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Guest Post: When Currency Wars Become Trade Wars...

Tyler Durden's picture




 

Submitted by John Aziz of Azizonomics blog,

Beggaring thy neighbour has consequences. Neighbours might turn around and bite back.

China and the United States are already locked in an intractable and multilayered currency war. That has not escalated much yet beyond a little barbed rhetoric (although if China want to get a meaningful return on the trillions of dollars of American paper they are holding, one can only suspect that there will be some serious escalation as the United States continues to print, print, print, a behaviour that China and China’s allies are deeply uncomfortable with).

But Brazil are already escalating.

Brazil flag face

The Washington Post notes:

When the Brazilian economy began to stall last year, officials in Latin America’s largest country started pulling pages from the playbook of another major developing nation: China.

 

They hiked tariffs on dozens of industrial products, limited imports of auto parts, and capped how many automobiles could come into the country from Mexico — an indirect slap at the U.S. companies that assemble many vehicles there.

 

The country’s slowdown and the government’s response to it is a growing concern among U.S. officials worried that Brazil may be charting an aggressive new course — away from the globalized, open path that the United States has advocated successfully in Mexico, Colombia and some other Latin American nations, and toward the state-guided capitalism that the United States has been battling to change in China. As the world economy struggles for common policies that could bolster a still tentative recovery, the push toward protectionism by an influential developing country is seen in Washington as a step backward.

 

“These are unhelpful and concerning developments which are contrary to our mutual attempts” to strengthen the world economy, outgoing U.S. Trade Representative Ron Kirk wrote in a strongly worded letter to Brazilian officials that criticized recent tariff hikes as “clearly protectionist.”

And Brazilian officials are very, very clear about exactly why they are doing what they are doing:

Brazilian officials insist the measures are a temporary buffer to help their developing country stay on course in a world where they feel under double-barreled assault from cheap labor in China and cheap money from the U.S. Federal Reserve’s policy of quantitative easing.

 

“We are only defending ourselves to prevent the disorganization, the deterioration of our industry, and prevent our market, which is strong, from being taken by imported products,” Brazil’s outspoken finance minister, Guido Mantega, said in an interview. Mantega popularized use of the term “currency war” to describe the Federal Reserve’s successive rounds of easing, which he likened to a form of protectionism that forced up the relative value of Brazil’s currency and made its products more expensive relative to imports from the United States and also China.

How long until other nations join with Brazil in declaring trade measures against the United States is uncertain, but there may be few other options on the table for creditors wanting to get their pound of flesh, or nations wishing to protect domestic industries. After all, the currency wars won’t just go away; competitive devaluation is like trying to get the last word in an argument. The real question is whether the present argument will lead to a fistfight.

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Tue, 12/04/2012 - 16:51 | 3033482 Spastica Rex
Spastica Rex's picture

My state-guided capitalism is bigger than yours.

Tue, 12/04/2012 - 17:01 | 3033508 ACP
ACP's picture

"The sinews of war are infinite money." - Marcus Tullius Cicero

Tue, 12/04/2012 - 17:11 | 3033532 I think I need ...
I think I need to buy a gun's picture

i've noticed we are having port problems on the west coast and read an article that mississippi river water levels may halt goods as well, its like a disney script they tell us but is hyperinflation coming bitchez? no goods to the united states?

Tue, 12/04/2012 - 17:15 | 3033544 economics9698
economics9698's picture

Ah autarky the favorite economic policy of fascist for eons.

Tue, 12/04/2012 - 17:49 | 3033630 Spastica Rex
Spastica Rex's picture

North Korea is Best Korea

It's so sad Kim Jong-Il is gone. He was way funnier than his kid.

Tue, 12/04/2012 - 17:59 | 3033647 SafelyGraze
SafelyGraze's picture

the "choice of currency" as false choice:

young lady was nearby today, in grocery store, holding her kid.

kid was squirming.

lady says to kid: do you want me to put you in the *cart*, or do want me to *hold you*

the kid is no slouch. realizes this is a false choice. 

says "I want you to put me *down*"

she says: that's not an option.

the kid is no slouch. realizes he can create his own options.

the kid squirms, looks around at other customers, screams "she's squeezing me", pounds on her shouder, and cries "help" really loud.

good luck kid. there's a whole lot more of that up ahead.

 

Tue, 12/04/2012 - 18:16 | 3033688 falak pema
falak pema's picture

you look at the worse half; he has a nice lady friend. Its time those north koreans showed more of their women in swim suits; it would thaw the cold war and there would be more nuking in bed than nukes on military parade! 

Tue, 12/04/2012 - 18:29 | 3033710 Spastica Rex
Spastica Rex's picture

She's quite adorable. Good point. Best to look at the bright side.

Korean girls are hot.

Tue, 12/04/2012 - 20:54 | 3034079 dark pools of soros
dark pools of soros's picture

K-Pop is seriously california dreamin these days.. 

http://www.youtube.com/watch?v=t5wO8ejwVRI

 

 

Tue, 12/04/2012 - 22:00 | 3034313 Spastica Rex
Spastica Rex's picture

My kids tell me K-Pop is going to take over the world. My 13 yr old duaghter doesn't like it; she's a Joan Jett fan. I think G-Dragon is pretty interesting.

Tue, 12/04/2012 - 17:21 | 3033561 NotApplicable
NotApplicable's picture

The Mo River is going to have to be renamed the Less River.

Wed, 12/05/2012 - 04:42 | 3034917 Ar-Pharazôn
Ar-Pharazôn's picture

"nervos belli pecuniam infinitam" Marcus Tullius Cicero

Wed, 12/05/2012 - 04:56 | 3034927 AvoidingTaxation
AvoidingTaxation's picture

Buon compleanno Ar

Tue, 12/04/2012 - 16:53 | 3033484 Lost Wages
Lost Wages's picture

Any money printer that wants to get in a fight with Ben Bernanke is going to lose.

Tue, 12/04/2012 - 16:57 | 3033497 Incubus
Incubus's picture

I heard the 'nanke feeds his printers gunpowder to make them super-aggressive.

Tue, 12/04/2012 - 17:02 | 3033513 LFMayor
LFMayor's picture

raw hamburger w/ gunpowder mixed in.   like a fur covered wood chipper.

Tue, 12/04/2012 - 17:12 | 3033537 Ness.
Ness.'s picture

Jacob's Ladder.  

Tue, 12/04/2012 - 17:30 | 3033583 zilverreiger
zilverreiger's picture

Not when they team up, it only works if the 95% of the world thats not the USA, that holds 80% of the USD, let themselves be divided and then conquered.

Tue, 12/04/2012 - 18:18 | 3033694 BraveSirRobin
BraveSirRobin's picture

It's not printed anymore, it's simply 1000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

Tue, 12/04/2012 - 16:54 | 3033485 LawsofPhysics
LawsofPhysics's picture

Way off base. I'd argue that the real owners in the U.S. and China have been on the same page for quite some time.  Both are outright currency manipulators slaughtering sheep.  A stable currency in either country would imply real accountability. Good luck with that.

Tue, 12/04/2012 - 16:58 | 3033499 fonzannoon
fonzannoon's picture

I had a real real rich guy tell me recently that the reason the US is the greatest country in the world is because we have convinced the world to work at factories for a few cents and hour and make our shit for us. Before I could wrap my mind around that thought he continued "but make no mistake, I could care less if it some kid in China or your kid that is in those factories making my shit". So Laws you are 100% right.

Tue, 12/04/2012 - 17:01 | 3033509 Karlus
Karlus's picture

We get wonderful crud from across the sea and trade them what? Little paper promises?

 

Heck, even our current President has figured a way to have the populace not even have to work for stuff..../sarc

Tue, 12/04/2012 - 17:08 | 3033520 LawsofPhysics
LawsofPhysics's picture

The paper has been coming back for quite some time. You better go have a look at the names on those land titles out west as well as the contracts that have been secured for resource extraction.  In many ways, china has become more capitalist and america more socialist/centrally planned.  At the highest levels, these people don't care because their children will go to the right schools, be in the right fraternities and know all the right people to stay in this league.  Money really is irrelevant, power and control is what matters.  Sheeple from different countries may squabble, but no wars actually start until these people (the 0.01 %) start disagreeing.

Same as it ever was.

Tue, 12/04/2012 - 17:11 | 3033522 Kitler
Kitler's picture

Time for China to stop buying coal and iron ore and copper and use up their sky high inventories of same to crash these commodity prices. Then step up with those little paper promises and buy the mines for pennies on the dollar.

http://www.chinaeconomicreview.com/poor-prospects

Now that's what free trade is all about.

Tue, 12/04/2012 - 17:14 | 3033542 Dr. Richard Head
Dr. Richard Head's picture

From what I understand, China is already trading those pieces of paper for water from Lake Michigan. 

Tue, 12/04/2012 - 18:43 | 3033731 Zwelgje
Zwelgje's picture

And from Norway.

Tue, 12/04/2012 - 18:05 | 3033669 Dapper Dan
Dapper Dan's picture

There seems to be direct correlation in the last 15 years with the US dollar (depreciating in value), exchanged for Chinese products, that are ( depreciating  in quality).

And on a long enough time line, we will end up giving them nothing and getting nothing in return.  But hey, look at that GDP number!

Tue, 12/04/2012 - 17:03 | 3033516 LawsofPhysics
LawsofPhysics's picture

Both of my brother-in-laws are in venture capital.  They don't care and you would be surprised by exactly what they own and where they can be at the drop of a hat with their complete security team.  This is the reality that people don't see.  The matrix on many levels.  It amazes me that these guys continue to extract the wealth that they do from the system.  Same as it ever was, the capital and resource mis-allocation and mal-investment continues.

Tue, 12/04/2012 - 17:25 | 3033571 NotApplicable
NotApplicable's picture

When you've got the whole world under your thumb, a little bit of wealth extraction here and there starts to add up.

"Synergy," I think, is the word for it.

 

Tue, 12/04/2012 - 17:29 | 3033581 LawsofPhysics
LawsofPhysics's picture

Precisely.  All of my nieces and nephews speak, read as well as write mandarin.  Being groomed to do business in both spheres.  The "writing" is very much "on the wall".

Tue, 12/04/2012 - 20:26 | 3034004 TheAlchemist
TheAlchemist's picture

They don't write Mandarin.  Mandarin is a spoken language.  They write either Simplified or Traditional Chinese (or possibly both).

Not being an ass... just providing clarification.  It'll be important when the new overlords change the signs on the White House lawn.

Wed, 12/05/2012 - 09:08 | 3035083 Urban Redneck
Urban Redneck's picture

Just to be an ass... and because I speak German...

http://www.youtube.com/watch?v=nhDq10jUmxk

Tue, 12/04/2012 - 17:57 | 3033651 HungryPorkChop
HungryPorkChop's picture

I thought it was called VULTURE Capital.

Tue, 12/04/2012 - 20:12 | 3033962 Nassim
Nassim's picture

Are your sisters first wives or the more recent models?

Tue, 12/04/2012 - 17:07 | 3033523 Everybodys All ...
Everybodys All American's picture

Henry Ford realized the stupidity of this argument best. If his workers made a good wage they would be buying his cars and everyone would reach their goal. The short term mentality of this type of "rich" just kills me.

Does it do anyone here in the US any good in the long haul to pay for an unemployed person to not work and employ a worker in China to do presumably the same job? That's why are deficits just keep getting larger and larger. Right here is where our government can actually help out but I think the goal is to create this new world order which effectively makes the US middle class ''pay'' for the jobs and growth elsewhere around the world.

Tue, 12/04/2012 - 17:16 | 3033541 LawsofPhysics
LawsofPhysics's picture

Shit, are you kidding me?  It really depends on how hard or easy it is to placate or disappear those unemployed.

God, wake up, look around, give half the males a six pack, X-box, and a box of ho-hos and you won't see them for a week.

Doesn't bode well for a real revolution does it?  Look at 6000+ years of history.  No real structural changes or revolutions start until the supply lines for essential commodities get cut.  Now is no different.  Without steal and the energy to run those factories, henry ford wouldn't have made shit.

Tue, 12/04/2012 - 17:19 | 3033557 economics9698
economics9698's picture

When you increase wages you sell LESS cars.  Wages are a supply impute.  Ford increased wages to stop turnover on the assembly line.  He felt the increased cost was worth it, that’s all folks.

Tue, 12/04/2012 - 17:28 | 3033577 Global Hunter
Global Hunter's picture

economics9698, why would higher wages equate to selling less cars?  I don't understand, but I'm interested.

Tue, 12/04/2012 - 17:32 | 3033592 LawsofPhysics
LawsofPhysics's picture

Yes, do tell.  I can see how responsible people making better wages might pay down debt (and in the fractional reserve banking world of fiat currency, that might be a problem), but that's it (okay, maybe some inflation).

Tue, 12/04/2012 - 18:30 | 3033712 Shigure
Shigure's picture

Higher wages = higher production costs, so the company would be less competitive. It's a race to the bottom.

Tue, 12/04/2012 - 23:21 | 3034596 TBT or not TBT
TBT or not TBT's picture

Leading to higher prices (because auto making was a bit of an oligpoly back then), higher prices leading to reduced demand, and fewer cars sold.    Until GMAC / Ally comes to the "rescue" with loans for anyone with a pulse, or zombies of course, at 0%.

Tue, 12/04/2012 - 17:25 | 3033566 Global Hunter
Global Hunter's picture

An x-box and twinkies doesn't do squat for me.  Perhaps if you offered 10 cases of Labatt's Blue, an all expenses paid weekend with a Hungarian porn star, 4 ounces of blow, and a quarter pound of weed I'd disappear for a week.

A lot of people are just selling themselves very short right now.

Tue, 12/04/2012 - 17:31 | 3033589 LawsofPhysics
LawsofPhysics's picture

Perhaps, but you get the idea.  Moreover, you still need major resources to actually do anything, especially revolt.  perhaps BofA has a special loan program?

Tue, 12/04/2012 - 17:48 | 3033620 Everybodys All ...
Everybodys All American's picture

I see things differently.  Sure looks to me like higher sustained unemployment is the main problem with our government's fiscal problem. Individuals can be placated until the government goes to shit and then we all start turning on each other. I'm saying it could be avoided and I sense you're already gearing up for the revolution. It takes leadership and that is definitely missing.

Tue, 12/04/2012 - 17:53 | 3033638 LawsofPhysics
LawsofPhysics's picture

Leadership and accountability.  Tell me, when was the last time you saw real consequences for bad behavior on wall street or the financial world?  Address the issue of moral hazard and most of this fixes itself.  By the way, having your bonus go from 50 million to 20 million is not a real consequence.  Losing your head would be. 

Tue, 12/04/2012 - 17:54 | 3033644 Everybodys All ...
Everybodys All American's picture

Absolutely. 100% agreement. Not sure about losing the head. lol

Tue, 12/04/2012 - 17:52 | 3033639 ThirdWorldDude
ThirdWorldDude's picture

Using the words 'government' and 'help out' in the same sentence makes the meaning an oxymoron.

Tue, 12/04/2012 - 17:44 | 3033615 zorba THE GREEK
zorba THE GREEK's picture

This could get uglier than a botched Brazilian butt-lift.

Wed, 12/05/2012 - 07:26 | 3034983 Bobbyrib
Bobbyrib's picture

Hopefully he has no PM's when TSHF. He sounds like an asshole.

Tue, 12/04/2012 - 16:54 | 3033486 magpie
magpie's picture

EU Core downgrades coming on Friday

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