Tag Archives: Trade War

Here comes the 30-year trade war, by Pepe Escobar

Posted on September 24, 2018 | Leave a comment

Are the Chinese settling in for a long fight in the trade war with the US? From Pepe Escobar at atimes.com:

Trade tensions between the US and China could drag on for decades but China’s focus on its Belt and Road Initiative could provide relief

We might be at the start of a decades-long trade war between China and the US. Photo: iStock

We might be at the start of a decades-long trade war between China and the US. Photo: iStock

Alibaba’s Jack Ma has warned that the ongoing US-China trade war could last at least 20 years. As we’ll see, it’s actually more like 30 – up to 2049, the 100th anniversary of the foundation of the People’s Republic of China (PRC).

Steve Bannon always boasted that President Trump was bound to conduct a “sophisticated form of economic warfare” to confront China.

The logic underpinning the warfare is that if you squeeze the Chinese economy hard enough Beijing will submit and “play by the rules.”

The Trump administration plan – which is, in fact, trade deficit hawk Peter Navarro’s plan – has three basic targets:

  1. Displace China from the heart of global supply chains.
  2. Force companies to source elsewhere in the Global South all the components necessary for manufacturing their products.
  3. Force multinational corporations to stop doing business in China.

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Stockman Slams The Greatest Fake Bull Ever, by David Stockman

Posted on August 29, 2018 | Leave a comment

David Stockman says this bull market is bullsh*t. From Stockman via zerohedge.com:

Now that the raging robo-traders have tagged a double top at 2897 on the S&P 500 it isworth remembering that the booming stock market is the greatest Fake Bull in history. It is entirely a function of massive central bank liquidity injections into the financial system that have transformed Wall Street and other global trading venues into virtual gambling casinos.

Indeed, in today’s fraught environment it can be well and truly said that the chartmonkeys have become deaf, dumb and blind to everything happening on Planet Earth external to the gaming tables where they slosh around in their cups. After all, to use the latest evidence, what could be more indicative of a political system fixing to implode than this weekend’s utterly phony and disgustingly undeserved deification of the late Senator John McCain?

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Trump’s Fake Fix for a Bad Policy, by Walter E. Block

Posted on August 6, 2018 | Leave a comment

In classic government fashion, Trump’s “fixing” one mistake with a bigger mistake. From Walter E. Block at lewrockwell.com:

As an economist who shares President Trump’s belief that we should be cutting taxes and shrinking government, one might expect me to be enthralled by his policies. But that is not the sentiment I and many other libertarians feel when it comes to his decision to impose tariffs on steel, aluminum and a host of other products made overseas, particularly in China.

On Wednesday, Mr. Trump and the president of the European Commission, Jean-Claude Juncker, said they had reached an agreement to step back from a trade war and discuss ways to lower tariffs and other trade barriers. But the outcome of those talks are far from certain, and trade tensions between the United States and China remain very high.

What is driving the president’s apparent eagerness to impose tariffs is a simple and wrongheaded idea that plays to a large part of his base: That a trade war will spur job growth in America. He is trying to use tariffs to give a leg up to American industries against countries that manufacture the same products that we do — whether steel, aluminum or cars — but more efficiently. And who could be against that if it creates more jobs?

But in reality simply creating jobs alone does not make for a strong economy. What we really want is to increase production. And to achieve that, we need to allocate labor as efficiently as possible. One way to do that is to make sure that if there are other countries that can create certain goods more efficiently than we can, it is to our advantage to trade with them for these items, rather than manufacture them ourselves. The result is cheaper goods.

But tariffs do nothing to improve this efficient allocation of labor. They also do not increase or decrease employment. They just shift jobs around, and almost always in a manner that hurts the economy.

To continue reading: Trump’s Fake Fix for a Bad Policy

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Whose Trade War Is It Anyway? by Valentin Schmid

Posted on July 31, 2018 | Leave a comment

Trump called attention to the fact that US trading partners’ tariffs are higher than those the US imposes. Isn’t that to blame for the trade war, and not Trump’s determination to do something about it. From Valentin Schmid at theepochtimes.com:

Everybody complains about Trump, but he wasn’t the one who started it

German Chancellor Angela Merkel speaks to President Donald Trump in front of other world leaders in Charlevoix, Canada, at the G-7 summit on June 9, 2018. The mainstream media and world leaders are blaming Trump for starting a trade war, where in reality all politicians are fighting to protect their special interest groups. (Jesco Denzel /Bundesregierung via Getty Images)

War is aggression, often with the use of physical violence to conquer land, people, and power. Trade wars, though not quite as bad, also are aggressive in nature. Where two or more private parties want to transact freely, aggressive governments step in the way and prevent trade from happening with the threat of force.

In 2018, most of the mainstream media and the establishment powers blame President Donald Trump and his administration for starting a trade war, which—like real wars—can only produce losers on both sides. “How Much Damage Will Trump’s Trade War Do?” read a headline in The Atlantic, and countless other articles and official statements say similar things.

So the mainstream media and some politicians are pretending that trade was 100 percent free before Trump started to threaten the “free traders” of China, the European Union (EU), Mexico, and Canada with tariffs. The media paints Washington as the aggressor in this trade war. Trump shot first.

However, truth be told, this trade war did not start this year and certainly the United States isn’t the biggest aggressor. In real war terms, the Americans are now starting to shoot back after being under siege for decades and the whole world is complaining about this act of self-defense.

As Trump wrote in a tweet before meeting the EU’s Jean Claude Juncker on July 25, he doesn’t want a war, he just wants the other side to stop shelling the United States.

To continue reading: Whose Trade War Is It Anyway?

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6 Reasons Why a Trade War with the Chinese Is Pointless, by Patrick Barron

Posted on July 21, 2018 | Leave a comment

From the standpoint of economic analysis, trade wars never make sense. From Patrick Barron at mises.org:

In a recent post I explained that China’s manipulations of its own currency hurt only herself and not her trading partners and, therefore, retaliatory tariffs were not warranted and would be self-defeating anyway. China harms herself by causing her own money supply to expand, which destroys capital through malinvestment and causes prices to rise domestically. Retaliatory tariffs cause American goods to rise in price, resulting in a recession and generally lower standard of living. Few economists claim otherwise.

It seems that everyone is in favor of free trade, as long as it is the other guy who must compete with foreign products. When it comes to their own products, the most typical response from American manufacturers begins with the caveat that “although free trade is beneficial most of the time, it causes harm under certain circumstances.” There follows a convoluted chain of cause-and-effect purporting to prove that lower priced foreign goods would hollow out America’s key manufacturing industries and turn America into a second class nation.

The purpose of this brief response is to counter these claims and explain why understanding economic theory is vital to the argument in favor of free trade.

There are two books which address the fact that we cannot experiment with an economy the way that physical scientists do. We must use logic to form irrefutable conclusions of what MUST happen, even if we cannot see it! The first is Frederic Bastiat’s early nineteenth century classic That Which Is Seen, and That Which Is Not Seen . Henry Hazlitt’s updated the book a hundred years later in order to appeal to modern readers. His Economics in One Lesson employs a series of short stories to illustrate that one must always consider the economic effects of an intervention on all and not just a few actors, plus, that one must look to the long term effects of an intervention and not just the short term effects.

So, let’s use logic to consider the effects of China’s economic interventions on itself and its trading partners who do nothing to retaliate against China in any way.

1. China uses its capital in an inefficient way . Outright subsidies to any industry must be paid by someone. The very fact that China believes that it cannot compete in certain industries to its own satisfaction without subsidies is an admission that these industries are inefficient. Therefore, Chinese internal subsidies are transfers of capital from more efficient industries to less efficient industries. Put another way, if the targeted industries already were very efficient, more capital would flow to these industries and subsidies wouldn’t be necessary.

To continue reading: 6 Reasons Why a Trade War with the Chinese Is Pointless

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Trump’s Trade War May Spark a Chinese Debt Crisis, by Anne Stevenson-Yang

Posted on July 20, 2018 | Leave a comment

Trade wars spark unintended, and sometimes disastrous, consequences. From Anne Stevenson-Yang at bloombergquint.com:

There’s no chance China will cut its trade surplus with the U.S. in response to President Donald Trump’s tariff threats. For starters, Washington has made no specific demand to which Beijing can respond. But its efforts may have an unexpected side effect: a debt crisis in China.

The 25 percent additional tariffs on exports of machinery and electronics looked, at first blush, like a stealth tax on offshoring. The focus on categories like semiconductors and nuclear components, in which U.S.-owned manufacturers in China are strong, recalled Trump’s 2016 promise to tax “any business that leaves our country.”

It seems, though, that offshoring wasn’t the target after all. Now, with the imposition of new tariffs on low-value exports that mostly involve Asian value chains, the simple fact of selling cheap products that the U.S. buys has become the problem.

Either way, the administration appears set on shrinking its current-account deficit (which, at a moderate 2.4 percent of GDP, is far lower than the 6 percent clocked in 2006-7) just as the Federal Reserve raises interest rates. Distress has already been registered in China. On July 13, the yuan (also known as the renminbi) hit 6.725 to the dollar, the weakest in a year and 5 percent lower than at the end of May.

Such a move is nothing earth-shaking for less controlled currencies. But a stable renminbi is a key plank in the leadership’s promise to its people, and the exchange rate is tightly managed by the central bank.

Chinese investors have been buying official assurances for a year that the renminbi would be a fortress, but now they’re not so sure and are exporting money again: May saw net capital outflows and a decline in the foreign-exchange reserves. The currency is the most visible sign of slippage in the image that China tries to project of an economy so brilliantly managed that the bright sun of GDP expansion is untroubled by even temporary clouds on trade, employment or consumption.

There are many other signs: The Shanghai Composite Index of stocks has declined 7 percent in a month, dropping below the government’s red line of 3,000 for the first time since September 2016. Corporate bonds are about to set a record for the most defaults in a year. Junk bond yields are spiking. The chorus of anxiety about debt is reaching a crescendo, with daily press reports on governments that can’t pay their employees or meet pension obligations. Property prices are tumbling in some cities and frozen in others whose governments have placed a finger in the dyke by halting transactions.

To continue reading: Trump’s Trade War May Spark a Chinese Debt Crisis

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Stock Markets See the US Winning the Trade War, Defying Corporate Lobby & Media Propaganda, by Wolf Richter

Posted on July 13, 2018 | 1 comment

The US may “win” the trade wars because exports are a smaller share of its economy and it has less to lose. From Wolf Richter at wolfstreet.com:

Moody’s chimes in. 

The trade war talk has been going on since the presidential campaign but markets just brushed it off and rallied. In 2018, the trade war verbiage moved to the foreground. But until June 14, the administration vacillated between thinking about tariffs and putting the trade war “on hold,” depending on who was doing the talking or tweeting.

This vacillation ended on June 14 (Thursday) evening, when it was reported that Trump had approved to hit an initial list of $50 billion in goods (1,300 products) from China with tariffs of 25%. At the time, the administration was also preparing a second list of products, accounting for another $100 billion in imports from China.

On the evening of June 19 (Monday), Trump threatened to hit another $200 billion of imports from China with tariffs of 10%. And on Tuesday, the Shanghai stock market plunged. Markets were taking it seriously.

Since then, Corporate America’s propaganda machine – the same that for the past two decades had extolled the unrivalled virtues of offshoring production to cheap countries – fired up the mainstream media, which launched into incessant, deafening, repetitive, and manipulative coverage of how these tariffs would hurt US jobs more than anything.

Two glorious examples are Harley-Davidson and GM, which had been laying off workers and shutting plants in the US for years as they were offshoring production to cheap countries. For example, in July 2017, Harley-Davidson announced layoffs in the US as it was building a factory in Thailand. GM has been laying off workers in the US since 2016, even as it opted to produce more models in Mexico

Now they had a fig leaf – the threat of future tariffs – behind which to hide their long-planned offshoring strategies. You couldn’t get on the internet or turn on the radio without being bombarded by how it was tariffs that were driving these noble companies, which had been offshoring production for years, to offshore more of their production.

To continue reading: Stock Markets See the US Winning the Trade War, Defying Corporate Lobby & Media Propaganda

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“Dark Path Ahead”: Why American Farmers Dread The Trade War, by Tyler Durden

Posted on July 9, 2018 | Leave a comment

American agriculture will be collateral damage in Trump’s trade war. From Tyler Durden at zerohedge.com:

While automakers – and their dealerships – are getting most of the headlines this week, the effects of the escalating trade war (sorry, officially a trade tantrum, or trade discussion according to The White House) between Presidents Trump, Xi, and Putin are rippling across numerous US industries – directly, and indirectly.

Makers of whiskey, cheese, auto parts and more are contending with the global tariff battle – but it is US farmers that appear to be suffering the most.

Casey Guernsey, a spokesman for Americans for Farmers and Families, says in emailed statement that:

“China dealt its latest blow to American agriculture today with threats of even more tariffs on the horizon,”

“Following Canada’s tariffs on U.S. products earlier this week, America’s farmers and families are staring down a dark path with no signs of relief in sight”

“We are counting on the administration and Congress to reach a resolution on responsible trade policies — before we’re forced to shut down our operations for good”

And he was not alone, American farm groups, companies and officials reacted as China’s tariffs on agricultural products went into effect on Friday.

Iowa Senator Joni Ernst appeared on CBS’ “Face The Nation” warning that”

…farmers, ranchers are “always the first to be retaliated against” in these types of “trade negotiations,” adding that farmers have been put in “very vulnerable position.”

Iowa Secretary of Agriculture Mike Naig says in statement on website:

“The continued escalation of trade tensions with China is having a real impact on Iowa farmers and businesses,”

“We have seen a significant drop in prices for both crops and livestock and this is creating even more stress and uncertainty during what was already a difficult time for the ag economy”

“There are real issues in our trade relationship with China that need to be addressed, but Iowa agriculture cannot continue to bear the brunt of the retaliation from our trading partners”

 Jim Heimerl, president of the National Pork Producers Council and a hog farmer from Johnstown, Ohio, says in statement:

Tariffs from China, Mexico mean “40 percent of total American pork exports now are under retaliatory tariffs, threatening the livelihoods of thousands of U.S. pig farmers.”

“We now face large financial losses and contraction because of escalating trade disputes. That means less income for pork producers and, ultimately, some of them going out of business.”

“We need these trade disputes to end”

To continue reading: “Dark Path Ahead”: Why American Farmers Dread The Trade War

 

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China Slaps 179% Tariff On US Sorghum Hours After US Bans Exports To China’s ZTE, by Tyler Durden

Posted on April 17, 2018 | Leave a comment

A tit for a tat for a tit for a tat…and that’s how trade wars go. From Tyler Durden at zerohedge.com:

In response to reports that the US is ramping up the “third front” in its trade spat with China by authorizing another investigation under Section 301 of the Trade Act of 1974 – this time, aimed at obstacles that prevent US tech firms from competing in cloud computing and other high-tech industries – China has, as we anticipated, retaliated by slapping tariffs on US sorghum imports.

Yesterday, the US also revealed that it would stop US tech firms from selling components to Chinese telecom giant ZTE after accusing the company of lying during settlement negotiations – eliciting an angry response from Chinese officials, who urged US lawmakers to create a “fair, just and stable legal and policy environment” for Chinese companies, according to Xinhua.

Like Chinese tariffs on US pork products that were imposed earlier this month, the sorghum tariffs aren’t merely a threat: Rather, China says they will take effect on Wednesday, per Bloomberg.

US sorghum imports will incur a 178.6% tariff, China’s Ministry of Commerce said in a preliminary ruling on Tuesday. Wang Hejun, chief of the trade remedy and investigation bureau at the Ministry of Commerce, said the tariffs comply with domestic law and World Trade Organization standards.

The ruling follows a probe into Sorghum imports that began in February after Trump slapped tariffs on imported solar panels and washing machines – a decision that was viewed as an indirect slight at China.

The tariffs come as a shortage of domestic grain has forced domestic feed mills to increase shipments of US grain. Yet, despite the shortage, analysts say the tariffs will force some shipment cancellations.

“The rate is quite high and some buyers may have to cancel shipments,” said Li Qiang, chief analyst with Shanghai JC Intelligence Co.

China imported about 4.8 million metric tons of sorghum from the US in 2017, worth about $957 million (this number isn’t a coincidence, we imagine). Purchases in the first two months of 2018 were 11% lower than a year earlier.

According to Bloomberg, after the tariffs were announced, soybean meal for September delivery on the Dalian Commodity Exchange climbed 2% to close at 3,265 yuan ($520) a ton. The most-active contract climbed more than 2.5 percent in the final 20 minutes of trading.

To continue reading: China Slaps 179% Tariff On US Sorghum Hours After US Bans Exports To China’s ZTE

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So is the “Trade War” Crushing Stocks? by Wolf Richter

Posted on March 24, 2018 | Leave a comment

Wolf Richter says the “trade war” may not have been the cause of the stock market’s drop. He might want to follow up on that thesis and check out Robert Prechter’s large body of work. From Wolf Richter at wolfsreet.com:

Bull markets climb a wall of worry. What the heck happened?

OK, it was an ugly week. Facebook (FB) dropped 14% and lost $75 billion in market cap. It’s down 10% year-to-date. It’s currently trying to dig itself deeper into its self-inflicted debacle. It wasn’t just Facebook. Alphabet (GOOG) dropped 10% in the week and is down 2.4% year-to-date. This was a broad selloff.

The S&P 500 index dropped nearly 6% for the week and 9.9% from the peak on January 26. It’s down 3.2% year-to-date. At 2,588, it’s just 7 points above the low point on February 8, which is begging to be taken out on Monday. This drop is big enough to show up on a long-term chart, but given the nine-year 320% rally, why would anyone be surprised?

The Dow dropped 5.7% for the week. It’s down 11.6% from the peak on January 26, and down nearly 5% year-to-date. It carved out a new low in this down-cycle.

The Nasdaq dropped 6.5% for the week, and 7.8% from its peak on March 12, but is still up 1.3% for the year.

When stocks soared no matter what, it was because they were “climbing a wall of worry,” which is, as it was ceaselessly pointed out, what bull markets do. Bad news was good news. It didn’t matter what happened. The worse the news was, the more stocks would climb. Falling earnings and revenues no problem. Geopolitical nightmare scenarios no problem. Trump’s promises during the campaign and after the election to fix the trade imbalances in the US were just as well communicated as his promises to cut taxes. From the day Trump was elected until its peak on January 26, the S&P 500 soared 30%.

To continue reading: So is the “Trade War” Crushing Stocks?

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