Great Depression Redux: First Currency War, Now US Unleashes Trade War With China

Tyler Durden's picture

Given the vicious downward spiral of competitive devaluation that is washing around the world's economic bathtub, it appears - just as we saw during The Great Depression - that currency wars have given way to mal-investment-fueled protectionism as US launches the first missile in the trade wars with a massive 266% tariff on imports of cold-rolled steel. “There’ll be a short-term benefit,“ said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills are always going to want more tariffs, and it’s questionable how much more [protection] they can get."

In December, we warned of China's flooding the world with its unwanted commodities - all created and warehoused in the biggest credit-bubble-fueled mass mal-investment "boom" in human Bloomberg notes, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.

That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.



The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.


The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.


Low-cost supply from China in Europe prompted producer ArcelorMittal to reduce its profit forecast and suspend its dividend. India’s government has signaled it’s planning more curbs on steel imports while regulators in the U.S. are planning to lift levies on shipments from some Chinese companies.

And then, as we explained, the dramatic over-production is exporting deflationary pressures all over the world, especially US Steel mills...

Logically, the less domestic demand for steel, and the greater China's steel exports, the lower the price continues to tumble, now at a 10 year low.


That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas. 

The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.

And now, as The Wall Street Journal reports, The Department of Commerce Tuesday imposed preliminary duties on imports of cold-rolled steel, used to make auto parts, appliances and shipping containers, from seven countries including China, whose steelmakers were slapped with a massive tariff.

The duties, set at 265.79% for Chinese steelmakers, will be imposed within the next week but must still be confirmed in a final determination scheduled for this summer. They are meant to punish dumping, or selling below cost. to improperly gain market share. Chinese officials have denied the practice.


After enduring one of their worst downturns ever, American steelmakers are now counting on tariff protection to help ride out a weak market. A slowdown in the steel-heavy oil-and-gas industries combined with a boom in Chinese exports has deflated steel prices around the world.

But can tariffs really save the American steel industry?

Analysts say trade protection will prop up prices, but can’t be expected to save beleaguered companies or improve market demand, especially in the oil and gas segment.


“There’ll be a short-term benefit,“ said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills are always going to want more tariffs, and it’s questionable how much more [protection] they can get." The U.S. already has anti-dumping duties in place on 19 categories of Chinese steel. And the U.S. needs some imports because U.S. demand—regularly over 110 million tons—is far higher than the U.S.’s annual production of around 80 million tons.


Although China is only the seventh biggest exporter of steel to the U.S., behind Canada, Brazil, Russia, Mexico, South Korea and Turkey, Chinese steelmakers have received the most attention because they have the ability to disrupt the U.S. market. Their prices tend to be 20% to 50% lower than anybody else’s, say steel traders. And because the volumes of its exports are so massive, Chinese steel is ending up everywhere. China last year exported more steel—100.4 million tons—than any other country except Japan produced.

Besides the fates of the individual companies, the tariff debate is landing in a campaign season where trade looms as a potentially major issue as we wonder what a President Trump will do... 1000% tariff?

Finally, as The Automatic Earth's Raul Ilargi Meijer notes, there’s another side to this, one that not a soul talks about, and it has Washington, London and Brussels very worried. Here goes:

These large mining -including oil- corporations most often operate in regions in the world that are remote and located in countries with at best questionable governments (the corporations like it like that, it’s how they know who to bribe to be able to rape and pillage).


The corporations de facto form a large part of the US/UK/EU political/military control system of these areas. They work in tandem with the CIA, MI5, the US and UK military, to keep the areas ‘friendly’ to western industries and regime.


This has caused unimaginable misery across the globe, in for instance (a good example) the Congo, one of the world’s richest regions when it comes to minerals ‘we’ want, but one of the poorest areas on the planet. No coincidence there.


Untold millions have died as a result. ‘We’ have done a lot more damage there than we are presently doing in Syria, if you can imagine. And many more millions are forced to live out their lives in miserable circumstances on top of the world’s richest riches. But that will now change.


Thing is, with the major miners going belly up, ‘our’ control of these places will also fade. Because it’s all been about money all along, and the US won’t be able to afford the -political and military- control of these places if there are no profits to be made.


They’ll be sinkholes for military budgets, and those will be stretched already ‘protecting’ other places. The demise of commodities is a harbinger of a dramatically changing US position in the world. Washington will be forced to focus on protecting it own soil, and move away from expansionist policies.


Because it can’t afford those without the grotesque profits its corporations have squeezed out of the populations in these ‘forgotten’ lands. That’s going to change global politics a lot.


And it’s not as if China will step in. They can’t afford to take over a losing proposition; the Chinese economy is not only growing at a slower pace, it may well be actually shrinking. Beijing’s new reality is that imports and exports both are falling quite considerably (no matter the ‘official’ numbers), and the cost of a huge expansion into global mining territory makes little sense right now.


With the yuan now part of the IMF ‘basket‘m Beijing can no longer print at will. China must focus on what happens at home. So must the US. They have no choice. Other than going to war.


And, granted, given that choice, they all probably will. But the mining companies will still be mere shells of their former selves by then. There’s no profit left to be made.

This is not going to end well. Not for anybody. Other than the arms lobby. What it will do is change geopolitics forever, and a lot.

*  *  *

As we concluded, now that the US has fired the first trade war shot, it will be up to China to retaliate. It will do so either by further devaluing its currency or by reciprocating with its own protectionist measures against the US, or perhaps by accelerating the selling of US Treasurys. To be sure, it has several choices, clearly none of which are optimal from a game theory perspective, but now that the US has openly "defected" from the "prisoner's dilemma" game, all bets are off.


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Shadow1275's picture

Next up is Weimar 2.0

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Shadow1275 Mar 2, 2016 4:01 PM

Long Soup RINES!

Antifaschistische's picture the Taiwanese can import Chinese steel, put a new sticker on it, double the price and sell it to the Americans.  Protectionism always creates stupid business models.   Some dude in Phillipines or Indonesia or Taiwan will get uber wealthy as a result of this law.

HowdyDoody's picture

China stops deliveries to Walmart. How long before the US folds? 1 week? 2 weeks? 1 Month?

E.F. Mutton's picture

Don't even joke about that.  If I can't have my cheap Chinese thingys with a smiley sticker on them I'll just fucking lose it.

peddling-fiction's picture

It would be inspiring to see most people buy used and fixed things for a change.

Meanwhile the manufacturing base in the US would need to get in high gear.

Real jobs would come back.

Bring it on...

HowdyDoody's picture

I was thinking more of the loss of profits for the Waltons. They have paid a lot of money to the govt one way or another to get where they are and they wont want to lose that.


PleasedToMeatYou's picture

I shop at the thrift store all the time. 

Though, it gets harder to fix stuff when more things have computer chips running them, or not running them. 

FreeMoney's picture

If US trade policies were any good for America there would be no trade deficit.  This is not the first shot in the trade war, the US has been geting shot daily for 50years.

0b1knob's picture

< Next up Weimar 2.0

< Next up World War 3.0


The whole "trade war caused the great depression" is the worst sort of Post Hoc Ergo Propter Hoc arguement.   The tarrifs were the result of the depression not the cause of it.

Wakemaker's picture

We were the largest exporting country in the world in 1930. We were always going to get killed in a trade war. Today the opposite is true we are the biggest importer in the world yet we keep signing trade deals like we have everything to lose.  The directors of the SnP 500 Co's could lose their wage arbitrage.

fattail's picture

Don't forget the environmental and ecological arbitrage where multinational corporations rape and pillage the third world environments for enormous profits.  See China's soil, water, and air pollution, and their cancer villages.

nuubee's picture

There's no guarantee that we'll even get a weimar, it might go straight to shooting war.

Hitlery_4_Dictator's picture

As an entitled American, I demand an Weimar event before ww3 starts. Are you listenting Obama? 

LawsofPhysics's picture

Precisely, of course, this time it will be global Weimar!!!

ali-ali-al-qomfri's picture

You get a Weimar

    and you get a Weimar,

            you all get Weimared!

Kirk2NCC1701's picture

"Trade War", my eye!

If the US were truly serious about putting China in its place, the US would end the Blue Light Special on PM prices and make China pay through its nose for the Gold.

As it is, it's still Channel-Bound, as it has been for years. But keep believing the shill claptrap that it's "Breaking out", or that it's "Surging".

Look at the 5 and 10 year charts, and tell me about "Surging".

It's just Sheeple and Muppets being scammed for pump & dump games, while China buys Bullion cheap.

Same BS as always. Maybe our "Gold Tyler" isn't hip to that gig yet, but I am. And I suspect that an increasing number of ZHers are also.

Still Losing Money's picture

currnecy war, trade war and the fed raising interest rates even though many red flags are showing a recession ahead. lots of 32 redux actions going on

researchfix's picture

You earned it China. No more Chevrolets and Buicks.

Nobody For President's picture

No more Toyotas.

Send them ALL our Buicks.

Dg4884's picture

Funny put a minus sign in front of that percetage and that will be your earnings on a savings account in the next 5 years...

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Lost in translation Mar 2, 2016 4:03 PM
blue51's picture

Gaaaack !! A man in platform shoes???!

Creepy Lurker's picture

I forgot what sharp dressers they used to be. The guy with the backwards suspenders was really fashion forward.

HowdyDoody's picture

That's one way of stackin' it.


buzzsaw99's picture

too damn little, too damn late. the usa maggots helped china win the trade war a long time ago.

War's over, man. Wormer dropped the big one. [/D Day]

847328_3527's picture

Hillery/DiBlazio, 2016!


Soweto Obama sent most of American jobs overseas so it's odd he wants to tax imports now.

PoasterToaster's picture
PoasterToaster (not verified) Mar 2, 2016 4:04 PM

The US Government and its owners seem bound and determined to fight a two front war.  One with all its external enemies, and one against its internal enemies; the people.  A "citizen" of the US Government is simply chattel to be used as the lords and masters see fit.

Duc888's picture





How much stuff do we actually sell to China?  Do I give a fuck if this hurts Government Motors who closed plants here and opened them up in China?

JustObserving's picture

Posturing and disagreements in the South China Sea may spark a military conflict between the US and China.  America's pivot to China has already heightened tensions with China.

Millions of Chinese steelworkers being laid off will increase social pressures in China.

Conditions are ideal for a trade war which can escalate to outright military conflict.

CSIS report: A blueprint for US war with China

By Peter Symonds 
25 January 2016

A major new report by the Washington-based Center for Strategic and International Studies (CSIS) has laid out detailed plans for the Pentagon’s preparations for war in Asia. The report, entitled “Asia-Pacific Rebalance 2025: Capabilities, Presence, and Partnerships,” examines the range of threats to US dominance in Asia, but there is no doubt that its chief preoccupation and target is China.

The CSIS document, released last week, has a semi-official status. It was commissioned by the US Department of Defence at the instigation of Congress under the 2015 National Defence Authorisation Act. The report is a follow-up to a similar CSIS study conducted for the Pentagon in 2012 following President Obama’s formal announcement of the “pivot” or “rebalance” to Asia in November 2011.

Since 2012, last week’s report declares, “the international security environment has become significantly more complicated. China has accelerated the frequency of its coercive activities and the pace of its island building in the East and South China Seas.” After noting that US military interventions in Eastern Europe against Russia and in the Middle East have “competed with the Asia Pacific for attention and resources,” it stresses the importance of countering China. “Militarily, the Pacific Command has fully embraced the rebalance, but the [Chinese] anti-access challenge is worsening and China’s tolerance for risk has exceeded most expectations,” it states.

THE SOLUTION IS DEBT FREE MONEY CREATION (not verified) Mar 2, 2016 4:06 PM

Hmm...but I thought Uncle Sam was all for "free" trade? Isn't the actual foundation of this "free" trade nonsense from the simple observation that whilst capital is fungible, mobile and can be deployed almost free of cost anywhere globally...labour is inherently not fungible and free of cost to transport anywhere? I mean whilst Steve Jobs can export his capital to build factories in china at the click of a Goldman mouse...the American workers cannot just up sticks and follow the new job creation without spending significant resources both mental and physical by migrating e.g. new language acquisition, new educational qualification requirements, foreign visa restrictions, land ownership of even rental and residence restrictions?? All this is prohibitive for labour...whilst internationalism is solely beneficial for Capital as a wage arbitrage...I mean isn't this obvious to everyone from first principles ???!! Bizarre. Not that protectionism is a panacea...before the Randian supermen at Zerohedge get all uppity... 

Duc888's picture



The Solution is... "Hmm...but I thought Uncle Sam was all for "free" trade?"

Uncle Sham corp is..... but "free trade" is not necessarily good for the Republic.  Again, look what happened when tariffs were abandoned to fund Fedgov.  We got the slave tax.

Duc888's picture



Antifaschistiche : "Protectionism always creates stupid business models."


You have a funny name for someone who approves of the slave tax.  Tariffs used to fund 100% of Fedgov.  Then the Income tax replaced it.

undertow1141's picture

"Tariffs used to fund 100% of Fedgov."

As it should be and was intended.

Break_the_Bank's picture

And so it begins. As Gerald Celente says, currency wars, trade wars, world war. 

Cow's picture

Trump said it was easy.  Just add a tariff!  Like that's worked before /s


Duc888's picture



Cow : "Trump said it was easy.  Just add a tariff!  Like that's worked before /s"


R.Reagans tariff against Jap Bikes saved Harley Davidsons ass.   When they got back on their feet he lifted it.  



side note, it is funny how the yamaha FZ changed displacement....LOL.

silverer's picture

I want them all to stay in business, for my own selfish reasons. Me first, motorcycle companies bankrupt second. Must have motorcycles.

Dr. Bonzo's picture

The US has never had a trade "partner" that was as openly hostile to its existence as China. Nixon went to China and unlocked the downfall of the US. Another notch on his belt. He took the US off the gold standard and legalized fiat. The Chinese quickly caught on and never looked back. Their money printing makes the Fed look like fucking amateurs with a color printer. It's not just surplus production that is sloshing up across global shores, it's the consequences of their fiat tsunami as well pushing up prices across the globe.

The gloves have to come off with China. Fuck them hard. The US loses nothing from a trade war with China. The influx of cheap shit comes to a screeching halt. So. Fucking. What. They're already dumping Treasuries... fuck them.

Crash those motherfuckers and bring an end the commie party.

johnnycanuck's picture

Except that the majority of China's large privately owned corporations are foreign corporations, and the lions share of those are US multinationals.  So who would be getting fucked hard?


Said multinationals rushed there for the super low wages, super low social program costs and virtually non existent environmental regulations and associated costs.  Too many tariffs on China and they will be screaming  louder than the Stock marketeers for another Central Banker fix to feed their addiction.

Dr. Bonzo's picture

Fuck them. You already summed up the arbitrage these fucking cunts sought. Walmart isn't a US corporation. It's a clique of American traitors who have sold us for their own personal gain. FUCK THEM.

You think for one second Chinese would sellout China? Pffffffff.....

Fuck international money. Fuck the banks.

Bring this shit on.

johnnycanuck's picture

Although I agree with your sentiment, the problem is getting the multinationals to go along and they do have an Army of lobbyists armed to the teeth with all the money they need to get compliance from legislators and enough left over for PR heavy weights. 

merchantratereview's picture



Foreign corps have to have a 51% china commie partner.


Most business in China is state owned corporations with Western style branding so as to fool the suckers when Goldman Sachs took them public.

gcjohns1971's picture

They never fail to do it, and it never fails to surprise me.

Why, oh why do some believe that they can retain and expand relationships with their clients by treating them like shit?

lemontree2's picture

No Word for this, other than this is bullish for stawks.

rejected's picture

Who was it again that sent all their production to China?  Are we putting tariffs on western companies that shut their steel plants down for Chinese greener pastures? LOL,,, Awww poor babies if so.

As far as wondering what Trump would do, whatever it is I am sure it would somehow be wrong. A 1000% tariff doesn't sound bad considering steel plants in the US are shutting down without a whimper from media. U.S Steel (Lone Star)  in Texas for one.

Hell what's another few thousand Americans out of work...

gcjohns1971's picture

Just a point...

But how will the Chinese ship all these excess commodities on the one hand, while closing down the South China Sea to commercial shipping so they can annex the Spratley's on the other hand?

Methinks one Chinese hand is not in sync with the other.