mind is “One good turn deserves another.”

In the case of the insane sanctions on Oleg Deripaska and Russian Aluminum giant, Rusal, back in April, we finally got some clarity as to how Russia can and will respond to future events.

In yesterday’s Treasury International Capital (TIC) report, we saw clearly that Russia activated its nearly half of its $100 billion in U.S. Treasury debt to buy dollars in April.  More than $47 billion in U.S. debt was dumped into the market to cover the chaos engendered by Trump’s overnight diktat for the world to stop doing business with Rusal.

TIC Report.png

Also of note, U.S. ally Japan continues to shed Treasuries at around 8-10 billion per month.  Ireland dumped $17 billion and Luxembourg nearly $8 billion.

While China dropped $5 billion this is noise, ultimately as its holdings of U.S. debt have been stable for over a year now.  What is interesting is Belgium, the home of Euroclear, seeing a $12 billion inflow.  Likely that’s where some of the Russian-held debt was traded to.

The Russians likely sold from their balance on reserve with the Federal Reserve.  Here’s the latest iteration of the chart I keep for just such an occassion.

USTs Treasury

Rusal’s shares and bonds went bidless but the damage wasn’t contained there as major Russian banks like VTB and Sberbank were hit hard as well.   So, while Rusal didn’t have much in the way of dollar-denominated debt.  It did have major dollar-related obligations as accounts receivable on its balance sheet because of the sheer size of its trade conducted in dollars.

And that’s why there was such an outflow from Russia’s stock of Treasuries.  But, here’s the thing.  It didn’t matter one whit.  Why?  It didn’t undermine Russia’s Foreign Exchange Reserves.

Russia Forex Reserves

No Dip in Russia’s Foreign Exchange Reserves During Rusal Crisis

Russia just sold Treasuries into the market, raised dollars and swapped out Rusal’s bonds, holding them as collateral for a Repo.

Bank of Russia debt.png

The Bank of Russia Intervened to keep Rusal and Other Banks Solvent by Dumping U.S. Treasuries

This went on for most of the month and into May.  Zerohedge’s reporting on this leads the way. 

To continue reading: Mr. Trump Attacks Aluminum, Russia Attacks the Debt

 

Behind Trump’s Exasperation, by Patrick J. Buchanan

Trump asks why America so often gets the short end of the stick, and American and European elites have conniptions. From Patrick J. Buchanan at buchanan.org:

At the G-7 summit in Canada, President Donald Trump described America as “the piggy bank that everybody is robbing.”

After he left Quebec, his director of Trade and Industrial Policy, Peter Navarro, added a few parting words for Prime Minister Justin Trudeau:

“There’s a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump and then tries to stab him in the back on the way out the door. … And that’s … what weak, dishonest Justin Trudeau did. And that comes right from Air Force One.”

In Singapore, Trump tweeted more about that piggy bank.

“Why should I, as President of the United States, allow countries to continue to make Massive Trade Surpluses, as they have for decades … (while) the U.S. pays close to the entire cost of NATO-protecting many of these same countries that rip us off on Trade?”

To understand what drives Trump, and explains his exasperation and anger, these remarks are a good place to begin.

Our elites see America as an “indispensable nation,” the premier world power whose ordained duty it is to defend democracy, stand up to dictators and aggressors, and uphold a liberal world order.

They see U.S. wealth and power as splendid tools that fate has given them to shape the future of the planet.

Trump sees America as a nation being milked by allies who free ride on our defense effort, as they engage in trade practices that prosper their own peoples at America’s expense.

Where our elites live to play masters of the universe, Trump sees a world laughing behind America’s back, while allies exploit our magnanimity and idealism for their own national ends.

The numbers are impossible to refute and hard to explain.

Last year, the EU had a $151 billion trade surplus with the U.S. China ran a $376 billion trade surplus with the U.S., the largest in history. The world sold us $796 billion more in goods than we sold to the world.

A nation that spends more than it takes in from taxes, and consumes more of the world’s goods than it produces itself for export, year in and year out, is a nation on the way down.

To continue reading: Behind Trump’s Exasperation

America: A Prisoner of Our ‘Allies’, by Justin Raimondo

Maybe our “allies” can use some of the money they receive from tariffs on US goods to start paying more for their own defense. From Justin Raimondo at antiwar.com:

All the Very Serious People are tweeting and retweeting this “iconic” photo of Trump surrounded by the Euro-weenies, with Angela Merkel seeming to lecture the President while the rest of our faithless “allies” look on. It’s “America Alone” –   the visual representation of the internationalist worldview: Trump’s policy of “America First” is “isolating” us, and, according to clueless leftists like Michael Moore, Merkel is now the “leader” of the “free world.”

This last is good news indeed, for if Merkel is the new leader of the “free world” then the stationing of 35,000 US troops in Germany – at a cost of billions annually – is no longer required and we can bring them home. This also means Germany, rather than the US, will be sending troops all over the world to fight “terrorism” – a move that is sure to cause consternation in certain regions with a history of German intervention, but hey, somebody has to do it!

The political class is screaming bloody murder over Trump’s performance at the G-7 meeting in Canada, where he reportedly spent most of the time detailing how much the US was paying for the defense of our vaunted “allies,” not to mention the high tariffs imposed on American goods. He then proposed a “free trade zone” in which member countries would drop all tariffs, subsidies, and other barriers to trade: the “allies” didn’t like that much, either. Nor did the alleged advocates of free trade here in the US give him any credit for ostensibly coming around to their point of view. Which reminds me of something Murray Rothbard said about this issue: “If authentic free trade ever looms on the policy horizon, there’ll be one sure way to tell. The government/media/big-business complex will oppose it tooth and nail.”

Of course the Euro-weenies don’t want real free trade: after all, they practically invented protectionism. What they want is a free ride, at Uncle Sam’s expense, and the reason they hate Trump is because they know the freebies are over. However, what really got the Usual Suspects frothing at the mouth was Trump’s insistence that Russia be readmitted to the G-8:

“I think it would be good for the world, I think it would be good for Russia, I think it would be good for the United States, I think it would be good for all of the countries in the G-7. I think having Russia back in would be a positive thing. We’re looking to have peace in the world. We’re not looking to play games.”

The “experts” went crazy when he said this: our “allies” are being insulted, they wailed, while our “enemies” are being “appeased.”  It’s sedition! Russia! Russia! Russia!

To continue reading: America: A Prisoner of Our ‘Allies’

Trade-War Drums: Is Mexico Ready to Fire at the US Corn Belt? by Don Quijones

If you levy penalties on another nation’s exports into your nation, they can levy penalties on your exports into their nation. For Mexico, the nuclear option would be penalties on US corn exports. From Don Quijones at wolfstreet.com:

Various groups are clamoring for it in the third largest market for US food exports.

Mexico, the birthplace of maize, is dangerously hooked on U.S. imports of largely transgenic strains of the crop. In 2017 it was the third biggest importer of corn in the world, behind the EU and Japan, purchasing 15.2 million tonnes of the foodstuff, most of it from U.S. farmers and agribusinesses. But that could soon change.

Following the U.S. government’s decision to impose steep duties of imports on steel and aluminum from Mexico, Canada and the EU, Mexico, a net importer of US steel, has hit back with tariffs on US products including whisky, cheese, steel, bourbon, and pork. The move has upset U.S. businesses, including pork producers, who now face a 20% tariff on exporting leg and shoulder to Mexico. Mexico is the largest market for US pork exporters. It’s also the third largest market in the world for U.S. agricultural exports as a whole, pipped to the post by China and Canada.

For the moment the Mexican government has ruled outimposing duties on U.S. imports of staple foods such as corn, beans and soy, largely out of fear that it could further fuel food inflation, especially with the Mexican peso once again slumping against the dollar. But calls for such action are rising.

If Trump doubles down on his tariffs while continuing to insist on separate bilateral talks with Canada and Mexico, the Mexican government could end up taking the nuclear option of restricting U.S. imports of corn. Given that the biggest corn-producing states in the U.S. were also among the supporters of Trump in the last election, Mexico’s government has a clear strategic motive for doing so.

“If we want to stop this [trade war] and hit the U.S. government where it really hurts, we should target America’s corn belt by imposing a tariff on imports of U.S. transgenic corn,” said Angel Contreras Carrera, the president of the State Agricultural Union of Corn Producers.

To continue reading: Trade-War Drums: Is Mexico Ready to Fire at the US Corn Belt?