China Holds The Cards In Trump's Trade War

Authored by Tom Luongo,

The Trump administration continues to play hardball games with China on trade.  The latest news has China angry over Trump going forward with 25% tariffs on an array of Chinese goods after having reached a deal earlier over phone-maker ZTE.

As Bloomberg notes, the announcement by Trump, which seemed to tear up an agreement reached only 10 days ago in Washington, is the latest twist in a trade dispute between the U.S. and China that has rattled financial markets for months and could threaten the broadest global upswing in years, according to the International Monetary Fund.

That said, if Bloomberg is upset about this policy from Trump I’m inclined to be sympathetic.  But, that’s just me being churlish.  Reality is that this kind of behavior only adds fuel to the building devaluation fire building in Beijing.

I discuss why China can and should aggressively devalue the Yuan over the next few months to assist its central Asian partners, namely Iran and Turkey, resist aggressive U.S. sanctions policy over at Strategic Culture Foundation:

Secondly, China devalues the Yuan alongside these struggling emerging market countries’ currencies, not to the same degree but enough to still encourage capital inflow into China, to soften the blow and make the Yuan more attractive to procure needed goods in international markets.

And, since Trump doesn’t dare sanction Chinese banks without destroying the U.S. economy, this is just one of the paths available for countries like Turkey, Iran and the EU-27 to circumvent Trump’s aggressive trade war.

China’s moves are bigger than simply the petroyuan.

As I pointed out last week, China is preparing a broad swath of new metals futures contracts through the London Metals Exchange.  This is in addition to the gold futures contract launched last year.

The more alternatives that countries like Turkey, Venezuela and Iran have to keep their supply chains full  the better they can resist the obvious push towards regime change which is what the sanctions are trying to achieve.

These moves are subtle.  They operate below the headlines in the practical world of actual markets, not the avaricious dreams of Certified Crazy People like John Bolton, Mike Pompeo and Nikki Haley.

China’s central bank and its finance ministry are staffed with people who cut their teeth in Western bond and commmodity pits not M.B.A. programs at Ivy League schools.

It’s one of Trump’s real advantages as a President, his real world experience.  But, it’s also one of his failings as well.  He’s never really run a successful deal on people like the Russians and the Persians.  The former see through his nonsense and the latter he hasn’t been allowed to negotiate with because of U.S. policy.

It’s a weakness in that he doesn’t get the cultural imperatives and their sense of history.  They are looking at remaking the world for the next century.  Trump is trying to get through the next election.

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Comments

Twee Surgeon YesWeKahn Thu, 05/31/2018 - 23:24 Permalink

Bullshit. The USA will get along just fine without China, France or any other chancers. There is no such thing as Modern China without the USA. Period. The Chinese Ego is nothing but wishful thinking. They are a Nation of Imitation artists and very good at it, but that is all.

 

In reply to by YesWeKahn

overbet Pandelis Fri, 06/01/2018 - 02:12 Permalink

Doing business in the U.S. Marketplace is desirable. Trying to iron out some major imbalances isn't going hurt the U.S. or make it any less desirable. Where one country can't or won't fulfill the demand another would gladly jump for the opportunity. It would be uncharacteristically foolish for the Chinese to choose to lose a lot rather than concede to a smaller loss.

Any progress by Trump until a deals struck is pure gravy. Hes accumulating bits. Nibble away. What would you do differently? Nothing, back down, do a 180, sit on your hands, wait for a response? Nope, nibbling squeezing provoking stacking. He's got it right. Concessions will be made. Both sides know this. China's task is to minimize Trumps is to maximize. Building the pot is the correct play.

In reply to by Pandelis

One of We runningman18 Fri, 06/01/2018 - 00:57 Permalink

Unfortunately US military power backs the US$$ just like it always has.  Those who underestimate the ability of the US military based on the malfeasance of the Bush, Clinton, Bush, Obama years do so at their own confusion.  For the last ~30 years in almost every instance the US military has been used against the best interest of US national security at the hand of a traitorous cabal that is no longer in power.  I'm not in favor of foreign adventures but Trump is being very gentle with the big stick Congress abdicated to the executive long ago.

In reply to by runningman18

snblitz runningman18 Fri, 06/01/2018 - 01:12 Permalink

It's very dumb to start a trade war at this time

The trade war started 40 years ago and the US has been losing it since.

  • Auto Tariff: US 2.5% vs China 18%+

is that a trade war?  Is that fair trade?

If the US changed it to

  • Auto Tariff: US 18%+ vs China 18%+

Would that be a trade war?  Would that be unfair?

Want to know a secret?  Even if the US changed it to:

  • Auto Tariff: US 30% vs China 18%+

it would not be unfair.  In trade the parties determine the terms of the trade.  Fairness is not relevant. You either trade based on the terms offered or you do not.

China, and most countries, have erected very advantageous trade policies for themselves over the last 40 years and the US has not responded.

The US did not respond because US politicians have sold out to foreign interests via their family members.  Just check your government representatives and the businesses their friends and family members are involved in.  It is screamingly obvious what is going on, you just have to open your eyes and look.

https://www.finitespaces.com/2018/02/15/taxes-and-trade-wars/

 

In reply to by runningman18

Scipio Africanuz wafm Fri, 06/01/2018 - 03:48 Permalink

That wafm, is what's hidden from US citizens. The ignorant consider US trade negotiators as idiots without understanding the true dynamics. You nailed it! The petrodollar was the trade off. We allow you to print free money, which you use to buy our stuff.

It was a devil's bargain but the USA did not use the opportunity well, the deal was not gonna last forever, and now, it's ending but unfortunately, the West collectively, squandered a great opportunity while the East hunkered down, and are now making out like bandits.

They worked, while the West played!...

In reply to by wafm

JibjeResearch wee-weed up Fri, 06/01/2018 - 00:29 Permalink

First comes the BRI, PetroYuan, China2025, PetroEuro, ... and then..

the internationalYuanization... and internationalEuronization....

The USA has no good counter plans....

except to print....

And yes... I like CTRL+P ... because we don't have a choice....

However, a trade war will sure lower the GDP.... is worst than CTRL+P ...

For those who think the government must provide jobs...

... lolz say hello to automation, AI, and... unemployable Mericans :)

In reply to by wee-weed up

Couchtycoon JibjeResearch Fri, 06/01/2018 - 01:38 Permalink

I don't think anyone is interested in a PetroYuan. Because Time and Time Again China Lies to our faces about their intentions and what is happening The concept of a PetroYuan is the Embodiment of China Copying the pertodollar with little to no Imagination in the shallow hopes of one day being able to manipulate the market and extort money from other nations ,but if they can't peg the yuan to anything and must constantly devalue their own currency Either they are going to be selling a lot of Gold at a steep discount or they are going to be playing the same shell game with paper notes for "gold", but you just try to get that gold. It's not going to happen even if they did have it.  

 

Also here we go again with the BS trolls Bots and Chicoms. If shit was going so well in China you all woulden't be demolishing brand new never lived in Skyscrapers. Most of us are over your cheap garbage so you can sell it to your selves once you broke ass bitches start getting paid real money, but we all know that will never happen. After all how are the Fake Communist overlords going to become Millionaires and Billionaires if you poor bastards make enough paper to buy pork chops that are not make out of saw dust. 

In reply to by JibjeResearch

wafm Twee Surgeon Fri, 06/01/2018 - 02:20 Permalink

rofl the US have 200 years of history compared to 5000 for China, yanks are vulgar cowboys at best. As fo robbing blind the rest of the world, the US are the masters so don't come and blabber about imitation, the yanks have stolen more than any other country on this planet. US ia already crumbling, zero infrastructure, illiteracy sky high etc etc. Third world.

In reply to by Twee Surgeon

MK13 wafm Fri, 06/01/2018 - 08:48 Permalink

China isn't even one country, its one ethnic minority forcing its way into 30 plus others. Not saying US isn't greatest ever - and there is a lot of US hate here - probably deserved for last 24 years of ClintonBushBama and it's MIC buddies - but if you think creation of 'China hegemony' isn't going to be painful for all, you have no idea what you're looking at.

In reply to by wafm

Sudden Debt YesWeKahn Fri, 06/01/2018 - 02:48 Permalink

Trump just made everything more expensive for Americans.

Buy American? What the hell is still produced in America?

 

Imagine cellphones would be made in America! They would double in size!!!!

No really... you need tiny child hands to put in those tiny screws, imagine they'd use number 13 screws in cellphones...

In reply to by YesWeKahn

Oldwood Thu, 05/31/2018 - 23:18 Permalink

Fuck history.

They only thing that limits an economy is resources. That which is in the ground or grows on it, including humans.

China and other nations have ramped their economy on the backs of cheap labor and disregard for their environment.

But look at China today, the leading consumer of ROBOTS.

What this means is that labor has become much less relevant to costs, and technology is mobile. It can exist anywhere.

China needs MARKETS to survive and they understand that they can no longer win with cheap labor and intellectual property theft. They will have to compete to destroy their competition.

Which is where we are at today. This is a tipping point, and if we fail to pull back production on to our continent, we will lose the financial ability to do so in the future. We are a debtor nation and once we have lost our economic might, our self determination, do we really think Chinese banks will loan us the money to compete rather than to consume?

It's now or never folks, and it's going to hurt. Our selfishness and inattentiveness has brought us to WAR.

Oldwood LetThemEatRand Thu, 05/31/2018 - 23:46 Permalink

Which is why we eventually end up with dictators, benevolent at first, and then eventually much less so.

Politics sucks as it always benefits those doing the mosr damage, and when the wrecking finally reached its zenith, we end up with crisis management, a man with a phone and a pen, who suddenly seems to have the need to answer to no one.

This is what we were approaching with Obama and is the reason why the "government" is in such a panic over Trump. He is answering to the people who resist this unaccountable necessary power of efficiency to "just get needed things done". Trump is relying on law to do things and it is driving his supporters and detractors NUTS. Both the hard left AND right want a dictator that acts in THEIR interests, neither with the patience to actually allow the system to work. It's maddening...and great at the same time.

But then again, anyone who might dare to fix it risks blowing it all to hell!

In reply to by LetThemEatRand

JibjeResearch Oldwood Fri, 06/01/2018 - 00:34 Permalink

Correct!

We will have to force AI and Automation... and say hello to the unemployable Americans.....

The need for production in America is a must, and we have to do it at a lower marginal cost.... to beat China...

All you fags... should hurry up and get a job or be unemployable in the near future... :)

And you think Trump can help you get a job ... Bwahahhaha ahahaha....

bunch of fags...

In reply to by Oldwood

MuffDiver69 Thu, 05/31/2018 - 23:18 Permalink

The Chinese are liars like everyone else and us too...The idea the countries in this article are all in on some master plan is a joke..as big of a joke as the globalism Trump is destroying as promised.....i find it fascinating these articles come out one after the other and it has to be a bad thing...as if Trump didn’t campaign on this...and of course the authors never give us the alternative, because it doesn’t exist...we know...the sky is falling...replay tomorrow...

Oldwood MuffDiver69 Thu, 05/31/2018 - 23:31 Permalink

The Chinese economy is a product of debt, ours AND theirs. What that means is that they need growth to subsidize their debt. Note how they faced recession if they fell below 6% growth. Nothing has changed. Their population and personal income cannot support the demands of their productive output. They have been producing below cost for years to keep it going. Because of their volume they have bullied package delivery to almost nothing, forcing lesser US manufacturers and individuals to pay even higher costs.

The whole thing is an illusion.

In reply to by MuffDiver69

Scipio Africanuz MuffDiver69 Fri, 06/01/2018 - 04:18 Permalink

There's an alternative! Live within your means! Give up empire, along with the exorbitant privilege, and things should settle down fairly. The problem, is that the imperialists want to eat their cake, and have it, an impossible task!

You can't have the exorbitant privilege and fair trade, it's one, or the other! The need to defend the exorbitant privilege, necessitated a trillion dollar security infrastructure, only because the privilege was ABUSED!

Still, most of the world was willing to go along until the privilege was weaponized! That was the get off point for the world. Pain is coming, and this trade war might just be the non-kinetic strategy to dismantle the empire. You can have economic rejuvenation only if the USA returns to Republican values, the empire is DEAD, it just hasn't hit the ground yet.

The jobs are NOT coming back, new ones will have to be created, and this can be done, only when focus is shifted from consumption to production, which as things now stand, can only be actively encouraged, in the midst of severe deprivation after all, necessity is the mother of innovation...

In reply to by MuffDiver69

MK13 Thu, 05/31/2018 - 23:19 Permalink

Fuck china and plastic shit they make.

If your trade deficit is few billion dollars, it's your problem. If your trade deficit is 500 billion dollars, its the other guy's problem when it gets unwound.