I hate to break the news to China bashers, but the trade war with the US is over. I’ve maintained for months that Trump has no leverage in trade talks with China. If he did China would have done a deal by now.
They haven’t and they likely won’t unless you are talking some form of deal which allows Trump to save face here. But to be honest I’m beginning to doubt whether anyone in the White House cares. This is about the Great Powers Game and the simpleton idea that for one country to win in trade another has to lose.
This is, of course, nonsense.
Trade is not a zero-sum game. Ideally, all voluntary trade is a win-win scenario for both the buyer and the seller. If it wasn’t the trade would not be made. Lost in the numbers is the comparative perceived value of the exchange.
China is still running a massive trade surplus and that is true. But from the perspective of US trade, that is as much a function of Trump’s own profligate spending habits as any structural inequalities.
Trump is running a $1 trillion budget deficit. This is money that is conjured up out of thin air by the miracle of selling bonds. $1 trillion in bonds. Where do you think those $1 trillion in government expenditures goes to?
The moon? Laos?
No. It goes to China. It also finds its way into the US equity market Trump is so in love with and other places that produce goods that we Americans buy with that money. If Trump wants to win the trade war with China he should consider spending a little less money allow consumer prices here in the States to fall and let his tax cuts continue to attract capital for the right reasons – the value the American work force is capable of generating.
Instead Trump slapped 10% tariffs on Chinese goods last year. This has done nothing except exacerbate the trade deficit with China. The overall trade deficit is now at record levels.
Moreover, China responded exactly as one would expect, by allowing the Yuan to depreciate by roughly 10%. It did so for a number of reasons.
First, to protect domestic exporters as one would expect. But more importantly, to assist vulnerable Chinese banks exposed to any slow down and keep them liquid, which it did through Central bank operations.
Over at my blog recently I noted:
China’s not going to implode over these tariffs. It will give Xi and his central bank the opportunity to devalue the yuan in response to the slower flow of dollars. It has to protect the lion’s share of its trade with Southeast Asia and Europe whose currencies are already in trouble.
And it will bail out the most strategically-sensitive banks and businesses over-exposed to them. It’s what they did last year in response to the 10% tariff and it is what will happen this time.
Lastly, however, is the part no one actually wants to discuss which is that China has to protect its trade with Southeast Asia and Europe. The Yuan didn’t devalue in a vacuum. The euro is down 13% from its high as are currencies like the Indonesian Rupiah, the Malaysian Ringgit and Thai Baht.
What Trump and his team are arguing for in trade negotiation is no different than what they’ve offered Iran and Lebanon, surrender your sovereignty or face punishment.
So, China reciprocates and cuts off US soybeans and other food exports. Now, a year later, Midwest banks are facing surging bankruptcies from farmers hit with the double whammy of no exports to China (who now buys them from Brazil) and massive flooding from an abnormally vicious winter and spring.
They have Trump to thank for this. He didn’t help them by not thinking through how we could be hurt by China’s reaction to his belligerence.
The same way Wisconsin dairy farmers are also going bankrupt thanks to the continued flood of cheap European dairy keeping wholesale milk prices low. Why is this happening? Russia countered European and American sanctions over Crimea with a ban on imports of European dairy.
These were both core groups that defected from Hillary Clinton in 2016.
Let’s shift gears now and talk about what’s really going on.
Trump’s team would be fine with a trade deficit if China was still recycling that trade surplus into US Treasury bonds. They aren’t. The Chinese have held their stock of US debt between $1.1 and $1.25 trillion for two years now.
They are sending a lot of those dollars back out into the world to fund their massive Belt and Road Initiative (BRI). They are also using them to power swap arrangements with countries feeling the bite of Trump’s sanctions. Countries like Turkey, Pakistan and Iran, for examples.
To the paranoid schizophrenics who run his White House can only see China rising as a threat not a complement to the US.
Again, these are people with a zero-sum view on trade.
They, like Trump, only see things in terms of power. And if China is running a surplus they are gaining it and we are losing it.
The push to sanction the world and stop the unapproved use of the dollar is beginning to have catastrophic effects on the world economy. People like John Bolton and Secretary of State Mike Pompeo don’t care about those things. In fact, the more our ‘enemies,’ as they see them, suffer, the better it is for us. Such is their reductionist view of the world.
In no way do I believe China is somehow blameless or anything. They have taken egregious advantage of the US’s terrible policies for decades. But they are also shifting away from their mercantilist policies as Xi shifts the economy away from exports and towards a domestic consumption model.
It’s already happening as China’s trade surplus falls as a percentage of GDP and domestic consumption and investment take over.
The next steps will be interesting. I expect Trump isn’t bluffing now about raising tariffs to 25%. I also expect that China will again stop all purchases of US oil like it did between November and March under the threat of sanctions due to buying Iranian oil while letting the Yuan fall sharply.
After that the real energy war starts as Russia completes Power of Siberia and begins pumping natural gas to China. And China directs its state oil companies to buy more oil from Iran while lowering its purchases from Saudi Arabia unless the Saudis accept Yuan for it.
That’s where the real leverage in this whole fiasco lies. Trump is trying to blackmail the world with expensive dollars and cheap oil. But as he sabotages global trade and unleashes chaos worldwide the dollar will rise, not fall, as a mad scramble for dollars to pay debts will accelerate. It’s already starting.
Interest rates, now low as investors look for safe-haven assets, will spike much higher as central banks disgorge their US debt to defend their currencies. And the frackers who have issued all new junk bonds will be trapped as oil prices collapse and debt servicing costs rise.
And there will be another constituency ready to lynch Trump come election time.
Tom Luongo is an independent political and economic analyst based in North Florida, USA
what isn’t win-win is relative influence. There could be a win-win for international prosperity, but the US (as an Israeli vehicle) is fixated on Domination, ie the US wishes to be the Ultimate Source of Influence. China’s rising influence is eroding that dream.
AND! This is because BOTH False Israel and the US are “White Supremest” states…Remember…The REAL Jews ARE Black raced people…Understand???
Knowing the Heroes and the Goats (update in red at link below )
Here is something important to know about the real New World Order…
The real BRICS-fronted NWO the globalists are bringing into being will be based on Austrian economics, not Communism. And it will in the beginning appear to be libertarian and respectful of national sovereignty.
As I point out throughout this blog, the globalists have divided their minions into two teams: the Black Hats and the White Hats. And they’re having their controlled alt-media paint the Black Hats as people who are trying to build an evil “Western” NWO. At the same time, they are portraying the White Hats as people who are trying to stop the evil and build a benevolent BRICS-fronted NWO instead. Needless to say, the White Hat “heroes” are scripted to win this conflict, and their victory will bring in the real New World Order the globalists have been planning all along. more here http://redefininggod.com/understanding-the-nwo-strategy
The ONLY Race on this planet that will Survive What’s Coming is THE GOLDEN RACE BE-INGS…Its ORIGINAL CREATION “REFINED”.
Yes I agree, I have been saying this is just Good Cop Bad Cop stuff, just to make us believe we had a choice, the end result is for their One World Governance by the Zionist Rothschilds from Jerusalem where they have their massive world centre illuminati building all ready full of satanic symbols and relics and the JooSA Embassy already to be built next door..as promised by their faithful servant trump.
Part of China’s secret is that they print their own currency!!
What ever you do dont let America know !
They copied this idea from US. Bad China!
How come we don’t copy them and grow the economy and jobs?
The Real Fact about a so-called trade war between the US and China NEVER actually existed inn the first place folks.
China is controlled by White Supremest Too…Remember???
THE AUTHOR SEEMS TO THINK THAT: “That’s where the real leverage in this whole fiasco lies. Trump is trying to blackmail the world with expensive dollars and cheap oil. But as he sabotages global trade and unleashes chaos worldwide the dollar will rise, not fall, as a mad scramble for dollars to pay debts will accelerate. It’s already starting.” WELL, THE DOLLAR MIGHT RISE, BUT THERE ARE A LOT OF BUTS. IF OIL CAN BE BOUGHT USING THE RMB OR EU THAT WILL CAUSE THE USD TO DROP IN VALUE; AND, WHY WOULDN’T COUNTRIES TURN TO A CHEAPER RMB TO PAY THEIR DEBTS? AND . . . AND . . . THE PRICEY DOLLAR WILL REDUCE USA EXPORTS. AND OUR CURRENT ACCOUNT STARTS TO CLIMB. AND, IF, COUNTRIES USE USD TO PAY DOWN DEBT AND NOT TO BUY OIL, IT IS MOST LIKELY THEY’LL BE PAYING DOWN USA DEBT WITH USD WHICH WILL FLOOD AMERICA’S DOMESTIC MARKET WITH RE-HOMED CURRENCY. THAT WOULD ADD TO THE DEFLATIONARY PRESSURES THAT WERE UNLEASHED IN 2008. ULTIMATELY IT WOULD LEAD TO THE DECLINE IN VALUE OF THE USD INTERNATIONALLY WHICH COULD SET OFF A CURRENCY WAR OF DEVALUTATION–THINK OF AROUND 2010.
That is the BIGGEST lie of All, because it supports the idea that “Paper” has Real Value…That “Fiat Currency” has value, or “Krypto-currency” (Fart-Money” has value.
Remember it was the CHINESE that created “Paper Money” in the first place…Only the White Folks decided to add to this BS by Creating what is called “Fractional Reserve” Fraud currency (10 to One at first)
NONE of those currencies will EVER substitute for the ORIGINAL currencies of “Preciuos Metals”…WHY DO YOU THINK THEY “KEEP” THEM AROUND FOLKS???
And Lets be VERY Clear about “Bankoholics”…THEY DO NOT WORK FOR THE PEOPLES BEST INTEREST.
KEEPING EVERYONE IN “DEBT” IS THEIR BEST WEAPON OF “CONTROL’…UNDERSTAND ANYONE???
ITS ALL ABOUT “ABSOLUTE CONTROL” BY “WHITE SUPREMACY”….Oh and lets NOT forget about Control of ENERGY Control.
WHY else promote a LONG since Obsolete form of energy call OIL, and “WIRED” Electricity.???
If you dont hold it you dont own it…why would Banksters be buying up gold and silver if it was so valuless, THEY KNOW…
I agree, if you don’t hold it you don’t own it.
Why do anyone think that the banksters are buying up gold and silver so much while its cheap, THEY KNOW where real value is.
https://greenworldwarriors.com/2019/01/15/documentary-the-world-according-to-xi-jinping/ But now, Xi Jinping is China’s president for life. His central mission is to make China the next superpower. Discover Xi’s “Chinese dream”. A marriage between dictatorship and Silicon Valley and a huge threat to global civilization.
Xi Jinping is the product an enormously effective party propaganda apparatus. Never has China been so ambitious. Never has China so disturbed the global balance. Who is Xi Jinping and what is his vision? What is his hidden agenda? ( see in the link above)
Lets NOT Forget WHO set-up this DICTATOR…White Supremest, and it will “Attempt” to lead to “World Leader”…THE POOP’S (Pope) of course…After all Who else claims to the “Vicar of God/Christ on Earth???
Their Fate is SET IN STONE THOUGH.
I WOULD LIKE TO ADD TO MY COMMENT:
INITIALLY THE DEBT OWED TO THE USA WILL BE PAID IN PETRO DOLLARS WHICH WILL INCREASE THE FOREX RATE OF THE USD. THAT WILL MAKE IN MORE DIFFICULT FOR AMERICAN EXPORTERS TO FIND MARKETS FOR THEIR GOOD–EVEN MORE SO, IF, CHINA IS DEFLATING THE RMB.
BUT THOSE PETRO DOLLARS BEING RE-HOMED TO THE USA WILL RESULT IN DOMESTIC DEFLATION BECAUSE THERE WILL BE TOO MANY DOLLARS CHASING TOO FEW PRODUCTS.
ONCE THE FOREIGN COUNTRIES SPEND DOWN THE USD SUPPLIES AND TURN TO THE RMB OR EURO–AND IF OPEC ABANDONS THE PETRO DOLLAR IS EVEN WORSE– THE USD WILL LOSE ITS MARKET VALUE.
SO DOMESTICALLY THERE WILL BE DEFLATION BUT INTERNATIONALLY OUR PRICE OF IMPORTS ON THE SHELVES WILL RISE.
THE SELECTION OF PRODUCTS ON THE RETAIL SHELVES WILL DECLINE AS PRICES RISE.
THE TYPICAL DEBT LADEN AMERICAN WILL FIND NOT ONLY IS HIS/HER WAGES REMAIN FLAT BUT THE COST OF GOOD AND SERVICE WILL RISE WHILE HIS/HER DEBT LOAD REMAINS UNCHANGED. WHICH MEANS AT THE END OF THE MONTH THE BUDGET MAY NOT BALANCE.
WHICH MEANS HOUSING PRICES WILL DROP. SO YOU CAN HAVE AN UNDERWATER MORTGAGE YOU CAN’T AFFORD TO PAY BUT YOU DON’T HAVE THE MONEY TO SELL SHORT. I GUESS THAT MEANS MORE PEOPLE WILL HAVE TO BITE THE BULLET AND FILE FOR BANKRUPTCY.
THIS ALSO MEANS THE PROBLEMS THAT CONGRESS CREATED FOR THE AMERICAN PEOPLE BY BUYING THE FANNIE AND FREDDIE MORTGAGES IS GOING TO COME BACK AND BITE CONGRESS ONCE AGAIN.
AND WHILE THIS IS HAPPENING MORE BUSINESSES WILL CUT BACK ON OPERATIONAL EXPENSES OR GO BANKRUPT. THE ON-LINE RETAILERS LIKE AMAZON WILL CONTINUE AUTOMATING JOBS. AT SOME POINT WE WILL HAVE A REPEAT OF THE 1980IES WHERE CORPORATIONS WILL SLASH SALARIES OF MIDDLE MANAGEMENT; BUT, ONLY AFTER THEY FIRE THE OLDER AND MORE EXPENSIVE FOLKS WITH RECENT GRADS FROM COLLEGE.
LOOKING FROM THE VIEWPOINT OF INTERNATIONAL FINANCE WITH THE LIKES OF JPM AND GS THEY’LL BE HEDGING THEMSELVES INTO EVER ENLARGING BONUSES. AT THIS POINT ONE HAS TO ASK WHY THE AMERICAN PEOPLE ARE SO KEAN ON GOLDMAN SACHS RUNNING THE COUNTRY? BANKERS THRIVE ON CHAOS WHICH IS WHAT WE GAVE OURSELVES WHEN WE VOTED FOR TRUMP.