Tag Archives: China

The Lost War, by Sven Henrich

Is China winning the trade war? From Sven Henrich at northmantrader.com:

Did the US just lose the trade war? It seems like a ludicrous question to ask at this time as the US just raised tariffs on China to increase pressure on the negotiation process. The accepted conventional wisdom is that the US has the stronger hand to play as China would suffer more from tariffs than the US. That sounds good on paper, but is that really true in a three dimensional world with moving parts and conflicting timelines?

In many a fight match up the audience can get a sense of shift in momentum during a fight and as this trade war just shifted gears I can’t help but wonder if the momentum has shifted in China’s favor.

Let’s start with the reason for the sudden tariffs. Those came about because the US side was surprised, surprised by China’s apparent withdrawal from previous commitments. At least that’s the public narrative that is spun. Unless you’re in the negotiation yourself it’s hard to know. Fact is Trump, Kudlow and team led the world believe that a trade deal was imminent. It wasn’t. This move to escalate was not planned, it happened because team Trump realized they couldn’t get the deal they wanted or expected.

Being surprised and being forced to be reactive to escalate does not indicate a position of strength, but rather a position of weakness. And by reacting with tariffs Team Trump may have actually weakened their own position. Why? Because of inflation, time, and pain.

Let’s start with inflation: Despite Donald Trump’s repeated claims that China will pay the tariffs it simply is not so. US businesses and consumers are paying for tariffs which causes consumer inflation on the one hand and margin compression on the other, and perhaps a mix of both depending on what can be passed on.

But conceptually it’s literally shooting yourself in the foot.

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US-China: the hardcore is yet to come, by Pepe Escobar

Try as it might, the US will not stop China’s emergence as a super power. From Pepe Escobar at atimes.com:

US-China: the hardcore is yet to come

A container ship unloads cargo at the port terminal in Long Beach, California on May 10, as talks to resolve the US-China trade battle ended Friday with no deal, but no breakdown. Photo: Mark Ralston / AFP

The Trump administration’s response to China’s emergence has been to throw all sorts of spanners in the works, but tariffs won’t bring back manufacturing jobs

Let’s start with the “long” 16th Century – which, as with the 21st, also saw a turbulent process of marketization. At that time, the Jesuits and the Counter-Reformation were trying to rebound across Asia – but within a context where the rivalry between the Iberian superpowers of the age, Spain and Portugal, still lingered.

The Reformation first attached itself to the Dutch trade thalassocracy – a seaborne empire, under which commerce was paramount – over strict propaganda of religious dogma. Britain’s maritime realm was still biding its time. The emergence of Protestantism proceeded in parallel to the emergence of neo-Confucianism in East Asia.

Fast forward to our turbulent times. Marketization – renamed as globalization – seems to be in crisis. But not in the Middle Kingdom, which is now investing in globalization 2.0 amid increasing rivalry with the other superpower, the US.

The American thalassocracy is being superseded by the Revenge of the Heartland, in the form of the Russia-China strategic partnership – for whom Eurasian trade integration, as expressed by the New Silk Roads, or Belt and Road Initiative (BRI), is paramount over the Make America Great Again (MAGA) dogma.

Meanwhile, the re-emergence of Right populism in the West mirrors the re-emergence of pragmatic neo-Confucianism across Asia.

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Tariffs: The Taxes That Made America Great, by Patrick J. Buchanan

Pat Buchanan likes tariffs, crediting them with most of the US’s economic successes. From Buchanan at buchanan.org:

As his limo carried him to work at the White House Monday, Larry Kudlow could not have been pleased with the headline in The Washington Post: “Kudlow Contradicts Trump on Tariffs.”

The story began: “National Economic Council Director Lawrence Kudlow acknowledged Sunday that American consumers end up paying for the administration’s tariffs on Chinese imports, contradicting President Trump’s repeated inaccurate claim that the Chinese foot the bill.”

A free trade evangelical, Kudlow had conceded on Fox News that consumers pay the tariffs on products made abroad that they purchase here in the U.S. Yet that is by no means the whole story.

A tariff may be described as a sales or consumption tax the consumer pays, but tariffs are also a discretionary and an optional tax.

If you choose not to purchase Chinese goods and instead buy comparable goods made in other nations or the USA, then you do not pay the tariff.

China loses the sale. This is why Beijing, which runs $350 billion to $400 billion in annual trade surpluses at our expense is howling loudest. Should Donald Trump impose that 25% tariff on all $500 billion in Chinese exports to the USA, it would cripple China’s economy. Factories seeking assured access to the U.S. market would flee in panic from the Middle Kingdom.

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Is China’s Belt & Road a Decade Too Late? by Charles Hugh Smith

Maybe the Belt and Road Initiative is just another government-sponsored white elephant in a world that’s littered with them. From Charles Hugh Smith at oftwominds.com:

The world appears to be tiring of globalization and hegemons, and that trend may doom the Belt & Road to irrelevancy.

The conventional narrative holds that China’s Belt & Road Initiative is cementing China’s global superpower status. There’s an alternative narrative, however: it’s a decade too late. From this perspective, global trade has reached the top of the S-Curve and is in the stagnation phase, which will be followed by decline or collapse.

Global trade growth loses momentum as trade tensions persist (WTO)

Why could global trade decline as a secular trend? The answer of the moment–trade wars– is more a symptom than the disease itself, which is the benefits of globalization have declined and the negative consequences are becoming unavoidable.

Trade is never “free;” there are always losers to any trade, and if the benefits accrue to the few at the expense of the many, the gains no longer offset the losses. Resistance to globalization is rising, and national interests are gaining political ground.

Then there are the strategic considerations of trade. Do you really want your nation overly dependent on other nations for energy, food, semiconductors and capital? Food security makes little sense by itself; the spectrum of autarchy / self-sufficiency must also include energy, critical technologies and capital–human, institutional and financial.

Going forward, the last thing nations will want is increasing dependence on China–or any other hegemon.

China’s debt diplomacy–pressuring “partners” to borrow immense sums from China, backed by collateral like harbors and ports–is already drawing resistance. If global trade has indeed topped out and shifted to secular decline, all the strategic reasons to limit dependency on other nations will start becoming more important than private-sector profits reaped by politically powerful corporations.

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Not Just Ukraine; Biden May Have A Serious China Problem As Schweizer Exposes Hunter’s $1bn Deal, by Tyler Durden

Joe Biden and his son, Hunter, are quite a pair, operating in both Ukraine and China to secure lucrative deals. From Tyler Durden at zerohedge.com:

Two years of investigations by journalist Peter Schweizer has revealed that Joe Biden may now have a serious China problem. And just like his Ukraine scandal, it involves actions which helped his son Hunter, who was making hand over fist in both countries.

Schweizer, the author of Clinton Cash and now Secret Empires discovered that in 2013, then-Vice President Biden and his son Hunter flew together to China on Air Force Two – and two weeks later, Hunter’s firm inked a private equity deal for $1 billion with a subsidiary of the Chinese government’s Bank of China, which expanded to $1.5 billion, according to an article by Schweizer’s in the New York Post.

If it sounds shocking that a vice president would shape US-China policy as his son — who has scant experience in private equity — clinched a coveted billion-dollar deal with an arm of the Chinese government, that’s because it is” –Peter Schweizer

Perhaps this is why Joe Biden – now on the 2020 campaign trail – said last week that China wasn’t a threat.

Secretary of State Mike Pompeo took a shot at Biden’s comment during a speech at the Claremont Institute’s 40th anniversary gala, saying “Look how both parties now are on guard against the threat that China presents to America — maybe except Joe Biden.”

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Trump’s Trade War is Already Over, by Tom Luongo

China’s real crime in the eyes of the Trump administration is not its massive trade surplus with the US, but that’s it’s using that surplus to no longer fund the US government’s deficits, but rather to fund its own Belt and Road Initiative. From Tom Luongo at strategic-culture.org:

I hate to break the news to China bashers, but the trade war with the US is over. I’ve maintained for months that Trump has no leverage in trade talks with China. If he did China would have done a deal by now.

They haven’t and they likely won’t unless you are talking some form of deal which allows Trump to save face here. But to be honest I’m beginning to doubt whether anyone in the White House cares. This is about the Great Powers Game and the simpleton idea that for one country to win in trade another has to lose.

This is, of course, nonsense.

Trade is not a zero-sum game. Ideally, all voluntary trade is a win-win scenario for both the buyer and the seller. If it wasn’t the trade would not be made. Lost in the numbers is the comparative perceived value of the exchange.

China is still running a massive trade surplus and that is true. But from the perspective of US trade, that is as much a function of Trump’s own profligate spending habits as any structural inequalities.

Trump is running a $1 trillion budget deficit. This is money that is conjured up out of thin air by the miracle of selling bonds. $1 trillion in bonds. Where do you think those $1 trillion in government expenditures goes to?

The moon? Laos?

No. It goes to China. It also finds its way into the US equity market Trump is so in love with and other places that produce goods that we Americans buy with that money. If Trump wants to win the trade war with China he should consider spending a little less money allow consumer prices here in the States to fall and let his tax cuts continue to attract capital for the right reasons – the value the American work force is capable of generating.

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Should Alabama Impose Tariffs on California? by Bill Bonner

The one thing you can always say about a free trade: both parties have voluntarily agreed to do it because they both think their economic well-being will be enhanced. From Bill Bonner at bonnerandpartners.com:

We bet that Trump would never go full retard in his trade war with China.

Were we wrong?

Maybe.

Out of the Money

Last week, our no-real-trade-war bet was moving further and further out of the money. Team Trump didn’t yet go full retard, but – raising tariffs on $200 billion of Chinese imports – it was losing IQ points fast.

Our prediction was based on the guess that Trump cares more about stock prices than trade policy. A real trade war would cause the stock market to sink… we thought… and the president wasn’t fool enough to risk it.

He’s setting up the Fed to take the blame for the next sell-off. He doesn’t want fingers pointing at him.

But in the most recent tweets, it looks like tariffs were never a negotiating tactic, but an end in themselves:

Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped.

Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch!

If this were true, of course – that you could tax imports and make yourself richer and stronger – there would be many more tariffs in the world. And not just for countries. States… and even counties… would close their borders to imports.

North Dakota might want to build its own oil refineries. West Virginia could develop its own version of Silicon Valley. Imagine New York City banning movies from California to protect its own film industry. Who wouldn’t want to block outside competition if that would make you better off? If prosperity were as simple as that, everyone would do it.

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