Trump Warns Xi: Trade War With China Begins Monday

Tyler Durden's picture

As if there weren't enough geopolitical and social stress points in the world to fill a lifetime of "sleepy, vacationy" Augusts, late on Friday night President Trump spoke to Chinese President Xi Jinping and told him that he's preparing to order an investigation into Chinese trade practices next week, according to NBC. Politico confirms that Trump is ready to launch a new trade crackdown on China next week, citing an administration official, a step that Trump delayed two weeks ago under the guidance of his new Chief of Staff Gen. Kelly, but now appears imminent. It is also an escalation which most analysts agree will launch a trade war between Washington and Beijing.

As Politico details, Trump on Monday will call for an investigation into China over allegations that the nation violated U.S. intellectual property rights and forced technology transfers, the official said. While it's unclear how much detail Trump will get into in the announcement, administration officials expect U.S. Trade Representative Robert Lighthizer to open an investigation against China under Section 301 of the Trade Act of 1974. The ordering of the investigation will not immediately impose sanctions but could lead to steep tariffs on Chinese goods. Trump has expressed frustration in recent months over what he sees as China's unfair trade policies.

As we discussed two weeks ago, Trump had planned to launch the trade investigation more than a week ago, but he delayed the move in favor of securing China's support for expanded U.N. sanctions against North Korea, the senior administration official said.

The pending announcement also comes amid heightened tension between the United States and China, even after the Trump administration scored a victory in persuading Beijing to sign onto new United Nations sanctions on North Korea. Still, Trump has delayed trade action before, amid pressure from business groups and major trading partners:

Two Commerce Department reports examining whether to restrict steel and aluminum imports on national security grounds were expected by the end of June but have been bottled up in an internal review. Trading partners raised threats of retaliation and domestic steel users complained of being hurt by price increases and restricted supply.

The trade investigation will immediately strain relations between the U.S. and China as the two countries wrestle with the unpredictable situation over North Korea.  Should Trump follow through, the move will lay the groundwork for Trump to impose tariffs against Chinese imports, which will mark a significant escalation in his efforts to reshape the trade relationship between the world's two largest economies. In other words, even if there is now conventional war announced with either North Korea or Venezuela, Trump's next step is to launch a trade war against China.

"The United States government can, and does, work with countries to address serious concerns such as North Korea while also pursuing measures to address economic concerns, such as the theft of U.S. intellectual property," a U.S. National Security Council official said.

It wasn't immediately clear how China would react to the move.

When reports of the potential trade investigation first emerged more than a week ago, China's Commerce Ministry stressed the importance of U.S.-China trade ties and of resolving differences "through dialogue and consultation."


"We would like to emphasize that the Chinese government has always attached importance to intellectual property protection," a spokesman said. "The results are there for all to see."

Trump, who has been residing at his golf club in Bedminster, New Jersey, for the past week, plans to return to Washington on Monday to officially announce the trade investigation. The decision will not only take action against alleged Chinese violations of U.S. companies' intellectual property rights, but could also be perceived as an attempt by the U.S. government to crank up the pressure on Beijing to rein in North Korea. "I think China can do a lot more," Trump told reporters on Thursday. "And I think China will do a lot more."

As CNN adds, the trade investigation is expected to be only one part of a multi-pronged push by the Trump administration to counter perceived Chinese trade abuses.  The administration has been eyeing other moves to rebalance the U.S.-China trading relationship. But analysts have cautioned that Trump faces a huge challenge in his desire to significantly reduce the U.S. trade deficit with China, which last year stood at more than $300 billion. "Protection measures against some specific items, such as steel and aluminum, may gain political favors, but are not likely to be of much help to rebalance trade," economists at the Institute of International Finance wrote in a research note this week.

* * *

Meanwhile, as we reported previously, China state media signaled the nation would hit back immediately against any trade measures, as it has done in past episodes. This time around, the need to project strength domestically is compounded by the looming twice-a-decade leadership reshuffle that may further entrench President Xi Jinping’s power.

Chinese officials have mulled stemming U.S. imports should retaliation be necessary. Under a draft plan, soybeans have been singled out as the top product that can be dialed back, according to people familiar with the matter. Autos, aircraft and rare-earth commodities have also been identified as potential categories for restriction, the people said.

Still, Trump's offensive comes at a very sensitive time for Beijing: just weeks ahead of the 19th Party Congress, when Xi Jinping wants everything in his economy to be perfect. "Ahead of the 19th Party Congress, the last thing that China will want is a trade war," said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. "It is also important that Beijing does not look weak in this context. As such, expect a cautious, proportional response."

Of course, ultimately the big question - as Bloomberg puts it - is whether the Trump administration is willing to risk a trade war as it ups the ante. The IMF warned last month that “inward-looking” policies could derail a global recovery that has so far been resilient to raising tensions over trade. The problem, for both the US and China, is that as Trump gets increasingly more focused on distracting from his numerous domestic scandals, he is likely to take ever more drastic action in the foreign arena, whether that means "hot war" with North Korea, or trade war with China.

“So far, it’s all been posturing, with little action,”’ said Scott Kennedy, a U.S.-China expert at the Center for Strategic and International Studies in Washington. “Pressure is building to do something, so the U.S. doesn’t look like a complete paper tiger.”

And while we await the formal announcement on Monday and China's retaliation, below again is a breakdown of the biggest US state winners and losers if and when trade war with China breaks out, from "Winners And Losers When Trade War Breaks Out Between The US And China"

* * *

Who stands to lose - and win - if the U.S. takes aim at the unbalanced trade relationship with China? With total bilateral trade of more than half a trillion dollars a year, the list of potential losers is very long as Bloomberg analyzed recently. The most notable examples include:

  • U.S. companies such as Apple Inc., which assemble their products in China for sale in the U.S., and those tapping demand in China’s expanding consumer market.
  • U.S. agricultural and transport-equipment firms, which meet China’s demand for soy beans and aircraft.
  • Manufacturing firms from the U.S. that import intermediate products from China as an input into their production process.
  • Retailers including Wal-Mart Stores Inc. and the U.S. consumers that benefit from low-price imported consumer electronics, clothes and furniture.
  • Other trade partners caught in the crossfire of poorly-targeted tariffs. On steel, for example, U.S. direct imports from China account for less than 3% of the total -- below Vietnam.

And while conventional wisdom is that the US has a chronic trade deficit with China - it does - the U.S. also runs a nearly $17 billion trade surplus with China for agricultural products. China consumes about half of U.S. soybean exports, America’s second largest planted field crop. Soybean farms are mostly located in the the upper Midwest (Illinois, Iowa, Indiana, Minnesota and Nebraska). The volumes are so significant that a spike in soybean exports was a noticeable contributor to GDP growth in the second half of last year as readers may recall. China is also a major buyer of U.S. aircraft, perhaps the only areas of manufacturing where the U.S. retains a competitive edge (though not for much longer). The U.S. also has an $8 billion dollar trade surplus with China in the transportation equipment category.

U.S. Trade Balance With China by Product

How about geographically?

It may come as a surprise that on a state-by-state basis, eight U.S. states are running surpluses with China, six of which supported Trump in last year’s presidential election, including West Virginia. In 2016, Louisiana registered the largest surplus, at 2.9% of the state’s GDP. Louisiana’s exports to China are likely inflated given that 60% of U.S. soybean exports are shipped through the Gulf coast. Washington state was second at 1.6% of GDP, largely due to aerospace exports.

Tennessee maintains the largest trade deficit with China at 6.5% of GDP, meaning tariff-induced increases in the price of imports could have the biggest impact on this state.

The biggest losers? Mississippi, Georgia, Illinois and  California, all of which maintain deficits at more than 3% of GDP.

For the sake of brevity, we will not discuss another, more troubling, aspect of conventional wisdom, namely that trade wars almost inevitably lead to real wars. Aside for the US military industrial complex, there are no winners there.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Uranium Mountain's picture

Walmart shelves are about to go empty.

roadhazard's picture

Americans will go naked and pay more for it.

Cathay Kid's picture

I wouldn't mind seeing that for about 20% of us- myself NOT included.

Cathay Kid's picture

I wouldn't mind seeing that for about 20% of us- myself NOT included.

idahobandito's picture

I bet there are other countries just waiting to send their textiles over here. Hell, my tee shirt has a Vietnam tag on it. The shelves will go bare for a few months, then products will star coming a increased price. Automobiles and other "Chink parts dependant" products will increase in cost also, but Mexico is capable of manufacturing quite a lot of those parts. Maybe they they can pay healthcare bennies for them and keep them there.

ET's picture

The gloves are coming off.

For too long cowards have led America.

Now is the time to find courage and fight.

Cathay Kid's picture

Most of those screaming for courage are 4-F.

veritas semper vinces's picture

If you want to fight ,why don't you start with the real cause of all this?The Federal Reserve and big American banks and big corporations which have screwed you for so long and you don't even know whom to blame?

Xredsx's picture

Maybe the Rothschilds only control the central banks, and it's actually the Crown that owns them. The Fed.

JLee2027's picture

Trump (and the USA) wins this hands down. Forcing the Chinese to actually comply with the law results in more goods made here. And/Or we collect tarriffs. And/Or they control NK and leave the South China Sea.  


None of this is bad.

c2nnib2l's picture

“When goods don't cross borders,soldiers will

Xredsx's picture

Bye bye globalisation. Lets make America Great again.

Eyes Opened's picture

7am ? 8am ? 9am ? 

I usually get outta bed around 9 on a mondays soo........

california chrome's picture

The VIX sleeping giant has risen from the ashes.

G-ray's picture

looks like I picked the wrong week to quit sniffing glue

Seasmoke's picture

OT. Civil War may have Already started in Charlottesville VA !!!!!!!

MsCreant's picture

Surprised it has not been covered here. 

dirty fingernails's picture

Good, let the internal rot of the country shine. I think I'll sit out this fight.

j0nx's picture

Always wondered why when there's a white pride march it's racism and when there is a Mexican pride or black pride march it is front page news about how great it is. Fuck that double standard. People are waking up to this hypocritical nonsense. You can be white and proud of your heritage just as you can be black and proud without being a racist. MSM stirs all this shit up.

ReturnOfDaMac's picture

Prolly something to do with being the majority and exclusionary.  Notice that when the blacks march, there are lots of white, asian, latino etc, faces.  They welcome all peoples, and I don't think many claim to be superior (exceptional).  klan marches, no so much.  Be that as it may, fact is that white's have a heritage of accomplishment, culture, and building civilization.  Everybody should be proud of this, I know I am.  Perhaps you feel we need a "white appreciation day"...

dirty fingernails's picture

I'm baffled why anyone needs to hold a rally to boost their self esteem. Who gives a fuck what anyone thinks of you, especially because of how you look? Said by a white guy lol

idahobandito's picture

Agree...maybe a few of the white rallies will make the blacks and latinos realize how assinine it is, and that there are better ways to spend your time, like raising a garden, fruit tress etc..Something productive, that may save your kids/family from going hungry. 

idahobandito's picture

I guess I have too much faith in mankind to do the right thing. "Lead by example", and our politicians set the example....we're fucked.

Cathay Kid's picture

Fellows, we all sweat and strain about the MSM when only 1.36% of all Americans watch the 3 major news combined.

I truthfully cannot name the 3 newsreaders, can you?

veritas semper vinces's picture

If you are still wondering you don't know who rules you and don't understand too much.

idahobandito's picture

Good. The black population up here are good people and are not discriminated against. I think most move here to get away from the nigs, white trash and vatos. We do have are own white trash(tweeks) here, but without all the "free shit", most eventually move to WA. Our gun laws here make a "polite" population, with very, very low violent crime. If the Libs stay out, the laws that make this a good place to live, will not change. 

CoCosAB's picture

I LOVE mutTrump!


Fucking USofT day after day!


GO mutTrump... GO!

j0nx's picture

What is muttrump mean?

CoCosAB's picture

The joinning of mutt and trump! mutTrump!

After all he's just another mutt under the leash of the OWNERS!

jamesmmu's picture
3.5m volunteers join N/Korea’s Army to fight U.S. WAR READY: Japan rushes MISSILES to major cities in bid to counter North Korea attack !

dogismycopilot's picture

I hope the hot NK women are smart enough to sit this one out.

They can make a lot more money as mail order brides.

Cathay Kid's picture

This industry is seriously being eaten into by sexbots. Imagine a woman who doesn't answer back or be snarky. For those few who like that, there will be a doll for you as well.

ReturnOfDaMac's picture

Harcourt Fenton Mudd, you've been drinking, and smoking, and ... "Stella, shut up"!!

melodious's picture

This will directly move the stocks in the united states. It will be interesting to see how Shepwave plays this. They have been right on market calls I wonder if their streak can last. 

2_legs_bahhhhhd's picture

Schlepwave.... calling yesterday's action with 90% accuracy.

MexInvest's picture

bounce target for Q?  dead on

2_legs_bahhhhhd's picture

The only bounce I care about is the 400 ouncer off your noggin.

Security! Shepwave is leaving turds on the lobby carpet again.

Cathay Kid's picture

Is that the CEO of Shepwave in your logo video?

MexInvest's picture

They will be the only analyst to know how to cover any type of attack in the markets.

911?  They are  the only analsyt from Zerohedge who was actually active as analysts at that time. 

jane says's picture

Have you frauds been over to the dailywestern site? It's great for spam.

milo_hoffman's picture

I guess I should stock up on cheap crap from China this weekend. :)

Justin Case's picture

Ya, the merican corporations operating out of China need yoar support now.

MsCreant's picture

Why is no one covering Charlottesville? 

jane says's picture

Some rowdiness concernig civil war monuments and things like that.