US Fires Latest Shot In China Trade War: Warns Beijing Is "Threat To World's Trading System"

It's been at least a few weeks since the topic of trade war with China dominated the news flow, so moments ago U.S. Trade Representative Robert Lighthizer decided to poke that particular wound, in during a speech in Washington said that "China’s coordinated effort to create national champions and distort markets is a threat to the world’s trading system."

Some headlines from his speech, via Reuters:

  • USTR LIGHTHIZER SAYS THERE IS A GROWING FEELING AMONG VOTERS THAT GLOBAL TRADING SYSTEM NOT FAIR TO U.S. WORKERS
  • USTR LIGHTHIZER SAYS "WE WILL HAVE CHANGE IN TRADE POLICY"
  • USTR LIGHTHIZER SAYS U.S. CAN COMPETE IF CONDITIONS ARE FAIR
  • USTR LIGHTHIZER SAYS HE AND TRUMP BELIEVE U.S. SHOULD BE MORE PROACTIVE IN TRADE POLICY, DEMAND RECIPROCITY
  • USTR LIGHTHIZER SAYS HE AND TRUMP BELIEVE THAT TRADE DEFICITS MATTER
  • USTR LIGHTHIZER SAYS SCALE OF CHINA'S EFFORT TO SUBSIDIZE INDUSTRIES IS A THREAT TO WORLD TRADING SYSTEM
  • USTR LIGHTHIZER SAYS 301 PROBE INTO CHINA'S INTELLECTUAL PROPERTY PRACTICES COULD LEAD TO WTO CASES

Bloomberg provides some further details, quoting the US trade rep as saying that "WTO isn’t equipped to deal with the problem, and the U.S. must find other ways to defend our workers, companies and economic system." As a result, Lighthizer says "we will have change on trade policy", a statement that certainly did not come from the Goldman circle of close Trump advisors.

He also said that “the real policy difference is not over whether we want efficient markets, but how do we get them” adding that the US "must be proactive, as years of talking about the problems haven’t worked" and that “we must demand reciprocity.”

Finally, the US trade rep said that he agrees with President Trump that trade deficits matter and that he agrees macroeconomic factors have an impact on trade deficits, but terms of trade also matter.

In light of what Bank of America just said, namely that the fate of the ongoing game of chicken between the US and North Korea rests in the hands of China, and that any potential provocations by the US could result in a volatile outcome...

If China's willingness to give more ground may be limited (even with the approach of its 19th Party Congress on Oct 18), the market is not pricing much in terms of the risk of a deterioration of the US-China relationship.... Washington has been threatening trade sanctions against China to force Chinese compliance on North Korea. We suspect an escalation of tension between Washington and Beijing would likely be accompanied by CNH weakening (intentional on the part of Beijing or not). 

... we eagerly await Beijing's response to this latest escalation in (per) trade war tensions between the two economic giants.