US Vs China - Is It 'Art Of The Deal' Or Economic Warfare?

Authored by Christopher Wood via Grizzle.com,

While monetary tightening remains the main risk for global stock markets, the threat of a trade war continues to dominate the headlines...

THE DONALD’S DEALMAKING

The question raised by Donald Trump’s trade agenda with China remains, in essence, extremely simple. It is whether The Donald is engaged in a typical ‘Art of the Deal’ negotiation, where he can suddenly turn on a dime and declare a ‘win’, or whether he is really seriously trying to stop Chinaupgrading its economy by targeting ‘Made in China 2025’.

Such a stance would amount to an act of economic warfare. On this point, it should be understood that some of those in Washington pushing this policy view of China as some kind of strategic rival for global leadership. For such people this is about far more than just tariffs.

The markets had been assuming that the American president would not take this too far. But, as discussed here before, concerns have grown as it has increasingly looked like Trump is supporting Robert Lighthizer’s (US Trade Representative) and Peter Navarro’s (White House Economic Adviser) agenda.

HOW LIKELY IS ECONOMIC WARFARE?

On July 6, first the US and then Chinese 25% tariffs on US$34 billion worth of goods are due to go into effect. If bilateral negotiations do not resume before that date, then the chances of the US and China entering a so-called trade war grow significantly.

If the above is the state of play, market action has now become critical. The more that the US stock market freaks out about these policies in terms of declining share prices, the more likely becomes The Donald to perform a U-turn. This is because Trump is a market-focused guy even if it is also the case that much of his electoral base are not invested in stocks because they do not have the requisite savings.

There has already been more than a hint of this market dynamic at work last week when the S&P500 recovered some of its losses ‘intraday’ on Monday after Navarro was presumably ordered to issue a less combative statement. His comments came after news reports over the weekend that the US could block companies with at least 25% Chinese ownership from buying companies involved in so-called “industrially significant technology”.

S&P500

Source: Bloomberg

Similarly, on Wednesday last week, the S&P500 reversed a pre-market opening decline when Trump made some more conciliatory comments on the nature of the coming investment restrictions. Trump said he will now use a strengthened existing agency and national security review process to scrutinize Chinese acquisitions of American technologies. He said: “Congress has made significant progress toward passing legislation that will modernize our tools for protecting the nation’s critical technologies from harmful foreign acquisitions”.

Meanwhile, if the American president does remain committed to the combative agenda as regards China, Congressional review could prove more destructive of the bilateral relationship over the longer term than tariff hikes. It is also the case that Congress involvement will be via the so-called Committee on Foreign Investment in the United States (CFIUS) whose authority will be enhanced, as Trump referred to above, by new legislation in Congress called the Foreign Investment Risk Review Modernization Act (FIRRMA).

The Congressional involvement will probably make the process harder to unwind once the restrictions are imposed. It is certainly the case that Congress has its own share of enthusiastic China bashers, as is clear from those in Congress who have been seeking to reverse Trump’s decision to overturn the ban on ZTE buying American goods. The US Senate voted last week by 85-10 to reinstate the ZTE sales ban.

US IMPORTS FROM CHINA AND CHINA IMPORTS FROM THE US

Source: US Census Bureau, China General Administration of Customs

Now it is true, technically, that the pending investment restrictions will not just be aimed at China. The Treasury Secretary has stated that the restrictions will apply “to all countries that are trying to steal our technology”. But the political reality is that all this activity in Washington has a China focus. So, the danger is that once these sorts of actions are announced, they will turn out to have a life of their own.

EVENTS IN NORTH KOREA ARE PLEASING TO CHINA

Meanwhile, amidst all this focus on deteriorating Sino-US relations, there is one potential positive that should not be completely ignored.

That is that events are unfolding in the Korean peninsula in a manner which should please China and a lot of this, intentionally or not, seems to be due to the American president.

China would certainly welcome a North Korean economy that is pursuing a more China-style reform-oriented course in terms of the management of its economy, though the first priority may not be Trump-style beachfront condos.

Second, Beijing will also want to maintain North Korea as an independent state, and Trump does not appear to be pushing for unification.

Third, China will welcome Trump’s proposal, made at the Singapore summit on June 12, to end American “war games” on the Korean peninsula.

The hope from the above must be that there has been some constructive ‘behind the scenes’ dialogue between Washington and Beijing on North Korea which would infer that the relationship is not as antagonistic as current headlines on the trade issue would suggest.

Comments

MozartIII Tue, 07/03/2018 - 21:39 Permalink

The Donald stated that he wanted no tariffs. Where is the financial reports on the existing tariffs, that Trump is bitching about...

 

What a joke, all developed countries use them against the US, have been for a long time. 

 

Why do we get a non stop one sided story?

uhland62 DingleBarryObummer Wed, 07/04/2018 - 01:35 Permalink

At some stage America will wake up to the fact that Chinese are 4 times as many as there are Americans.

With Americans being 4.4 % of global population it is impossible to rule the world against 95.6 %. The money to lubricate relations with 95.6 % is no longer there so you need to adapt to the fact that you do not have allies because of your pretty blue eyes.

Being confrontational will not achieve anything, if China (and Russia) hold against it. Get along without pretending the sun is shining out your little hole. China does understand that if they want to sell you stuff, they need to keep you sweet enough.

There is a two way street, travel together. 

In reply to by DingleBarryObummer

MuffDiver69 MozartIII Tue, 07/03/2018 - 21:51 Permalink

Why do we get a non stop one sided story?

Because those who made trillions on the current situation own the media. FOX is even worse then some of the others....The fact the President didn’t wait until after midterms tells me he is deadly serious and I have adjusted my investments and financials accordingly....next will be tech stocks getting hammered...

In reply to by MozartIII

FBaggins MuffDiver69 Wed, 07/04/2018 - 00:51 Permalink

He has to be serious. Despite the ability to create endless amounts of money out of nothing, trade imbalances will not just correct themselves over time as some economists like Milton Freedman say. Also, with the huge US negative trade imbalances and the huge offshoring of huge amounts of: US capital, low and high tech jobs, machinery, technological knowhow, etc., to make international investors and multinationals richer, the drained nation OBVIOUSLY becomes poorer and weaker.  Unless you want to be a globalist deceitfully deconstructing Western nations and exploiting Western consumers for immediate gains on low, low labor costs, and bleeding all Western nations dry, you come to a point when you have to admit that tariffs are absolutely necessary whether we like them or not. 

“Economists who consider trade deficit to be bad believes that a nation that consistently runs a current account deficit is borrowing from abroad or selling off capital assets -long term assets-to finance current purchases of goods and services. They believe that continual borrowing is not a viable long term strategy, and that selling long term assets to finance current consumption undermines future production.”

http://ezinearticles.com/?The-Effects-Of-Balance-Of-Trade-Surplus-And-D…

 

In reply to by MuffDiver69

bshirley1968 lester1 Tue, 07/03/2018 - 22:47 Permalink

What you obviously don't understand is that because we have the world's only dollar printing press, the US will have an unfair advantage as long as the dollar is the world reserve currency.

Stop being such a simpleton. You sound like a bot. Or like aborigines that think the river brings them life so they worship it and never consider the river would dry up without the rain.

In reply to by lester1

CashMcCall lester1 Wed, 07/04/2018 - 01:34 Permalink

You are a fking idiot. Why do you keep repeating the Orange Caesar just to remind us how stupid he is? 

You buy a car from Japan and pay in dollars. That is a fair trade. You were not ripped off as the orange moron would suggest. You had free choice unlike the purchasing of Obamacare. That is a lack of free trade. 

It doesn't matter what the rest of the world does. Free Trade is a unilateral concept. If you have the goods and somebody wants to buy them for a price and the buyer and sellers agree, the deal is done and it is fair. If you buy Tuition at Trump Univesity, where the school intentionally misled students then you do not have fair trade. You have fraud trade. 

It is irrelevant whether Canada has tariffs on products and the US does not. If Canadians want the products bad enough they will buy the US products. If the US wants Canadian Products, they buy them for a deal they regard as fair. It is irrelevant what any country does with tariffs. If the products are of low quality and full of tariffs, nobody will buy them. 

If Japanese cars were YUGO quality, they would not sell. They sell because they are high quality for the price. 

The notion that if an individual buys a Car from Japan that somehow the Car maker in Japan has to buy US products dollar for dollar is the stupidest notion one can imagine. Trade is not an obligation for a second trade. That is TrumpStupid. 

Further individuals and businesses buy goods NOT COUNTRIES on behalf of the citizens. Tariffs are taxes. 

Fair trade means the agreement of buyer and seller to enter into a deal with full disclosure. The deal includes the implied warranty of merchantability. If I am the only person with an Anti-cancer drug that really works, I will create an enormous Trade deficit with the rest of the world. Is that bad? No. People who buy my product cure their cancer. But but but shouldn't I have to buy and equal amount of goods and services from anyone that buys my products just to keep that Orange nitwit happy? No because he is a moron. And if you can't grasp that by my illustration you are too Too Trumpstupid to reason. 

The purchase of my product improves the buyers standard of living, it increases longevity. So everyone that needs my product benefits. I make my product in the North Pole. Trump slaps a Tariff on my pharmaceutical products to protect the US pharma business from their own ignorance and inability to compete. Do I care? Do I slap a tariff on the US if they buy North Pole ICE? No. I don't care if they tariff my products. Those that need my products will find a way to get them even if they have to go to the North Pole to do so. If they don't go to the North Pole, then they will suffer a lower standard of living in Trump's MERICA! My product will cost them more in TrumpStupid Merica. Do I care? No. My duty and obligation is to make a great product. Am I obligated in any way to buy MERICAN products to keep a dollar parody with the products I export? Of course not. Only an idiot would think like that... an idiot like you and Trump. 

And it Trump claimed that I was ripping off MERICA by not buying import dollar for export dollar parody, I would make sure that no Trump ever got my product, primarily because my company should not encourage stupid people to live longer lives. 

So do you understand you, Trumptarded idiot, that fair trade has nothing to do with parody trading? Do you understand the full depth of the TRUMP Stupidity with his empty-headed obsession with parody trading?

What then is a trade deficit? It simply means that the people in MERCIA want to buy more foreign products because they are cheaper, and often better quality than those made in MERCIA. But even then... If you buy a Chinese Smartphone like the IPHONE, or a Big Screen TV from Sony made in China, the real money is the content and the software that makes those products useful. In fact is China made them so cheap that everyone had a smartphone, look at the giant creation of wealth in phone services, handheld commerce, videos, etc. Trump, of course, is way too stupid to grasp any of this. Trump is dangerously stupid and so are you TRUMPTARD! Trump thinks the low margin making of a smartphone is where the money is. No wonder Trump failed at Television City and virtually every Casino project he ever got involved with. Nobody can call Trump University a Success. Trump's mind is mush. He may well be the stupidest person you know, next to yourself. 

 

 

 

 

 

 

In reply to by lester1

Ghost who Walks MozartIII Wed, 07/04/2018 - 02:42 Permalink

Hi MozartIII,

I see you are misinformed on the issue of trade tariffs and developed countries. To the best of my knowledge Australia applies no tariffs to any imports from the US. However the US applies a range of Tariffs to imports from Australia. Check the attached link which backs my clear statement. Or to be precise the situation is exactly the opposite of what you claim.

http://dfat.gov.au/trade/agreements/in-force/ausfta/Pages/australia-united-states-fta.aspx

If you think you can weasel out of this by claiming that Australia is not a developed country, perhaps you should come and visit and educate yourself.

In reply to by MozartIII

karenm Herdee Tue, 07/03/2018 - 21:47 Permalink

if this was any other time, they would've crashed it by now, but this isn't any other time. This is  the end of the line, so everything including the kitchen sink is in, cause there will be no cleansing or fixing this shitmix. War, death, and collapse, that's the playbook.

 

And July/August is my timeline for shit to get real. 

In reply to by Herdee

karenm Tue, 07/03/2018 - 21:44 Permalink

Cover for the collapse, forshadowed by another shill named Jim Rickards in his book about Trade wars. No, he's no prophet, he was given info of the plan to take down the global economy

BitchesBetterR… Tue, 07/03/2018 - 22:29 Permalink

LETS GET FUCKING REAL!!

HOW THE FUCK CAN TRUMP EVER PULL THE ART OF DEAL AGAINST HIS GREATEST CREDITOR & GOODS SUPPLIER? WHAT TRUMP DOES HAVE TO OFFER IN EXCHANGE FOR SUCH DEAL? WHAT DOES TRUMP HAVE AGAINST CHINA TO BARGAIN WITH?

 

SEE- TOUGH & LOUD TWEETS AMOUNT TO SHIT WHEN REALITY 9S SET BY NUMBERS & ACTIONS -IOW CHINA IS "REACTING" -NOT MEANINGFULLY PURSUING!!!          REMEMBER THAT!!!!   

scrone Tue, 07/03/2018 - 22:29 Permalink

The US already won significant concessions out of China and spat on them. China has realised Trump wants a war regardless of their concessions which is why they've shifted into an aggressive stance. This is going to end badly for everyone.

JibjeResearch Tue, 07/03/2018 - 23:17 Permalink

The Government doesn't buy the goods...

The Companies/People buy the goods..

To solves this trade deficit, create the goods that the Chinese (and the world) will buy!

Poor Americans/People will buy cheap stuffs to survive...

 

Chief Joesph Wed, 07/04/2018 - 00:01 Permalink

If its an exercise in making a deal, it sets the stage for a lot of bitterness and a reluctance to make any further deals again..  If its economic warfare, America is way too late in the game to win against China.

Balance-Sheet Wed, 07/04/2018 - 00:06 Permalink

Short version: China and the US balance their payments to each other. China has had a wonderful free ride since about 2004 with respect to the USA but now the ride is over. China buys an additional 400 B from the US this year and there is no problem.

Ghost who Walks Wed, 07/04/2018 - 03:21 Permalink

The problem is not over, it is just shifted.

Unless there is $400 B of extra demand out of the Chinese population then there will be losers in other countries. The way things are heading in China with Demographics, Credit cycles, middle-class share of GDP versus the provincial governments and State Owned Enterprises it seems unlikely that this growth of demand will be sufficient to meet the demands from American politicians to balance trade.

That then means that Chinese consumers and businesses would then have to buy products and services which they prefer to get from other countries cheaper and that meets their needs. If the American products had a competitive advantage then the Chinese would buy those products.

Liquefied Natural Gas exports from the US to China from 2020 will make a contribution, but the amount of trade difference won't narrow much if the American Corporates keep building plants in China and exporting the outputs to the US. This is currently not taken account of in the discussions.

Let it Go Wed, 07/04/2018 - 07:09 Permalink

Data coming out of China indicates the country's economy is starting to cool from a multi-year crackdown on riskier lending that is pushing up borrowing costs for companies and consumers. This is all occurring at a time when the amount of geopolitical upheaval going on between Washington and Beijing is extremely high and a slew of trade data from China has not been released on time. This has increased concern over the lack of transparency of future data releases and has caused suspicion to grow over Chinese intent and if they are hiding something. More on recent concerns over growth in China below.

 http://China Data Indicates Broad Slowing Of Economy.html

Grandad Grumps Wed, 07/04/2018 - 09:10 Permalink

There is no conflict, no trade war, no art of the deal. I am not sure exactly how it was decided, but it is time for China to become a consumer economy and manufacturing will move on to India. Everything is managed, not random. We came here to experience this.