US Futures Slump As Trump Drops New Bomb In Trade War; China Continues To "Weaponize" Yuan

Update: US Equity futures are down following the reports that Trump is planning to restrict Chinese investment in US companies...

And while Chinese stocks are up marginally, Yuan continues to slide as chatter escalates that China is "weaponizing" the Yuan in retaliation to Trump's actions...

As we detailed previously, this is a notable devaluation...

And most notably it is very focused against the USDollar as USDCNH decouples significantly from the Renminbi basket...

 

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While most analysis has been focused on the non-tit-for-tat trade tariff responses to Trump's $450 billion tariff threats against China, it is the Trump administration that is preparing to fire the next salvo in the trade war, and as The FT notes, this move could have even greater long-term consequences for the economic relationship between the US and China than tariffs.

The FT reports that according to officials and people briefed on the discussions, the administration has decided to restrict China’s ability to invest in or acquire US companies in the industries identified by Beijing in its so-called Made in China 2025 plan.

The Trump administration appears likely to invoke an act that allows US presidents broad powers in the event of a national economic emergency, which the president is likely to declare.

The International Emergency Economic Powers Act (IEEPA) dates to the 1970s and has in the past been used mostly to impose sanctions on countries such as North Korea and Iran. 

Administration officials argue that the restrictions are needed because the US is in an existential innovation war with China over key technologies that will define the future of the world’s two largest economies. 

Although the exact scope of the investment measures is unknown, this level of dramatic escalation implies the China hawks have taken the upper hand in The White House, as is clear by Trump trade advisor Peter Navarro's comments - aimed directly at Xi's goal of leading the world in sectors from aerospace to AI...

“China has targeted America’s industries of the future, and President Trump understands better than anyone that if China successfully captures these emerging industries of the future, America will have no economic future, while its national security will be severely compromised.”

However, as we recently noted, China inbound investment has already collapsed in the last six months. According to research firm Rhodium Group, Chinese companies completed acquisitions and greenfield investments worth only $1.8 billion, a 92% drop over the past year, and the lowest level in seven years.

But there is a twist, as Rhodium  noted, this is much more than simple M&A, it's about capital outflows - which will really upset some of China's wealthiest as they try to find new routes to de-Yuanize their assets...

The rapid decline in Chinese FDI in the U.S. was driven by a “double policy punch” -- Beijing cracking down on rapid outbound investment and the U.S. government increasing scrutiny on Chinese acquisitions through the Committee on Foreign Investment as well as taking a more confrontational stance toward economic engagement with China in general.

Kyle Bass is pleased, judging by his latest tweet,

Confirming his previously noted position that Trump's trade actions are simply about national security:

Tariffs are simply about national security: Hayman Capital founder from CNBC.

However, there are concerns as to just how this all ends, since as a former Obama administration official noted, the unilateral move by the Trump administration to invoke IEEPA would be unusual. 

“That’s a pretty sharp departure from the way things have been done in the past,” adding that

“The Trump administration, kind of across the board, has very much blurred the line and seems to be saying that any significant economic challenge the US faces is also a national security challenge."

All of which seems to ominously fit the historical path of escalation from 'trade imbalance' to 'hot war'...

 

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Comments

Deep Snorkeler nmewn Sun, 06/24/2018 - 20:37 Permalink

All the Sparks are Lit for the Trumpian Recession of 2018

His hair covers a severe microcephalic condition.

Master of the Stratosphere, Emperor of Imperial Collapse:

he is an infinite pit of need, a time-sucking vampire -

he has primed the economy for a descent into orange hell.

Melania doesn't like anyone. 

 

In reply to by nmewn

caconhma hxc Sun, 06/24/2018 - 21:02 Permalink

America has done it to Soviets. It worked very well because of Gorbachev, Yeltsin, Putin have sold the USSR to Zionist Banking Mafia. It will not work in China since Xi and his people are not for sale. They do not need a villa in London or NY. Their families stay in China and Chinese people are proud of their country.

Needed high-tech China will get from EU  and Trump is helping them a lot. Watch Japan since they are very tired from the post-WWII arrangements.

In reply to by hxc

beemasters hestroy Mon, 06/25/2018 - 05:43 Permalink

“'China has a lot more to lose than we do,' said Trump’s trade advisor Peter Navarro."

The statement sums up what the administration is thinking. It's never about winning, but who'll be losing more should a full-blown trade war happen. Of course, in this race to the bottom, it's common folks who are the real victims.

In reply to by hestroy

beebpop Adolfsteinbergovitch Mon, 06/25/2018 - 12:10 Permalink

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In reply to by Adolfsteinbergovitch

Occams_Razor_Trader beemasters Mon, 06/25/2018 - 06:06 Permalink

"Of course, in this race to the bottom, it's common folks who are the real victims."

You conveniently left out the word "temporarily". US consumer paid a few thousand dollars more for a Honda when import quotas were instituted in the 80's - we now make Honda's in Ohio- with American workers.

 

Every and al economic descions have either: short-term pain for long term benefit OR short- term benefit for long term pain.

 

In reply to by beemasters

SoDamnMad Dutti Mon, 06/25/2018 - 08:12 Permalink

Let UMC of Taiwan explain to the government why they worked to steal American technology AND why America will no longer defend Taiwan.  Maybe Fujian Jinhua Integrated Circuit in China will give all the thieves great jobs.  But they have to stay in China because their will be international arrest warrants out for them for the rest of their lives.  Maybe Chinese mafia might also accept gold for a "hit" on these people.

In reply to by Dutti

DemandSider caconhma Mon, 06/25/2018 - 03:50 Permalink

"Watch Japan since they are very tired from the post-WWII arrangements."

One of the lowest infant death rates; lowest crime rates; highest life expectancy (in U.S. occupied Okinawa) in the world. The Emperor's still there; they have one of the largest external surpluses in the world; around 99% of 2017 Japanese college graduates had jobs lined up before graduating. They control their own immigration and political system, while some seriously indebted idiots far away defend them from a certain ungrateful member of old Asian Co-Prosperity Sphere.

Seriously, what in God's name are you typing about? Have you been comatose the last few decades? Have you read any history vis a vis Japan, at all, I mean other than the part about the atomic bombs? Does the name Nanking ring a bell?

In reply to by caconhma

I Feel a littl… caconhma Mon, 06/25/2018 - 15:43 Permalink

Exactly. Article is bullshit, just looking at the graphs shows the exchange rate is higher now than the average over the last three years.

the administration has decided to restrict China’s ability to invest in or acquire US companies"

THAT'S A DEFAULT.

And in any case that's how the US acquired the stuff in the first place, theft, using your 'funny money'. Innovators YOU ARE NOT.

In reply to by caconhma

DemandSider Justin Case Mon, 06/25/2018 - 03:57 Permalink

"..entering into a trade war while ignoring this blaring weakness is foolish, to say the least. "

Again, the trade war has been ongoing for over 40 years, so if Trump actually does manage to cut the trade deficit, he'll just be finally returning fire. Yes, I understand this will be recessionary/inflationary, depending on how it's managed, but the sooner we can begin to resolve the problem, the better. The PRC's Navy isn't getting any weaker.

In reply to by Justin Case

shortonoil nmewn Mon, 06/25/2018 - 07:55 Permalink

To pay for oil that is no longer affordable the Developed Economies are now extracting about $4 trillion a year from the Emerging Markets. Capital flows to the EM have now gone negative, and that situation will only worsen as oil's ability to power the economy declines by 1.3% per year.

https://www.imf.org/~/media/Websites/IMF/Imported/external/pubs/ft/surv…

China now has no other option but to watch its currency constantly decay. The EM, that accounts for 34% of world GDP and 44% of world trade will be sucked dry to feed the DE. It will make no difference what Trump, or Mr. Xi attempt to do. The equations of thermodynamics are dictating the terms, and the world is on the brink!

http://www.thehillsgroup.org/

In reply to by nmewn

BarnacleBill ebworthen Sun, 06/24/2018 - 22:56 Permalink

Yes, indeed!  This thing will take a while to settle. But the US dollar is on the very edge of a fiscal cliff, and it won't take much to push it over. Some of the commentators here at ZH think it's already too late to pull back. They may be right. For a two-minute read, this little essay of mine from a few years ago might be of interest.

https://barlowscayman.blogspot.com/2012/12/fiscal-cliff.html

In reply to by ebworthen

JIMSJOE2 ebworthen Mon, 06/25/2018 - 06:30 Permalink

Nonsense. The offshore yuan is pegged to a basket of currencies which are trading partners not including the dollar. When dollar strengthens or weakens the currencies in the basket strengthen or weaken in FX markets and the yuan then moves. The reason they did this was to stabilize the yuan so it would not have the extreme moves as other currencies do and this has worked extremely well. The PBOC directly intervenes in the yuan on shore when the currencies moves with the basket.

   

In reply to by ebworthen

Winston Churchill LetThemEatRand Sun, 06/24/2018 - 20:43 Permalink

The Chinese had already slashed direct investment into  US(housing doesn't count)businesses.

Down by over 90 % in the last 18 months.Trump is claiming credit for what they'd already done.

The more interesting question is why , and why did they start then ?

According to a very reliable source they've also pledged nearly all their USTs at US banks and cashed out

over the same period.Ignore the TIC report, its garbage.Neither China or Russia hold any USTs except in name only.

Panic first and beat the rush.

In reply to by LetThemEatRand