China Warns Trump "We Will Outlast You" As US "Significantly Escalates" Trade War

Beijing sent the first messaging salvo ahead of the Steven Mnuchin-led delegation to China (which will engage in trade talks over May 3-4) overnight when the PBOC fixed the yuan sharply lower than many expected. The signal was clear: push us hard enough, and we may just launch another devaluation. Or worse.

A little while later, Beijing did its best attempt at managing expectations, when it said that it’s "unrealistic" to expect to solve all issues between the U.S. and China at a single meeting, given the economic sizes of the two countries and their complex economic and trade relationship, foreign ministry spokeswoman Hua Chunying says at daily briefing.

While Hua tried his best to pay the diplomatic "good cop", saying it was in the mutual interest of both countries to solve trade issues through consultation, just a few hours later, China's foreign minister Wang Yi was the bad cop, who warned that whereas China would welcome a successful outcome from upcoming trade talks with the United States, it  is "fully prepared for all outcomes and will not negotiate on core interests."

Then the "worst cop" emerged in the form of yet another, unnamed official who according to Reuters said that talks must be held as equals and be mutually beneficial, echoing EU president Jean-Claude Juncker, saying that Beijing would not yield to any trade threats from Washington or accept any preconditions for talks.

He then uttered the most explicit warning yet: "In the event of a trade war, we have a much greater ability to endure (the consequences) than the U.S.," the official said.

As a reminder, the United States has asked China to reduce its bilateral trade surplus by $100 billion and as reported last night, targeted Beijing's "Made in China 2025" initiative, which aims to upgrade the domestic manufacturing base with more advanced products.

China - which last year had a record trade surplus of $375 billion with the United States - responded that Beijing would not accept talks with any preconditions.

* * *

Then, just moments ago, the WSJ reported that in response to this latest escalation, the US is considering executive action that would restrict some Chinese companies’ ability to sell telecommunications equipment in the U.S., based on national-security concerns.

As the WSJ points out, this move "would represent a significant escalation of a growing feud between the U.S. and China over tech and telecommunications." The affected firms likely would include Huawei Technologies Co. and ZTE Corp. , two of the world’s leading telecommunications equipment makers. They have found themselves increasingly in an international crossfire.

Pentagon officials said this week that they are moving to halt the sale of phones made by the two companies on U.S. military bases around the world. U.S. officials are concerned that Beijing could order manufacturers to hack into products they make to spy or disable communications. Huawei and ZTE have said that would never happen.

This latest salvo could come in the form of a Trump executive order, possibly in the next few weeks. One possibility under consideration has been curbing the ability of companies doing business with the U.S. government from using network equipment made by companies that could pose a national-security risk.

* * *

While for now the escalating back-and-forth is nothing more than verbal foreplay, it will last at most three more weeks because the Treasury faces a May 21 deadline to report on restrictions on Chinese investment in the US, as part of the response to the recent Section 301 intellectual property investigation.

And, as Goldman writes this morning, enhanced investment restrictions have fairly broad support in Congress as well, raising the probability that restrictions will be implemented this year.

Goldman's conclusion: don't expect any good news until the 11th hour, and if anything, another batch of bad news may be next:

Unlike the NAFTA and steel issues, some additional market-disruptive policy moves regarding US-China trade seem likely. The most immediate focus will be the delegation of Administration officials set to meet with Chinese officials starting May 3 in Beijing. We believe a substantial breakthrough at this meeting is unlikely as the issues the US has raised—intellectual property policies, technology transfer, and the “Made in China 2025” strategy, in particular—are not the type of technical trade issues that can be resolved quickly.

For now, with neither China nor the US willing to back down and compromise, expect the war of words to escalate dramatically over the next 3 weeks as we reach the May 21 deadline.

Comments

EcoJoker Wed, 05/02/2018 - 13:15 Permalink

The whole concept of outlasting us is stupid.  We can live without your cheap lead-painted products.   Like I need another shitty string trimmer that breaks after a week.

Good luck feeding a billion people on US soybeans and wheat that you're slapping tariffs on.   

 

 

 

mkkby Bush Baby Wed, 05/02/2018 - 15:31 Permalink

The big lie is that china is a modern society.  They have a few new cities, but 800 million still live in a 3rd world shit hole.  It's just window dressing to fool stupid investors.  A few smart investors have found the vacant cities and other lies.

US debt is bad, china's is much worse.  To compete outside their little region they will need to spend big on the military and social programs.  Even in the new cities, people choke on their own exhaust fumes and wear masks to breathe.  Dead pigs float down the rivers.  Lovely place.  It will take them 30 years just to reverse the pollution from industrializing too fast.

If the US raises rates and tariffs foreign investment will start leaving.  China be dirt poor again in no time.  The real leaders of asia are japan, south korea, hong kong, singapor and taiwan.  They actually have modern economies.

India, viet nam and myanmar have a billion hard working poor people who would love to make walmart's plastic junk.

In reply to by Bush Baby

techpriest ne-tiger Wed, 05/02/2018 - 16:07 Permalink

Right, when my grandmother-in-law told me about her mom's farm being taken away and all of her neighbors starving, that never happened. When my father-in-law told me about how his grandmother took her rations (his uncle was a "martyr of the revolution") and deliberately starved herself so my father-in-law, a baby at the time, could survive while many died, it must have been an old woman's tale. Or the gentleman telling me about his time in a re-education camp, or that lady being conscripted in middle school to a team of kids digging out a lake with shovels, or...

I've worked with many Chinese students at this point, and save for one or two who are directly on the take in guanxi positions, most would rather live somewhere else. And if not them, their parents insist on having their children and money leave. I've seen a lot of nice places in China and Beijing was looking pretty good when I visited in January after the cleanup policy, but if so many people are getting their money and children out, why would that be? What's driving people away?

In reply to by ne-tiger

falconflight ne-tiger Wed, 05/02/2018 - 18:24 Permalink

Is that your best answer?  40 to 60 million victims of Democide over the course of the period of the 1930's through at least the early 1970's in a nation with a birth rate quadrupling population in the same time frame doesn't support your proof.  I didn't ask for links, I only asked for the source (s) oh, like the Communist Chinese Party?  Are there any other sources based in China?

In reply to by ne-tiger

COSMOS techpriest Wed, 05/02/2018 - 18:17 Permalink

Well you are right but also what is driving the people away is the government for purposesof COLONISATION be it intentional or not.  All these Chinatowns are like bases in foreign lands.  Look at South East Asia where chinese are minority but control most businesses. When you have such huge numbers of citizens you can afford to push many out to foster a Chinatown in every decent city around the world.

In reply to by techpriest

Parrotile Miffed Microbi… Wed, 05/02/2018 - 16:27 Permalink

The "Western view" obscures the reality.

http://thesaker.is/when-chinese-trash-saved-the-world-western-lies-abou…

By expanding the availability of education, Mau brought China into the 20th Century, and laid the foundations for today's highly advanced, highly capable society.

Reality isn't quite as was claimed by John King Fairbanks ("China, a New History")

In reply to by Miffed Microbi…

falconflight Parrotile Wed, 05/02/2018 - 16:54 Permalink

Jesus, you fatuous propagandizing piece of fishy diet smelling shit.  Now we are to laud your oh so very bright and shiny comment that "Mau" (Sic) brought China into the 20th Century and the other PRC/CCP officially approved swill you spewed.  I'm having a lot of fun lately at ZeroHeft and their cadre' of troll idiocy. Your user ID/Avatar is appropriate. 

In reply to by Parrotile

falconflight Mr Hankey Wed, 05/02/2018 - 18:36 Permalink

While they are docile and worshipful of authority (More so in the past 50 years), let's talk about China and Russia, their populations and their apparent (?) acceptance of 100 million murdered by their Governments (Democide).  Oh, that's right, it is easily refuted...it is merely Western propaganda, it didn't happen.

In reply to by Mr Hankey

LaugherNYC mkkby Wed, 05/02/2018 - 23:47 Permalink

Correct. Thousands of companies have relocated manufacturing to other SE Asian countries in the past 10 years because of the rising costs, rampant corruption, and unbearable and dangerous pollution their execs and workers are exposed to. A company on whose Board I served closed up in China because the corrupt local cops and military threatened his life if he did not give them a cut of his py, and his family if he reported them. They moved to Vietnam, saved money and had no issues with the law. Profits soared, and they no longer had to deal with the relentless pressure to had over their technology and research so the Chinese could steal it.

Win win win. 

China is rpidly becoming 1990s Japan.

In reply to by mkkby

Peterman333 Pol Pot Wed, 05/02/2018 - 15:46 Permalink

The carcinogens in the char on that steak will kill you, along with the olive oil clogging your arteries, it's a myth that olive oil is healthy for you and especially when you cook with it.  Avoid all oils and charred steak, put a piece of foil under the grate to prevent the flames from charring the steak.

In reply to by Pol Pot

Fireman LaugherNYC Wed, 05/02/2018 - 14:15 Permalink

That's a crock. Contrary to the usual hubris and arrogance of Western banksters and so-called €conomist$ the future of money is being decided by those countries that actually have physical reserves and resources and the military power to control them. For Russia and China "reserves and resources" does not mean the unpayable debt that Western capitalists imagine "wealth" to be as they continue to impoverish their hostage nations with their anti capitalist cant that has turned the so-called Western "democracies" into impoverished welfare ruins over run by Soros' migrant hordes to distract the masses from the real enemy among them. One gets it or one doesn't as the case may be but the Anglozionazi centric world is already a thing of the past. That future does not include a "global reserve currency" style Fedcon slash Blipcoin owned by the money changers and globally imposed as the Pentacon Kissinger Saudi Mercan IOU petroscrip toilet paper dollah was, whatever about being imposed on USSAN and Europeon debt slaves only too happy to exist in their cashless, electronic gulags "all watched over by machines of loving grace" as they jab their electro thingies In lieu of using a brain to "purchase" their Latte dumbass I'm a moron five buck starschmucks zio piss "coffee".

Grasp the golden rule while you can; He who has the gold makes the rules.

In reply to by LaugherNYC

LaugherNYC Fireman Wed, 05/02/2018 - 17:57 Permalink

Wow, do you imagine that there is anyone who could read and make sense of you Trollicious post?

 

Blahblahblah - your answer is just another Troll bunch of unintelligible insanity clearly from someone who has never been involved in the capital markets and sits on his fat ass on the sidelines watching the pros saying "Messi shoulda passed that one" as if some slovenly turd in the stands has any clue what is going on on the pitch.

Hey, The great nation of Russia DEFAULTED ON ITS SOVEREIGN DEBT in 1998. Caused a bit of a kerfluffle that. Did that mean the end of Russia? Nope. The Western world allowed prostrate MammaBear to recover. Then the Putin gang came in and rapidly stripped it of all its assets for the kleptocrat/autocrat set. That's right, VLADIMIR PUTIN WAS PRIME MINISTER AND PRESIDENT OF RUSSIA STRAIGHT ON FROM 1999, PRESIDING OVER THE GREATEST THEFT OF A NATION'S ASSETS IN THE HISTORY OF MANKIND - RIGHT UP TO BARRY OBUMMER'S 4 TRILLION GIVEAWAY TO THE BANKS. The main difference is the US banks equity was largely held by the general public through their pension and insurance companies, so the crime was allowing the pigpukes that ran the banks to keep their jobs and stock awards. In Russia, ALL OF THE MONEY went to Putin and his cronies, and is why the Russian economy has never developed away from a commodities/oil banana republic.

They even stole at least $5 billion of the international bailout funds sent to the Central bank. STOLE THE BAILOUT FUNDS. Likely wired DIRECTLY to Vlad's own account in Cyprus.

In China. it is the "middle class" that is massively over-levered. Virtually all of their debt is worthless. China's growing power in the world is driven solely by their 'purchasing power' driven by a middle class that makes and sells good to - the West. What will happen when the Trump Trade War shuts down this market, and suddenly revenues go away? The entire house of cards implodes.

China has almost no natural resources, can not feed itself, and must buy its energy. It is/was a tiger economy based on cheap labor and a growing consumer/middle class. Sound familiar? Japan in the 80s/90s. They, too were going to supplant the USA. They, too had to buy their energy. They, too hit a wall, and fell back to feeble growth/no growth funded entirely by central banks and the printing presses. China sees this coming, but has no means to stop it, shy, perhaps, military adventurism. Its interests are not aligned with Russia, and the must face the question: does China want to throw in with the most corrupt regime in human history (Russia) and the most vile in the ME (Iran) or what looks like it will be the USA and Saud? No angels, either.

The USA market is vital to their future.  I think I know where this is going.

 

In reply to by Fireman

LaugherNYC Mr Hankey Wed, 05/02/2018 - 18:54 Permalink

LOL.

One minor fact. ENERGY

11 million bbl/day

20% of global production within 2 years. reserves larger than Saudi Arabia

GDP is consumer expenditures, net exports, investment and government

The Us service sector is the largest in the world.

US manufacturing is recovering and is just shy of its all time highs (despite the persistent myth that US manufacturing is somehow 'dead'). It is almost as large as all of Europe. and only China has passed it, though in value added, US is first by far.

The total of US consumer debt is 1/3 that of China's consumer debt as a pctge of GDP.  No country that has allowed this number to rise as high as China has avoided a massive recession in history.

 

 

In reply to by Mr Hankey

LaugherNYC Mr Hankey Wed, 05/02/2018 - 23:51 Permalink

Not any longer, my friend. breakeven at $50 a barrel, and as technology improves, and EPA regs relax (thanks to Trump) those costs will continue to fall. As oil approaches $70, production switches on. This will only get bigger in the coming years.

Costs to recover have dropped precipitously in the last decade, and continue to. This will be the #1 national security issue for the next two Administrations. The only question is how do the American people prevent THEIR patrimony being stolen as in Russia? This oil belongs to America. There must be adequate royalties paid to the UST. This must not be purloined by the usual suspects.

 

In reply to by Mr Hankey