Kudlow Says Trump Won't Back Down: "China's $60BN Response Is Weak"

It took little time for Trump's chief China trade war advisor Larry Kudlow to respond to China's publication of its "retaliation list" itemizing the $60 billion in US goods that will be subject to US tariffs. Saying that the $60 billion trade response by China might be weak, Kudlow warned that the US has more ammunition than China in a trade fight, envisioning that the US imports more products from China than vice versa. 

Predictably, Kudlow focused on China's currency devaluation response as the trade war recently shifted to currency war as Beijing hopes to offset the impact of tariffs using a weaker currency.

Speaking on Bloomberg TV, Kudlow correctly noted that the yuan has fallen in part because China has "stopped defending the yuan. They think it’s going to help offset the U.S. efforts to get rid of their unfair trading." This changed on Friday evening  (Chinese time) when the PBOC announced it would increase the reserve requirement on FX forward, precipitating a short squeeze and sending the Yuan sharply higher and the dollar sliding.

Some speculated that the PBOC move was a form of soft capital control, as the Yuan had fallen so much it had precipitated capital flight, easily the weakest link in China's economy. Kudlow touched on this, saying that "some of the currency fall though I think is just money leaving China because it’s a lousy investment, and if that continues that will really damage the Chinese economy."

"If money leaves China - and the currency could be a leading indicator - they’re going to be in a heap of trouble. And so I’m going to make the case that they are in a weak economic position. That’s not a good place for them to be vis-a-vis the trade negotiations," he told BBG TV's Jonathan Ferro.

It is not clear if this means that Kudlow - and thus Trump - finally understand that further tightening, and higher rates in the US, is a far worse for the Chinese economy, especially since China is about to post its first first half current account deficit on record which, without outside capital, it simply can't fund and the alternative would be economic contraction.

It does, however, explain why Wilbur Ross yesterday said that Trump plans to pour more pain on China's economy: after all if the Trump administration believes China is near a breaking point, it makes sense to keep cranking up the pressure.

Kudlow then made another accurate assessment of China's economic situation saying that "it looks to me like the China economy is declining in growth. It’s weakening almost across the board. And it looks like the People’s Bank of China is trying to pump it up by adding high-powered money and new credit."

And the punchline: "We’ve said many times: no tariffs, no tariff barriers, no subsidies. We want to see trade reforms. China is not delivering. Their economy’s weak, their currency is weak, people are leaving the country."

As a reminder, this is precisely the prescription suggested by One River CIO Eric Peters, who last weekend laid out what is the best way to win trade war with China:

“The best way to bring Beijing to its knees is by running a tight monetary policy in the US,” continued the same investor. “China has the world’s most overleveraged, fragile financial system.” In 2008, China’s total debt-to-GDP was 140%. It is now roughly 300%, while GDP is slowing. “The economy is held together by capital controls. If those fail, the whole system fails.” The capital flight in 2015/16 cost the government $1trln in reserves, and that was with ultra-dove Yellen in charge. Imagine what would have happened with Volcker at the helm. “The Chinese are dying to get their money out.”

“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run,” continued the same investor. Forget about the South China Sea, don’t bother with more aircraft carriers, just let Beijing try to cope with their financial system. “And we’re 80% of the way there – we instigated a trade war, implemented a massive fiscal stimulus, which created the room to raise interest rates,” he said. “The combined policy mix makes capital want to leave at the same time it makes the dollar more attractive and effectively shuts down new investment inflows to China.

Kudlow's conclusion: China "better not underestimate President Trump’s determination to follow through" on trade threats, and we are confident that it is only a matter of time before Trump tweets his angry response to China's latest retaliation to Trump's own Chinese tariffs, pushing the tit-for-tat escalation further beyond a point of no return.

 

Comments

Linus2011 Fri, 08/03/2018 - 11:01 Permalink

thou americans i'd rather suggest: go and work and build something that people really want at a competetive price instead of playing the Joo-game: tariffs, printing $$$, bombing countries, CIA pumping up fake companies like Google and Amazon, punishing really successful foreigners like VW. 

otherwise all of your former friends will figure out you are nasty SOBs.

 

 

TeethVillage88s Handful of Dust Fri, 08/03/2018 - 11:47 Permalink

I rather think the Chinese are in the orgy of globalist and the marriage of tech and the elites of the world.  List of 200 CEOs pay shows Walmart CEO makes 2,000 times his avg worker, McDonalds makes 3,000 times the pay of his avg worker.

https://www.nytimes.com/interactive/2018/05/25/business/ceo-pay-2017.ht…  (Chinese are still players, they are still buyers, they will keep buying in USA, Canada... South America... Luxembourg

In reply to by Handful of Dust

lock-stick TeethVillage88s Sat, 08/04/2018 - 01:08 Permalink

ONE whackjob obsessed SPAMMER -- with numerous log-ons!!!

•• Free This  (same WHACK JOB -- used to be "Mr Hankey" -- also banned)

•• sanctificado  (DON'T CLICK THE LINKS!!! --  Biblicism SPAMMER -- banned as powow/Wadolt/ravolla/lloll/pier/etc.)

•• More Sun (it's the JOOS!! -- whack job extraordinaire)

•• Annanuki  (another imaginary friend)

•• Jumanji1959 (another imaginary friend)

•• Adolfsteinbergovich  (another imaginary friend)

•• Cryptopithicus Homme  (another "imaginary friend")

 

spamming ZH for seven years --- dozens and dozens of banned log-ons

 

ONE DEEPLY DISTURBED INDIVIDUAL 

 

Write to the Tylers ::  abuse@zerohedge.com

In reply to by TeethVillage88s

Element dirty fingernails Fri, 08/03/2018 - 12:06 Permalink

... "Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run,” continued the same investor. Forget about the South China Sea, don’t bother with more aircraft carriers, just let Beijing try to cope with their financial system. ..."

 

Although true, you can walk and still chew gum too.

 

The CHICOMS made its moves in the SCS and 'second island chain', when they thought the US and especially Obama, who severely compromised the USA by the utterly stupidity of accepting a Nobel Peace Prize (what a fucking IDIOT!) was too weak and dumb to do anything to stop them.

 

So ... return the favor ... there's a lot of very fine proto-coral reefs in the PLAN fleet. Help them repair the damage they did to the reefs there.

 

In reply to by dirty fingernails

natxlaw Looney Fri, 08/03/2018 - 11:17 Permalink

Top Kek on your joke!

 

Trump has nailed the Chinese. They are addicted to U.S. consumer debt to the tune of a 1.25 Billion dollar a day habit and now they are bogarding the plate with their giant straw. Enter trump, and he says: "Sorry, you're gonna have to let us do a line or two, just a couple of small ones, you'll hardly notice, very big plate, lots of good shit for everyone." The Chinese response is that of the typical final stage addict. They don't want to share. Trump says "Fine, my plate, my shit, so you don't really have a choice." All the addict can do is scream and scratch themselves all over. That is what we are seeing.

In reply to by Looney

dirty fingernails Handful of Dust Fri, 08/03/2018 - 12:29 Permalink

He DID give, or tried to anyway. He offered to increase purchases from the US by several hundred billion, but the cry bully in the WH isn't satisfied unless the empire gets all the marbles and gets to humiliated you as well. This is because of imperial hubris and pretending like China is the problem when the real problem is the ogliarchy (including Trump and his cabinet), Wall St, and corporate greed.

In reply to by Handful of Dust

SocratesSolutions JLarryL Fri, 08/03/2018 - 11:54 Permalink

The Satanic Jews are the dumbest and weakest group of Black Magic assholes on the planet. Don't let his brazenness fool you. Don't let the grotesque stealing of money from from the American and European coffers of the Jew cult fool you. Black Magic is not strength. It always loses and is for losers. These losers stand together like a hyena pack. You take off their little Black Magic hats and stand them as men alone against a real man, against a lion, they all fall. 

And this is what is coming as the hyena pack is forever disbursed into non-existence. The Black Magic cult of sick Judaism is coming to an end. Right here and now. 

In reply to by JLarryL

tmosley Linus2011 Fri, 08/03/2018 - 11:08 Permalink

American manufactured goods are the best in the world, though they carry a price tag that reflects that.

Rather than admonishing us for something you made up in your brain, how about you get rid of your fucking tariffs?

In reply to by Linus2011

dirty fingernails tmosley Fri, 08/03/2018 - 11:13 Permalink

GM is the best in the world? Hahaha

I remember the days of US made consumer goods that were 2x as expensive and of even worse quality than the Chinese or Korean made version. I still see it today. Kitchenaid makes a garlic press with the lower half of the handles being plastic which break extremely quickly because garlic is tough. Mine broke the 3rd time I used them. They were a gift because I'd never have bought such obviously poor engineering.

I don't mind paying more for quality, but I do mind paying more for shittier quality. You are stuck in a bygone era of American awesomeness that was outsourced to American greed over 2 generations ago. Good luck overcoming the monolithic corporate mindset of quaterly profits at all other costs

In reply to by tmosley

Offthebeach dirty fingernails Fri, 08/03/2018 - 11:40 Permalink

Hows that A-380 working out? Or the A-400. Hows those EU phones doing? Has there been a new, world class company or product out of Europe in the last 40 years?  I can't think of one.

Hows that all in on Brussels, even if your citizens vote no on  multiple to-join  referendums doing?  Hummm, anti-populast, urber elitists, yet another layer of paracitic medling beurocrats( as if there was a shortage ).  But the new, young, virile Europeans should cancel out any Anglo style notions in your domestic riff raff, nationalist, deploribles.

Yup, you're gonna be fine. ( /S )

 

In reply to by dirty fingernails

tmosley dirty fingernails Fri, 08/03/2018 - 13:20 Permalink

>GM is the best in the world? Hahaha

There's a nice tell for cognitive dissonance right there. Thank you for conceding the argument.

>Kitchenaid makes a garlic press with the lower half of the handles being plastic which break extremely quickly because garlic is tough. Mine broke the 3rd time I used them. They were a gift because I'd never have bought such obviously poor engineering.

That was made in China, idiot.

>You are stuck in a bygone era of American awesomeness that was outsourced to American greed over 2 generations ago. Good luck overcoming the monolithic corporate mindset of quaterly profits at all other costs

You want to know how I can tell that you are a loser from any given post that you make all on its own?

In reply to by dirty fingernails

dirty fingernails tmosley Fri, 08/03/2018 - 14:10 Permalink

So, again, you have no arguement and resort to being a cry bully. Color me not at all shocked.

That garlic press was made in the town my in-laws live outside of. They now work in the factory.

You think I'm a loser because I consistently make you feel stupid and inferior? Or is it when you remember you were the real-life basis for Hedwig and the Angry Inch?

Edit: apparently you are saying that I'm having cog dis when I say GM is garbage? Project much?

 

In reply to by tmosley

natxlaw tmosley Fri, 08/03/2018 - 11:23 Permalink

With the blockchain and robots, I wonder if it is really going to be that much more expensive. The chinese are making their junk for less than it costs them to ship it. It is all bottled water (you are paying for the gas to move it more than the water). We might just be able to maintain prices with the new levels of automation, we've never been here before. The trouble is getting our upper middle management layer back. These guys are retired if they are even still alive. You're not going to learn much from Elon Musk's guys.

In reply to by tmosley

Gaius Frakkin'… Linus2011 Fri, 08/03/2018 - 11:17 Permalink

Why the fuck does the world use the USD as a crutch to support their shitty currencies anyway? That is what ultimately started this imbalance and fuels it still today.

Use gold, use cryptocurrency, or base your fiat on something else for fuck's sake. Stop running to the USD every time you get scared, like little kids.

In reply to by Linus2011

JLarryL Linus2011 Fri, 08/03/2018 - 11:44 Permalink

The problem is that most all the jobs sent to China were bad low-level assembly jobs, the sort that even the Chinese are automating away. That was and largely still is China's position on the trade totem pole: A place where products often make their last pass for assembly.

Do Americans really want these jobs to return home? It was for more than cost that such jobs went overseas. Americans largely kept the high-quality design and engineering jobs. Problem apparently is that too many Americans simply can't make their living with technical jobs; it's out of their reach. But I don't see any rush by Americans to pick up those quality laboring jobs that are already abundant with restrictions in immigration. Roofing, landscaping, masonry, painting. Not a lot of fun, but work that needs to be done, and work that we give to Latinos and even temporary foreign labor because Americans don't want to do it.

 

In reply to by Linus2011

TeethVillage88s JLarryL Fri, 08/03/2018 - 11:57 Permalink

New work sectors need to be opened up.  Perhaps by 1) Sharing more technology with US Citizens and not sending it too the rest of the world, Russia, Israel, France, China 2) Investment in school labs, hands on experience, contests... like in Recycling, Waste management, Materials usage, Materials Testing, basic look at machines, industrialization, first colonial or US Industrial machines

- but yes... jobs were reduced to task so they could be automated, outsourced, shipped off shore... jobs will look different like the Oil and Gas Drilling industry where fewer workers are used today than in the 1970s

In reply to by JLarryL

Stuck on Zero JLarryL Fri, 08/03/2018 - 12:23 Permalink

American industry moved to China to 1) hide profits from the IRS, 2) lack of environmental controls, 3) lack of labor laws, and 4) for cheap capital to build factories. Labor cost, thanks to robotics, is almost irrelevant.  I've seen more than enough factories that pump out hundreds of millions of dollars worth of merchandise with fewer than 50 employees.

In reply to by JLarryL

CashMcCall JLarryL Fri, 08/03/2018 - 17:09 Permalink

Of course, Merica now needs the lowest of low-level jobs. Have you looked at College Enrollments in the USSA lately? 65% of college enrollments are now women. That means only 35% are men or some other fking non-binary crock of bullshit. That is your brave new world. Men sitting out education. Merica ain't leading the intellectual parade. 

Merica is now churning out unschooled male bums with no spine and no sense of drive. The rise of the female bully LOL. 

In reply to by JLarryL

TeethVillage88s Seasmoke Fri, 08/03/2018 - 11:21 Permalink

But the old coke whore has kept his ass out of everything for the most part.  Yeah, same schtick as always.  But while we wait for DC to stand up to Globalists for right to protect US Jobs... at least trump plays a quiet tune about trade while his swarmed by media and polito attacks.

- fuck, I know Kudlow is old as hell... I know about his divorce... I know about his addictions

US Liabilities for International Investments = $35.5 Trillion, see table B of IIT

https://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease…

In reply to by Seasmoke