"This Whole Episode Suggests China Is Deeply Worried About US Trade Sanctions"

In the 24 hours since Bloomberg headlines proclaimed China would slow or halt its Treasury purchases, a number of events have taken place:

President Trump, while praising China over North Korea, suggested they "could do a lot more" in an interview earlier today.

Treasury Secretary Steve Mnuchin mentioned 'trade sanctions' during his appearance in The White House press briefing this afternoon.

And then tonight, Commerce Secretary Wilbur Ross has sent the White House the results of an investigation of steel imports that could lead to new tariffs on Chinese shipments, the Commerce Department announced Thursday.

The Commerce Department statement didn’t disclose the findings of its inquiry into whether steel imports threaten U.S. national security. President Donald Trump has 90 days to act on the report. He can respond to any threats by imposing tariffs and quotas or entering into talks with foreign producers to find a solution.

All of which suggest a common message from Washington that they stand ready to escalate protectionism amid China's looming petro-yuan future implementation.


Furthermore, as Rafiki Capital Management's Steven Englander notes, the whole episode suggests that China is deepy worried about the possibility of US trade sanctions.

As we expected yesterday, China has denied the story on the shift from US Treasuries, emphasizing their commitment to being a responsible participant in the international financial system.

My wife says I am the most naive guy in any room I am in, so I believe both stories are true (with a caveat that I mention below).

It is just that we live in a world of situational/Snapchat (i.e. disapppears in 15 seconds)/temporary truth. So yesterday's truth dissipates and is replaced by today's. 



A couple of takeaways

1) The whole episode suggests that China is deeply worried about the possibility of US trade sanctions, and more broadly the US taking a more assertive in rectifying perceived issues in the bilateral trade relations. Every Administration goes through an episode of promising to deal with Chinese trade interventions and ends up with a watered down, vague agreement. China's pre-emptive action suggests that this time the level of worry is different.

2)  It is hard to see that China is better off today than two days ago. In between the story and the denial, there was a very strong Treasury auction and at the worst the damage to equity markets was small. By the close equities had recovered most of their losses, and even though yields are back up for other reasons, equities are still going strong. If anything, it suggests less vulnerability in asset markets, rather than more.

3)  There is a way of having a major impact on US asset markets. But that would involve a longer term selling of US fixed income assets and reduction in Treasury holdings. The announcement that their holdings had dropped significantly would have a much bigger impact than the indication that it was something they were thinking about. As was the case yesterday, there is an element of shooting yourself in the foot when you tank an asset of which you are a major holder (although possibly they bought at the low late in the day). Given the size of the holdings, it is really difficult for them to back out -- the only time to do it would be when others are buying or there is some sort of QE program so they are not always on the offer.

4) NB: The trading pattern of the day before the story came out suggests that China may have been hedging some of its bond holdings, which suggests that perhaps there was more than a grain of truth to the story. 

and I repeat my advice to the Chinese authorities:  It's easier, cheaper and risks less unwanted spillover to wave USD100k in a trailer park, get a dossier and derail the US government from any significant policy action for another two years.  



Antifaschistische auricle Thu, 01/11/2018 - 22:44 Permalink

Hey, I've always supported the efforts of Chinese people (not the government) to improve their own lives and the condition of their families.   I spent a lot of time in China and the enterprising spirit, at the street level, is the strongest on the planet.

However, I have a news flash for China.  You've enjoyed 3 decades of pulling wealth out of the US.  Congratulations.  But, the US is running out of wealth, and the party WILL one day end.  THATs what you need to fear...not the piddly trade war.

In reply to by auricle

uhland62 Bes Thu, 01/11/2018 - 21:47 Permalink

The bigger the club on sanctions, the better they work together. 

Australia will stop buying the excessively expensive F-35s because without the China trade we will not have the money. But maybe we can get our pollies to cut the umbilical chord.

Unlike the US we do not have enough overpasses to let large numbers of an impoverished population shelter under. 

In reply to by Bes

Element nmewn Thu, 01/11/2018 - 23:32 Permalink



If only he were a bit more mealy-mouthed though.

I tend to think repub-conserves love to play dumb and seem dumb, as a tactic (Dems sorta caught on to this, but are actually incred-dumb to begin with, so don't really follow the concept, but benefit despite this), to obtain international unobtainium, regardless.

I get the feeling The Last Trump is jumping-the-shark just a wee bit with it, but is so baseline nukingfutz, and has so many weapons and itchy trigger fingers that it works anyway. There is no shark that can not be jumped.

Maybe there's a point where playing scary-dumb becomes counterproductive ... looks like we're going to explore the outer-envelope.

In the meantime, some intrigue fior your edification. Yes, this is a real doc from the CHICOMS, but hey, it's presented as a 'leak', in Chinglish, but does paint a suitably underhanded and pragmatic picture of deeeeeeeep double-dealing within Chinese positioning and spinning/exploiting the situation).


No. 000003


Document of General Office of the Communist Party of China

GOC Issuance (2017) No. 94

The Decision of General Office of the Communist Party of China on Conducting Communication and Coordination Work between Our Country and the Democratic People's Republic of Korea for Further In-depth Solution of Its Nuclear Issue

International Liaison Department of CPC,

The Democratic People's Republic of Korea (abbreviated as Korea hereafter) is not only an important military buffer zone for our country to fend off the western hostile forces, but also, for socialism with Chinese characteristics led by our Party, its important political and strategic position is also irreplaceable. Therefore, our Party and country, must defend the sovereignty and territorial integrity of Korea at all costs and really ensure the stability and continuity of the Korean government, and unwaveringly stick to our position to firmly maintain peace on the Korean Peninsula. Given the fact that the Korean administration recently acted arbitrarily again to conduct the sixth underground nuclear test without fully consulting with us and created a huge negative impact on the international community because of this, the Security Council of the United Nations unanimously approved United Nations Security Council Resolution 2375 (referred as the Resolution hereafter) on September 11, 2017 local time to further punish and isolate the Korean administration. The result of the Resolution appropriately strengthened the punishment against the Korean administration. However it also aggravated the suffering of the general population inside Korea and further made the situation on the peninsula tending to be more complicated and ambiguous. In any sense, historical experience shows that terms or resolutions as such will not and are impossible to force the Korean administration to suspend or completely give up conducting nuclear tests. On the contrary, because of huge double pressure from both domestic and foreign sources, based on its own political and security concerns, the Korean administration will further consolidate its will and determination to continue its development of nuclear forces, and that will aggravate the vicious cycle of the situation on the Korean peninsula. Now, to further broaden and strengthen coordination and effectively deepen the solution of the Korean nuclear issue, according to the related decisions and arrangements for the Korean nuclear issue by the Party Central Committee and the State Council, and with the guiding spirit on handling the Korean-related issues from various meetings of the National Security Commission of the Communist Party of China, after research and assessment, the Central Committee of the Communist Party of China decided to authorize your department to lead and organize the communication and coordination work with the Korean administration on its nuclear issues.


The specific requirements are as the following:

Your department should further emphasize to Korea about our determination to protect the Korean government on behalf of the Central Committee of CPC and reiterate and confirm the related assurance made by us. At the same time, your department should make further specific, profound, and detailed analyses for Korea on the current situation of the Korean Peninsula in exchange for Korea to make substantiacompromises on its nuclear issues. According to the current deployment of world forces and the geographic position of the Korean Peninsula, to prevent the collapse of the Korean government and the possible direct military confrontation with western hostile forces led by the United States on the Korean Peninsula caused by these issues, our country, Russia, and other countries will have to resort to all the effective measures such as diplomatic good offices and military diversion to firmly ensure the peace and stability on the Korean Peninsula and to prevent "chaos and war," which is also the common position held firmly by our country, Russia, and others. Meanwhile, considering if the United States rushes to war against Korea, it will certainly have a huge influence and impact on the political and economic structure of the Asian Pacific region and even the whole world. At such a time, the security of Japan and (South) Korea can be hardly taken care of, especially the security of Seoul, the (South) Korean capital. Also, our country, Russia, and others will absolutely not look on the chaotic situation on the Korean Peninsula without taking any action. So taking the factors of various aspects into comprehensive consideration, theoretically the possibility does not exist that western countries led by the United States will carry out armed provocations and even overthrow the current Korean government via military means in order to solve Korean nuclear issues.

However, international provocations by Korea via repeatedly conducting nuclear tests has imposed huge international pressure on our country which is continuously accumulating and becoming unbearably heavy. To show the position of our country as a responsible world power to firmly support the denuclearization of the Korean Peninsula and maintain the authority of its signed Treaty on the Non-Proliferation of Nuclear Weapons, while your department gives Korea a stern warning, you should also make further related assurances to Korea at the same time, that is, currently Korea will not have to immediately give up its nuclear weapons, and that so long as Korea promises not to continue conducting new nuclear tests and immediately puts those promises into action, our country will immediately increase economic, trade, and military assistance to Korea, and will add or continue providing the following benefits:


1. To greatly promote increasing trade with Korea to ensure the normal operation of the Korean government and raise the living standard of the Korean people. As for products under international sanctions such as crude oil products (except for the related products clearly defined as related to nuclear tests), under the condition of fully ensuring domestic demand of Korea, we will only make a symbolic handling or punishment.


2. After closing down Korean businesses in China according to the terms of the Resolution, our country will not for the moment restrict Korea from entrusting qualified Chinese agencies from trade with Korea or conducting related trade activities via third countries (region).


3. To further strengthen and increase assistance for the daily life and infrastructure building of Korea, 2018 related assistance funds will have a one-time increase of 15% more than 2017, and in the following five years, they will be increased each year by no less than 10% over the previous year .


4. Regulations that our country would suspend all banking business with Korea will only apply to state-owned banks controlled by the central government and some regional banks.


5. To increase investment in Korean defensive military construction and further provide Korea with high level military science and technology, such as more advanced mid- and short-range ballistic missiles, cluster munitions, etc., assisting in strengthening Korea's ability to maintain stability according to the stability maintenance experience of our country and Korean characteristics.

Your department should at the same time seriously warn the Korean authorities not to overdo things on the nuclear issue. Currently, there is no issue for our country to forcefully ask Korea to immediately and completely give up its nuclear weapons. Instead, we ask Korea to maintain restraint and after some years when the conditions are ripe, to apply gradual reforms and eventually meet the requirement of denuclearization on the Korean Peninsula. If Korea insists on acting arbitrarily, our country will further assess it and unilaterally impose specific punitive measures against Korean senior leaders and their family members.

This issue is about the peace and stability of the Korean Peninsula and the fundamental interests of our Party, our country, and all Chinese people, so your department should quickly cooperate with the Ministry of Foreign Affairs, the Ministry of Commerce, etc. according to the requirements of this decision and related spirit, to carefully make a related working plan, to ensure the sense of responsibility, to strictly maintain related confidentiality, and to seriously accomplish the heavy tasks entrusted by the Central Committee of CPC.


General Office of the Communist Party of China (seal)


September 15, 2017

Copied to: General Office of the Standing Committee of the National People's Congress, General Office of the State Council, and General Office of the Central Military Commission.


Printed and distributed by the Secretariat of General Office of the Communist Party of China on


September 19, 2017.

PDF Link http://freebeacon.com/wp-content/uploads/2018/01/PRC-Central-Committee-document-translation-revised.pdf



Frankly the ROK leadership have gone all llimp-dick. Appeasing and buying-off and enabling the DPRK is a guaranteed recipe for much worse to come, especially for China and Russia, and "other countries". And it's both the CHICOMS and ROK doing that and supposedly expecting this to prevent a conflict, via the 5 points above, or the current form of them?


What are the chances that doesn't produce unintended consequences?

In reply to by nmewn

JimmyJones Bes Thu, 01/11/2018 - 21:26 Permalink

Taken real action through sanctions is thinking long term and actually puts some teeth in an agreement. I'm all for immigration enforcement and a healthy toe to toe trade war with China. Now that the EPA is getting whipped into shape we can gear up and produce hard core. Get the Thorium issue taken care of and now we can finally make use of rear earth minerals again and can get back in the electronic component game. If we want to be part of the robotic revolution we have to. There will be short term pain but huge growth afterwards.

In reply to by Bes

nmewn Bes Thu, 01/11/2018 - 21:28 Permalink

Its really all we (as Americans) ever asked for, to be left alone.

No more of our aircraft carriers being sent to the west coast of Africa for ebola. No more foreign wars. No more free rides by NATO. No more more euro-peon neo-con socialist influences. No more foreign aid. No more "free trade" now...only fair trade. 

And this...depresses you...somehow?

In reply to by Bes

Bes JimmyJones Thu, 01/11/2018 - 22:30 Permalink


look around,

everything around you is and has always been dependent on international trade

the jobs will come back when Americans get treated like Chinese slave labor


if there is enough taxpayer funded Corporate Welfare to line the executives' pockets

and not a moment before


and don't ever forget that it was American oligarchs and businesses that sold out America people for Chinese slave labor.

In reply to by JimmyJones

The Greek horse wisehiney Thu, 01/11/2018 - 21:42 Permalink

Get em sir I hope you are JOKING.. TRUMP is or has become a globalist deal with it even if you have cognitive  dissonance or a low IQ...  Lock her up has not happen or will it ever get HITLERY incarcerated .. The wall MEXICO will not pay for it and if the USSA pays for it then Chapter 11 something TRUMP knows all too well!! Jerusalem CAPITAL enough said!  NORTH KOREA AND IRAN NO ROTHCHILD BANKS!!??  TRUMP is on the brink of WAR with those countries hopefully we as humans won't experience NUCLEAR winters.. HAY the MIC is money hungry too... TRUMP quote WE WILL MAKE OUR ARMY BIGGER AND STRONGER then anybodies else??   O YEAH TRUMP WILL MEET IN 2 WEEKS  at Davos   to discuss AMERICA FIRST POLICY in FRONT OF GLOBALIST 

ARE YOU FUCKING KIDDING ME !!!!!   PUTIN IS PLAYING 4D chess TRUMP is playing the American PEOPLE like a yo-yo

In reply to by wisehiney

Simplifiedfrisbee The Greek horse Fri, 01/12/2018 - 00:02 Permalink

He is a robot. Zero hedge is now receiving Mercer money and the goal is to promote radical right wing propaganda. I was warned this was an extension of the Annunaki white super hybrid alien warrior type Nazi propaganda. Globalism, central banks, and trade come last to racism, bigotry, and xenophobia. Every moron here has a death wish. They might as well pull the trigger on themselves or continue down the road of their sons and daughters-overdosing. 

In reply to by The Greek horse

peddling-fiction J bones Thu, 01/11/2018 - 21:51 Permalink

I would invest them in productive veggie greenhouses and chicken farms.

Something that people will need to buy, and that will increase in price as inflation rises. Oil is already up to $70 a barrel.

Be able to defend your produce and chicken coops. Bring family and friends to a compound with different skills. Carpenters, metalworkers, mechanics.

Solar, well, rainwater catchment.

Prep, lock and load.

Confess your sins.

No fear.

In reply to by J bones

Parrotile peddling-fiction Thu, 01/11/2018 - 22:25 Permalink

It is useful to remember that China's "One Belt, One Road" initiative does NOT include the US, or "US-allies".

Let the US cut off Chinese imports - then find they have to pay MORE for the SAME imports via third-party suppliers.

Thinking that "US Industry" will make up the shortfall in anything other than many years is wishful thinking.

China still finds "good US relationships" useful, but not essential, and as they expand their client base (globally), this "mutually beneficial arrangement" becomes far less beneficial - for them.

It will be interesting to see what plans Xi has for the coming 12 months.

In reply to by peddling-fiction

Davidduke2000 Thu, 01/11/2018 - 21:14 Permalink

the us represent only 16% of China's export, this article makes it look 99%. China can increase the exports to other countries to replace the us, however the us cannot live without China's imports, as people will go back eating dog food like in the Reagan era as soon as the dollar stores close.

Even though inflation is above 20% in the us it will climb much much more when China's imports stop coming to the us.

Snaffew Thu, 01/11/2018 - 21:16 Permalink

"China has denied the story on the shift from US Treasuries, emphasizing their commitment to being a responsible participant in the international financial system." 

If you can call any of this madness responsible---

east of eden Thu, 01/11/2018 - 21:21 Permalink

'China is worried about US trade sanctions'?

I don't think so. They are well on their way to creating a trading block that will lift up 3 Billion people from abject poverty to lives that are much better.

Do you honest to God think that the US, with it's share of global population of 2%, deserves to brutalize and destroy the things that we are trying to put into place?

If you do, then you are either a complete fool, or a complete tool.

You are broke. Bankrupt. You have no tradeable gold. Your country is at war with itself and everything that you produce is overpriced and most certainly of little value. 

Smarten the fuck up.