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.

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milo_hoffman's picture

No, rowdiness is anytime more than 3 black people get together in any major city, then you have a riot.

 

A gathering of a bunch of white boys from the south will be polite and non-eventfull.

JimBobJenkins's picture

Good! These slant eye savages have made a killing at the expense of our middle class. Bring the jobs home let them eat "commie " cake.

Justin Case's picture

The merica emipire are the savages destroying life in the middle east the last decade and created a humanitarian crisis. Yoar Gov't and corporations shit on you and moved to China for profits. Gov't promoted the move with trade deals for China.

If you think China is communist you need serious updating to yoar knowledge. Is Russia still the USSR in yoar mind as well? You must have been in a beer and sports induced comma to think that.

JimBobJenkins's picture

Did I advocate anywhere in my post about ME destruction or support for the US .gov. No, I simply stated that those savages have made a killing at the expense of the middle class. I don't watch sports nor do I drink. If China isn't communist what is it? Some sort of involuntary slave like totalitarian market system?

Justin Case's picture

You savages let yoar Gov't sell you out to China by allowing the corporations move their. Nixon opened the door to China.

Better?

NuYawkFrankie's picture

Paging Trump The Fool.... Paging Trump The Fool....

Try askin your 'Best Buddy In the Whole Wide World' - NuttyYahoo, y'know the guy that sleeps in Kid Kushner's bed - about ISISrael's "technology transfers" to China... military as well...

And try askin the Rev. "Hallelujah!" Hillary next time she surfaces with one of her "Revival" Meetings about all those mysterious Chinese guys in the Clinton Regime's inner-circle going all the way back Gov Slick Willy of Arkansas...

Oh yeah - and don't forget to ask (just walk down the hall) your ex-Squid Economic Guru Guy - Gary Cohen - how come The Squid & Wall St asset-stripped the manufacturing/industrial-base of America and shipped it off to China in the first place? WTF was all that about? What kind of a "deal" was that?

Hope these "pointers" help.
Hail To The Chief etc. Have a Nice Day.

Michigander's picture

But...but...where will we get our shit drywall, formaldehyde laced pet food, and our substandard steel?

Cathay Kid's picture

Japan like we used to. ( sorry, Sister)

Blacksunday3's picture

Finally have a real president

lntr's picture

big difference from your Obama

Son of Captain Nemo's picture

Xi to syphilis-in-chief...

Ooohhh we're really scared by your trade sanctions!...

Let us know when Best Buy and Walmart want to replenish there shelves!!!

Cathay Kid's picture

You are very suave , Son, with a light touch of sarcasm.

bobert727's picture

But wait....I need my IPhone 8, 9 and 10

Thom Paine's picture

This along with the India thing is all part of the NK thing.

Trying different ways to pressure China into getting rid of Kim.

Winston Churchill's picture

If Americans knew the true history of both Mao's revolution and the Korean war they would know how futile

that hope is.Kim being as you as he is,with no personal experience of either,is the best hope to finally achieve some sort of peace.

Theres no money in it for the MIC, so of course it won't happen.

China is already well into their long term plans to substitute the US with other markets for their goods.

Thats the whole point of OBOR.Any sanctions on  China will be counter productive.

When you're in a hole,its best to stop digging, but no,DJT places an order for a bigger earth mover.

A grave is only a big hole.

Justin Case's picture

I think China has done some very intelligent maneuvering particularly since the 2008 crisis. They figured out US fractional reserve scheme was toast but they played along anyway. They even levered up as much or more than we did since then. However, with this increase in credit they have built infrastructure in the form of roads, bridges, cities, plant and equipment …all for and with future uses. The West on the other hand has thrown a “standard of living party” and neglected infrastructure to the point of dilapidation. Yes China’s financial system will implode with all the rest, they may even lead it! But, they will be left with new infrastructure and “money” (meric's gold) to get started again. President Xi has even said this to his people and to the world. He said the short term would be difficult but the long term beneficial. I think he is telling the truth!

Cathay Kid's picture

Market knew Thursday.

BigCumulusClouds's picture

Another dead one to add to the Clinton body count:
https://m.facebook.com/story.php?story_fbid=1545025372240352&id=15892429...

"They're good people"-- President DJT.

BritBob's picture

China – Argentina – the Falklands

In tune with Macri's words, Xi Jinping thanked Argentina "the support they have given us for our claim of a single China as we support theirs for the Falkland Islands."  (Telam 17 May 2017)

How can Argentina claim the Falklands when she has never legally owned them?

Falklands- Never Belonged to Argentina:

 

https://www.academia.edu/31111843/Falklands_Never_Belonged_to_Argentina

gunzeon's picture

well, let'hop that whatever's so fucken valuable down their pays for that new aircraft carrier and all the base and logistics.

Giga-quids.

Justin Case's picture

The sheep fuckers want the pile of dirt back.

Arctic Frost's picture

Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources Anonymous sources

So on Monday when none of this happens. . .are all these outlets (Zerohedge included) going to retract these stories? Ohhhh nooooo, they can't do that. They just sit back and hope no one notices. We notice EVERY SINGLE TIME and we don't forget!

Arnold's picture

You don't get punched in the mouth much, do you?

mc888's picture

That's why women never learn to behave.

Not that I'm advocating violence against women. It's one of the "experiential differences" the snowflakes are always talking about. Men grow up and quickly learn if they act like an asshole, they get their ass kicked. Women never learn that life lesson.

Savvy's picture

Far as I know, China never held a gun to anyone's head and said you must buy our cheap shit. You Americans did it to yourselves while ignoring that giant sucking sound from the East.

BigCumulusClouds's picture

The liberals sent the jobs to China.

Savvy's picture

The corporatists sent the jobs to China. No matter who gets elected the gov is in control.

shimmy's picture

No, the corporations sent the jobs to China which by extension means the investors looking to maximize their share value...but yeah, just blame liberals like they pointed guns at the companies and told them to send jobs elsewhere to save some cash. Actually, by extension, the American population wanting cheaper stuff helped send the jobs over there.

Is constantly finding someone who isn't mainly responsible to blame a requirement to be an American? I swear, that's all the people living there do. No wonder the country is so screwed up when all everyone does is just point fingers while bitching and moaning.

Justin Case's picture

Nixon started it for the corporatocracy. Those are the Guys that fund the elections and bring you the fake news to support the Gov't agenda. It's working great until recently, but judging by the comments here some are still wandering sheep.

JBilyj's picture

But you're ok with intellectual theft of patents and currency devaluations that go against WTO rules? GOTCHA...

JimmyRainbow's picture

and monsanto seed-nazis eating you out from within is delicious?

Xena fobe's picture

Stateless monopoly corporations bribed the Clintons to carry out their plans.

Now the same global monopolies are being challenged by their Chinese counterparts.  Probably being squeezed on price too.  Not acceptable.

sirsmokum's picture

Good bye dollar!

dogismycopilot's picture

Good because there is just too much shit made in China these days. It's out of fucking control.

 

Savvy's picture

Then stop buying it!!! Vote with your wallet! It's the only thing corps respect.

Justin Case's picture

merica is too poor to vote with an empty wallet and credit built economy.

Dank fur Kopf's picture

China just needs to increase minimum wage, and stocks in virtually every US company being to tank.

I think tech companies are about to be gutted, as that's the easiest ban for China to roll out immediately, and it will attack the neocon base hard.

bluez's picture

All my stuff comes in the US mail straight from China. The Chinese don't care all that much, since what, actually, can we do for them? NOTHING!

We're gonna be fighting a war we already lost. Yeah it's a great idea but we needed it 40 years ago.

This ship is already on the bottom. Me? I'm just wingin' it.

45North1's picture

Jeez, after you get their Security Council vote on North Korean sanction, you renege on trade.

The US will be isolated on almost all fronts by December, Europe....fading, China and Russia out and little to sell to India.

NAFTA talks should be interesting.

Thordoom's picture

Germany will go for China and that means rest of the Europe will follow their lead. People might not like it but for Europe it is good move to turn to Eurasia and Asia. Silk Road will be blessing for Azian/European trade and  growth. That is why US want to do everything to stop it because there is nothign for them but huge loses. I have feelign that US is behind the curtain poking India to mess with Chinsese because of that border  dispute. Remember that silk road must not happen or it is the death of US hegemony.

Justin Case's picture

As the old horse is put out to pasture, money intrests find the next race horse. Bye bye american pie.

shimmy's picture

I look forward to this as I expect it'll be somewhat of a disaster and I can't wait to see who president pumpkin then blames for something he is choosing to do.

My favourite thing has to be all the Americans who seem to act like stuff built domestically is automatically high quality. Most stuff I have got that is built there hasn't been anything special and usually has issues, more than stuff built in China.

I understand the theory behind this but theory often doesn't match reality. Just go ask keynesians about that.

ToSoft4Truth's picture

Before the Great Recession GM was killing people with their cars.  People forgot. 

 

Greed is King's picture

Not only GM, the man responsible for the largest number of deaths in the 20th century was neither Hitler or Stalin, it was an American called Thomas Midgley, he`s still causing deaths up to this day and the cause of the deaths was covered up by the authorities until long after Midgleys death in 1944.

Xena fobe's picture

You found something built here? What?

dirty fingernails's picture

Yeah, its labeled "Raytheon" whatever that is lol

dirty fingernails's picture

My favorite trope is the idea that US manufacturing of good would restart semi-seamlessly  in a few weeks. Perhaps so if the machines from the factories were stillbon US soil! As it is, a trade war will crush the US economy in the short term. Good, bring the pain. We American's have been too spoiled and insulated for too long. Lets cull the herd for the good of the planet and the species