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White House Accuses China Of “Persistent Economic Espionage And Aggression”

In what Bloomberg billed as the White House’s “latest salvo in the trade war between the world’s two largest economies”, the Trump administration released a 35-page report late last night fleshing out its national security concerns emanating from China’s theft of intellectual properties as well as economic policies that shield domestic Chinese companies from competition.

The report, titled How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World“, accuses China of achieving its brisk economic growth through “aggressive acts, policies, and practices that fall outside of global norms and rules (collectively, ‘economic aggression’)” (surprisingly, not through nosebleed levels of debt issuance), before it lists two categories of said “economic aggression” that are the focus of the report; they are:

  • Acquire Key Technologies and Intellectual Property From Other Countries, Including the United States.
  • Capture the Emerging High-Technology Industries That Will Drive Future Economic Growth15 and Many Advancements in the Defense Industry.

The cites comments from the US intelligence community, which note that “Chinese actors are the world’s most active and persistent perpetrators of economic espionage” and that China covets technology in key industries like “electronics, telecommunications, robotics, data services, pharmaceuticals, mobile phone services, pharmaceuticals, satellite communications and imagery and business application software.”

When thefts of technology are reported, China does everything it can to stymie investigations. Indeed, economic espionage is a main focus of China’s intelligence services, and the US believes that China’s Ministry of State Security has no fewer than 50,000 intelligence officers operating abroad – and no fewer than 40,000 operating domestically.

China

The report also offers details about how China violates US export-control laws by exploiting the growth in “dual-use” technologies (aka those that have civilian and military purposes). As an example, the report cites a conspiracy involving a naturalized US citizen who was born in China.

…click on the above link to read the rest of the article…

Kass – Risk Happens Fast

Risk Happens Fast

  • Risk happens fast – Trump trade policy whacks futures this morning
  • We remain in a trading sardine market – not an eating sardine market
  • Hastily crafted policy that conflates politics is dangerous in a flat and networked world
  • The return of an untethered Orange Swan is market unfriendly … brace yourselves
  • The Supreme Tweeter will likely “Make Uncertainty and Volatility Great Again” (#MUVGA)

The First Half of 2018

The first half of 2018 has been a tale of two markets. Maybe three markets.

January brought a market fervor – in which global equities rose dramatically, likely in response to the expected stimulative contribution and impact of the Administration’s reduction in statutory tax rates.

As interest rates began to climb in January, bullish investor sentiment crested and the risk parity trade went array.

Stocks fell violently in February and the new regime of volatility commenced – in a market revealed as increasingly illiquid.

The S&P Index fell from nearly 2900 and successfully tested the 2550 level twice. Several meek rallies commenced but the S&P had 2-3 more successful tests at about 2600 and stocks recently closed in on 2800 (S&P Index).

1Q-2018 corporate revenues and profits didn’t disappoint but the complexion of the market had clearly changed – and valuations (the S&P Index’s price earnings ratio expanded by almost 3 points in 2017) began to contract. Wall Street, which outperformed Main Street in 2017 – reversed roles in the first six months of 2018.

While the stock market reeled with volatility since January 1, the FAANG stocks generally stood tall throughout the year as the market narrowed and investor interest focused on the 5-10 anointed stocks.

The first half of 2018 was also characterized by a series of questionable and controversial presidential policies (the most recent being trade/tariff decisions) at the same time the Federal Reserve was pivoting on monetary policy. By overtly playing to his base, having little sense of economic history, Trump has contributed to even greater volatility in a market without memory from day to day.

…click on the above link to read the rest of the article…

China’s Currency Manipulation Does NOT Harm Its Trading Partners

China’s Currency Manipulation Does NOT Harm Its Trading Partners

Americans are being told that China’s currency manipulations are causing harm to its trading partners, America being the main victim. Nothing could be further from the truth. China’s currency manipulations certainly cause harm, but to China itself!

No country can cause harm to another by adopting any economic intervention. All economic interventions cause harm only to the country that adopts them. This applies to subsidies of home industries, quotas restricting import volumes, tariffs imposed on imports, and currency manipulations.

A nation typically manipulates its currency by giving more of its own currency in exchange for the currency of other countries. Thus foreign importers can buy more goods per unit of currency exchanged. In other words, if the free market exchange rate between the dollar and the yuan is six yuan per dollar, an importer would be able to buy goods costing six yuan by tendering one dollar. If the Bank of China arbitrarily decides to boost imports, it can give eight or ten yuan for each dollar presented. Chinese goods drop in price on the American market.

Protectionists such as President Trump view this as harm, but where exactly is the harm? A Chinese good that previously cost a dollar now may be purchased for sixty or eighty cents. Our American standard of living goes up at China’s expense! The extra money in Americans’ pockets may be used to consume or invest more. This is a very strange definition of harm.

The real harm occurs in China. The Bank of China sets off price inflation in its own country. It may try to mitigate this inflation by raising the interest rate on its own debt in order to withdraw the extra yuan from circulation. This is known as “sterilization”. It then appears as if China has achieved greater exports with no price inflation. However, China’s debt rises.

…click on the above link to read the rest of the article…

Here Are The Six Ways China Could Retaliate In Trade War With The U.S.

It’s all about the trade war between the US and China this morning, and more specifically, how will Xi retaliate to Trump.

For those who missed the overnight fireworks, late on Monday, President Trump asked the US Trade Representative to identify USD 200BN in Chinese goods for further tariffs of 10% which will be imposed if China refuses to change its practices and goes ahead with its retaliation threat, while he also stated that China raising tariffs is unacceptable and that the US will pursue tariffs on another USD 200bln of Chinese goods if China increases tariffs yet again.

Predictably, China – which last week reacted instantly to Trump’s first round of $50BN in tariffs – again responded immediately, wasting no time in accusing Trump of “blackmail.” China’s commerce ministry said on its website that if the US “irrationally” moves forward with the tariffs then China has no choice but to “forcefully fight back” with “qualitative” and “quantitative” measures.

“China’s response is to safeguard the interests of the country and its people,” China’s Mofcom said, adding that the US “practice of extreme pressure and blackmail departed from the consensus reached by both sides during multiple negotiations and has also greatly disappointed international society”.

But now that the chips are on the table, and Trump is locked into a tit-for-tat strategy with China from which neither he nor Xi can “defect” without losing face, the question is how exactly will China retaliate to punish the US while minimizing the damage to China’s economy as much as possible.

There are 6 possible things that China can do at this time, in order of escalating severity:

…click on the above link to read the rest of the article…

India Joins the Tariff War: The Party is Just Starting!

In response to Trump’s tariffs on steel, India will put tariffs on Harley motorcycles, lentils, and almonds.

Following the well-established belief that “trade wars are easy to win”, India counters Trump tariffs, to hike duty on US bikes, almonds, apples.

India has proposed to raise import duty on 30 products, ranging from motorcycles and certain iron and steel goods to boric acid and lentils. The customs duty on some of the items may be raised up to 50 per cent, in a signal that New Delhi will hit back at America’s protectionist policies that range from a tighter visa regime to higher import duties.

The additional duty proposed to be hiked on these items ranges from 10 per cent to 50 per cent. Those at the lowest include almonds, walnuts and fresh apples – which will cost a little more for consumers as an additional duty of 10 percent is proposed to be imposed.

But the real impact will be on products such as motorcycles over 800 cc – a move targeted at Harley-Davidson – where an additional duty of 50 percent has been proposed. This is seen as a real counter to President Donald Trump who had demanded a reduction in tariff on the cult bike brand.

The government threatened further action. “India reserves its right to further suspend substantially equivalent concessions and other obligations based on the trade impact resulting from the application of the measures of the US,” it added.

Let It All Hang Out

Party Just Starting

It’s so easy when it’s all easy. As Trump says “Trade Wars are Good and Easy to Win

The party is just starting. Who’s next?

Related Articles

Chrystia Freeland Fails to See the Emerging Multipolar World

Chrystia Freeland Fails to See the Emerging Multipolar World

In a strange case of reversed roles Canadian Minister of Foreign Affairs, Chrystia Freeland, tried to convince US president Donald Trump to return to his lost path of globalization and international trade agreements in an impassionate speech she gave at the Foreign Policy Forum last June 13 in Washington D.C.

Ms. Freeland seems to have a good reputation in some circles in Washington. At least enough to get her centre stage and a nomination as “diplomat of the year.” Though she should know that the recognition she received was not meant to acknowledge necessarily her achievements but rather to use her as an “international voice” on behalf of some US sectors that dissent with Donald Trump’s foreign policy – more specifically, those aspects of US foreign policy that are perceived to hurt business such as international trade and tariffs. Ms. Freeland obliged and that was precisely the focus of her speech.

We don’t know the impact that Ms. Freeland’s speech has had on Donald Trump. But her message would have been fitting had she been on the same stage with the likes of Ronald Reagan whom she did praise once.

What we do know is that her speech – probably meant to be inspirational – was full of liberal, capitalist and imperial rhetoric, and showed little understanding of the geopolitical realities of today. Her tenacious defense of the virtues of capitalism lacked vision and placed her right back at the time of the old Cold War with the only exception of authoritarianism being the nemesis instead of communism. She pointed her accusatory finger at Venezuela, Russia and China as examples of current unruly countries that do not follow her image of international order.

…click on the above link to read the rest of the article…

How America’s Wars Cut Down American Liberty

How America’s Wars Cut Down American Liberty

If we forswore military intervention in other countries, we could still affect the world in a positive way through free trade.

Professor Tucker argues in his Liberty Forum essay that a grand strategy, at least one that is dreamed of by experts, “is not a possibility for the United States,” and that if it were, we Americans would have fewer liberties. I agree. But I think he should have pursued that point much more aggressively. Partly because U.S. governments in this century and the last did pursue ambitious goals in other countries, we already have fewer liberties.

That does not mean that we, as Americans, should not have a grand strategy. I believe we should. Our strategy should be to maximize our liberty subject to the constraint that we should be relatively safe in the larger world. Fortunately, this strategy of maximizing our liberty would likely increase the liberty of many others in many other countries.

The Government Ratchet

Let me first explain why the previous grand strategy of intervening in other countries’ affairs has led to our having fewer liberties. I’ll start with the “ratchet” model of governmental spending and control that economic historian Robert Higgs identified in his 1987 book, Crisis and Leviathan.

Higgs pointed out that much of the growth in state spending, taxation, and regulation in the 20th century was a result of three crises: World War I, the Great Depression, and World War II. To deal with these crises, Washington dramatically increased federal spending and regulation. Federal taxes went up, as well. When the crises ended, spending, taxation, and regulation did recede some; but they never returned to their pre-crisis levels. In each case, the federal government gained substantial power.

…click on the above link to read the rest of the article…

My Views on US-Canada Trade, Steel’s Impact on National Security, NAFTA, and the Dollar

My Views on US-Canada Trade, Steel’s Impact on National Security, NAFTA, and the Dollar

Wolf Richter with Jim Goddard on This Week in Money:

Trade agreements are designed to benefit companies, not people – which is part of the problem. We also get into whether gold and silver will remain stuck in the current trading range, and whether there will be a recession under Trump.

 

Goldman: If Trump Wants To Win A Trade War, The Market Has To Crash

Now that the Trump global trade war ceasefire is over with both allies (Canada, EU, Mexico) and adversaries (China), the hot takes are coming in, and none more exhaustive than a note by Goldman Sachs released overnight, in which economist Alec Phillips writes that less than two weeks after Steve Mnuchin declared that the “trade war is on hold,” a statement which China trade hawk Peter Navarro subsequently blasted as inaccurate, Trump’s policy has shifted substantially and “following trade announcements over the last few days, the trade war does not appear to be “on hold” but simply “on”, leaving even longtime observers of trade policy confused about the direction from here.”

So how should one try to make sense of Trump’s unique, confusing negotiating style? According to Goldman, at the start of the Trump Administration, “reciprocity” was the watchword guiding trade policy.

Since taking office the President has cited many examples of “unfair” trade policies where foreign tariffs are higher than US tariffs on the same product.

Trump made as much clear on Saturday when he tweeted that “The United States must, at long last, be treated fairly on Trade. If we charge a country ZERO to sell their goods, and they charge us 25, 50 or even 100 percent to sell ours, it is UNFAIR and can no longer be tolerated. That is not Free or Fair Trade, it is Stupid Trade!”


The United States must, at long last, be treated fairly on Trade. If we charge a country ZERO to sell their goods, and they charge us 25, 50 or even 100 percent to sell ours, it is UNFAIR and can no longer be tolerated. That is not Free or Fair Trade, it is Stupid Trade!


…click on the above link to read the rest of the article…

“This Is A Red Line”: Beijing Warns Trump Trade Deal Is Off If US Imposes Tariffs

In a scathing editorial warning Trump to back off on his latest tariff threat, on Sunday China said that any trade deals between the US and China, and any progress and commitments made so far in bilateral negotiations would be withdrawn if President Donald Trump follows through with this threat.

“If the U.S. rolls out trade measures including tariffs, all the agreements reached in the negotiations won’t take effect,” the state-run Xinhua News Agency reported this morning, citing a statement from the Chinese team that met with a U.S. delegation led by Commerce Secretary Wilbur Ross, which arrived in China overnight.

US trade delegation led by Commerce Secretary Wilbur Ross is in China to discuss bilateral trade relations, June 2-3

Separately, China has continued to express growing frustration with the tactics deployed by the White House, and an editorial in the nationalist, state-run tabloid Global Times said that “the U.S. can’t have its cake and eat it too,” adding that the U.S. “needs to choose between tariffs and exporting more to China.”

China’s anger is the result of Trump’s revival of the simmering trade war between the two superpowers after Trump last week unveiled a plan to slap tariffs on $50 billion of Chinese imports, casting into doubt ongoing trade discussion about how to reduce China’s $375 billion goods-trade surplus with the U.S.

As Bloomberg clarifies, the Xinhua report came out on Sunday after Ross met with Chinese Vice Premier Liu He for talks that Ross called “friendly and frank, and covered some useful topics about specific export items.” At the same time as negotiators focus on technical steps to reduce the U.S. deficit, Trump’s aggressive reversals have rattled Beijing as it raises concerns about the possibility that any agreement made could be simply torn up by the president.

…click on the above link to read the rest of the article…

“Just Days Left” To Avoid Trade War France Says, As G-7 Condemn Trump

With Trump refusing to back down and slapping Section 232 tariffs on steel and aluminum imports from the EU, Canada and Mexico, which were enacted at midnight on June 1, the G-7 meeting taking place in Whistler, also known as Canada’s Davos, ended up being one big “bash America” show, with French finance minister Bruno Le Maire saying that “it has been a tense and tough G-7. I would say it has been far more a G-6 plus one than a G-7” pointing at the US, which on Friday he said was “alone against everyone and running the risk of economic destabilization.”
Morneau, third left, and fellow finances chiefs gather in Canada

Seemingly unable to grasp that Trump would dare break with decades of politically correct tradition and turn his back on allies who continue to impose tariffs on US exports yet balk when the US retaliates in kind, Le Maire said on Saturday that Washington has just a few days to take urgent measures if it wants to avoid unleashing a full-scale trade war with its European allies.

“We still have a few days to avoid an escalation. We still have a few days to take the necessary steps to avoid a trade war between the EU and the US, and to avoid a trade war among G7 members,”  Le Maire told journalists after the conclusion of the G-7 meeting, according to Reuters.

French Finance Minister Bruno Le Maire

He added that it is up to the US to make the first move:

“The ball is in the camp of the United States, it is up to the American administration to take the right decisions to smooth the situation and to alleviate the difficulties.”

…click on the above link to read the rest of the article…

Trump Started a Global Trade War Today: Canada, Mexico Responded, So Will Europe

Trump has been itching for a global trade war ever since he took office. He just confirmed one.

The U.S. will impose tariffs on steel and aluminum imports from Canada, Mexico and the European Union starting on Friday. Trump’s ill-advised Tariffs Provoked Anger and Retaliation from US Allies.

The tariffs make good on President Donald Trump’s threats and show the administration is maximizing pressure to win concessions from allies, while simultaneously negotiating through a high-stakes trade conflict with China, seen as an economic competitor.

Besides steel and aluminum, the U.S. administration is studying whether tariffs should be imposed on imported cars and auto parts under the same law that gives Mr. Trump wide authority to erect trade barriers under the banner of national security.

“This is dumb,” said Sen. Ben Sasse, a Nebraska Republican. “Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents.”

Sen. Orrin Hatch, chairman of the Senate Finance Committee, said in a statement: “Tariffs on steel and aluminum imports are a tax hike on Americans and will have damaging consequences for consumers, manufacturers and workers. I will continue to push the administration to change course.”

Trump Wants to Halt German Luxury Car Imports

Via translation from WirtschaftsWoche, Trump wants to block Daimler from the US market.

US President Donald Trump has announced to French President Emmanuel Macron to exclude German premium car makers from the US market. On Macron’s visit to Washington in April, Trump said he would maintain his trade policy until no Mercedes models rolled on Fifth Avenue in New York. This reports the WirtschaftsWoche, citing several diplomats from Europe and the United States.

…click on the above link to read the rest of the article…

China Prepares “Emergency Response Plan” Amid Escalating US Trade War

While in recent days the growing trade war between China and the US has moved off the front page of market concerns despite now daily skirmishes such as today’s anti-dumping probe launch by the US into US steel wheels which followed a Chinese 179% tariff on US sorghum imports which in turn was in response to the US banning exports to Chinese telecom giant ZTE, in recent days China has drawn up comprehensive list of urgent measures as the war of words over US-China trade relations has threatened to escalate into open economic conflict with each side threatening to levy heavy tariffs and taxes on each other’s imports.

Commenting on the recent trade hostilities, National Development and Reform Commission spokesman Zeng Peiyan said on Wednesday that Beijing has all the political instruments it needs to respond to this trade conflict with the United States and minimize its economic effect.

“We have an emergency response plan at various levels and political means to retaliate to the trade challenges, initiated by the United States,” Zeng added.

He stressed that the trade conflict would affect the country’s economy only partially and that China “has the confidence, potential and ability to ensure the stable functioning of the country’s economy.”

Meanwhile, according to Reuters, Beijing’s international trade representatives have held multiple meetings with their counterparts in leading European economies as China, too, seek support in its trade brawl with the US. Recall the US was supposed to do the same with Trump canvassing support for the growing world trade war in Latin America last week, however he was held back by the diversionary Syrian airstikes.

China however, was not detained and Beijing officials met ambassadors from France, Germany, the United Kingdom, Spain and Italy last Thursday and Friday to propose a firewall against Trump’s protectionism, Reuters reported.

…click on the above link to read the rest of the article…

China’s “Nuclear Option” in the Trade War

china trade war usa nuclear

China’s “Nuclear Option” in the Trade War

The United States has been interested in economic relations with China since 1784, shortly after the American War for Independence.

At first, this interest was purely economic, because the British refused to deal with the U.S. (for obvious reasons). So the Americans bought Chinese goods, and the Chinese bought from the Americans.

And for most of U.S. history, things were good. But in 1949, with the rise of Mao and communist China, tensions rose.

Fast-forward to today’s relationship, as described by The Heritage Foundation:

Today, the United States and the People’s Republic of China are like the European great powers of a century ago. They trade with each other, but do not trust each other. They have the largest economies in the world, and they have a financial and trading relationship that shapes the global economy. But at the same time, they have different, and often opposing, views on many national security and foreign policy issues.

This lack of trust in their trading relationship mainly stems from China’s views on communism, their endorsement of certain people, and security issues.

Now it looks like that trading relationship is heating up dramatically…

China recently announced tariffs on 106 U.S. products like soy, cars, and some chemicals. As Sam Meredith explains on CNBC.com, this came 24 hours after the U.S. slapped tariffs on a list of Chinese imports in a $50 billion crackdown on unfair trade practices:

The effective start date for the new charges is not announced, though China’s Ministry of Commerce says the tariffs are designed to target up to $50 billion of U.S. products annually. The 25 percent levy on U.S. imports includes products such as soybeans, cars and whiskey.

This announcement caused a 450-point drop in the Dow Jones.

In retaliation, the Trump Administration then doubled down on its initial tariffs, imposing another $100 billion in tariffs on Chinese goods.

…click on the above link to read the rest of the article…

Four Flashpoints of Volatility

Four Flashpoints of Volatility

1 – Trade Wars Flashpoints, From China to Canada and Mexico

Wall Street has knee-jerk reactions to any trade war related headlines.

There are legitimate reasons to be concerned about trade wars. The world is increasingly more connected than ever. Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.

If China continues to retaliate against trade war policies from the U.S. with harsh measures of their own, it could hurt revenues of those firms.

But, here’s the latest revelation:

China wants to keep more of what it makes — in China — across a variety of sectors. Trade wars elevate the Chinese government’s desire to do that. The country has just recently launched a new $1.6 billion initiative called “Made in China 2025.”

The strategy entails an increase in research and development spending. That would cause Chinese companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.

What all of that could mean is that similar products in the U.S will become more expensive for consumers. That would hit directly at stock of those companies, making them more volatile.

While headlines from the White House continue to target China, our regional trading partners are undoubtedly some of the most important, and currently some of the most fragile.

To the north, Canada is playing up its optimism over NAFTA talks. Rhetoric is one thing, reality is another. It’s important to look at what institutions are doing, not what they’re saying.

Canada is currently enhancing its participation in several other trade agreements, including an updated Trans-Pacific Partnership that does not include the U.S. In the wake of Brexit, Canada has also made important trade links to both Europe and the U.K.

…click on the above link to read the rest of the article…

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