End Game Analysis
The end-game retaliation comes via a global boycott of the Treasury auctions. Foreign entities fund half the US fiscal deficit, which is set to double. Imagine the locals funding their own budget gap!
This forces the savings rate up at the expense of spending. Recession follows.
Treasury Boycott Thesis
I am surprised that Rosenberg brings this up because in my mind, this hash has been settled long ago.
What exactly would China, Japan, and Germany do with their reserves and ongoing trade surplus? Mathematically they have to do something.
Historically, that something has been to buy treasuries. But I suppose China could buy could be gold or US equities. The latter would be smack in the middle of an obvious bubble.
And if China were to dump US treasuries, the alleged nuclear option, it would serve to strengthen the Yuan. Recall that China sold US treasuries to support the Yuan and stop capital flight. In a trade war, China would not want an appreciating currency!
I think Rosenberg proposes nonsense, but given the nonsensical actions of Trump, I cannot rule out nonsensical or illogical responses.
This leads us to the most logical real threat.
Yuan Devaluation Thesis
China cannot retaliate with enough tariffs on its own to combat tariffs imposed by the US. Hower, the yuan does not float. China could devalue the yuan enough to counteract the value of US tariffs.
Of course, Trump could ban Chinese imports in response, but prices at Walmart, Costco, Target, everywhere, would skyrocket.
This scenario is nearly the opposite of what Rosenberg suggests. It is also far more credible.
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