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Why Trade Wars Will Unleash Central Banks

April 15, 2018

Why Trade Wars Will Unleash Central Banks

Why Trade Wars Will Unleash Central Banks

There’s been an abundance of coverage surrounding the recent steel and aluminum tariffs. Those measures could hurt more sectors than they help within the U.S. In particular, it could damage businesses that require metals because they’ll have to pay more for raw materials.

Trade wars also escalate geopolitical tensions and economic hardships the world over. They have in the past. When the U.S. imposed tariffs in the 1930’s to try to relieve the Great Depression at home, they achieved the opposite effect.

A global trade war flared, governments became isolated and initiated defensive build-ups. The move ultimately resulted in lower production, reduced global trade and a prolonged international depression that gave rise to WWII.

While the early Great Depression period in which President Hoover invoked harsh trade wars might be different than today, the threat of instability remains. What we saw then was a slowdown in the world economy that lead to regional aggressions and ultimately a world war.

The major differences now are that we have central banks financing markets — and by extension a military buildup.

Countries are better insulated today than they were in those days. By insulating themselves, they now have more choices about who their trading partners are, and what regional or multilateral agreements they enter.

That’s one reason China is championing regional trade agreements throughout Asia and the Pacific Rim, and inked bi-lateral deals with Japan and the EU last year.  Those nations are growing less reliant on U.S. trade and, like good portfolio managers, are diversifying their trade partners.

The U.S. tariffs will likely accelerate this trend.

The tariffs, and super-regional build-ups, will also do something else. Trade wars will morph into an acceleration in global military spending. That’s because the tensions from trade wars have military ramifications.

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

The Coup is Complete – Trump is Done

April 11, 2018

I’m going to keep this simple.  Follow the dots and try to keep up.

  1. The Deep State’s lies are being unraveled in real time thanks to the collective intelligence of the ‘internet’ and our ability to synthesize data in real time.
  2. The Skripal poisoning and the latest Syrian “chemical weapons” attack share the same thing — both set government officials off rushing to judgment and action before any official investigation could debunk them.
  3. Trump has pissed off everyone in power on both sides of the Atlantic since coming into power.
  4. He has been a material threat to powerful members of the Deep State/Shadow Government who have unmasked themselves as criminals to avoid losing power.
  5. Trump needs to be neutralized.  And up to this point he hasn’t been, c.f. his tax cuts, deregulation, Executive Orders against Obamacare, TPP, TTIP.
    1. He’s attacking the current managed trade schema of Wall St. and the City of London via trade war rhetoric with China and the EU.
    2. Russia collusion narrative has failed completely.  Mueller’s investigation has now ‘jumped the shark.’
  6. Things were falling into place for Trump, Jinping and Putin for a wider peace framework from North Korea to the Middle East.  This does not serve the entrenched powers in D.C., New York, City of London, Riyadh and Beirut.
  7. The operation to destroy Syria is at least a 20 year old idea.  It will not be derailed.   It goes back to overthrowing Assad’s father.
    1. John Bolton is one of the architects of this mess.
  8. Trump’s tweets right after the latest announced attack rang false.  The word choice was all wrong.  Tone right.  Words wrong.

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

China Eyes Yuan Devaluation in Trade Dispute

April 10, 2018

Finally, we have a story that makes retaliatory sense vs. the widely believed “nuclear” treasury dumping theory.

The widely-circulated “nuclear” theory suggests China would dump US treasuries in a trade war with the US. That theory never made any sense. Such a move would tend to strengthen the yuan, making Chinese exports more expensive. Thus, it would be precisely what the US would want.

The Real Nuclear Option

The real nuclear option would be a devaluation of the yuan, making Chinese goods less expensive to the US.

China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide.

Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports.

While a weaker yuan could help President Xi Jinping shore up China’s export industries in the event of widespread tariffs in the U.S., a devaluation comes with plenty of risks. It would encourage Trump to follow through on his threat to brand China a currency manipulator, make it more difficult for Chinese companies to service their mountain of offshore debt, and undermine recent efforts by the government to move toward a more market-oriented exchange rate system.

It would also expose China to the risk of heightened financial-market volatility, something authorities have worked hard to avoid in recent years. When China unexpectedly devalued the yuan by about 2 percent in August 2015, the move fueled capital outflows and sent shock-waves through global markets.

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

Trade Wars Lead to Shooting Wars and Depressions

April 9, 2018

Trade Wars Lead to Shooting Wars and Depressions

Trade wars were a principal factor in causing the Great Depression of the 1930s and World War II.

The current President of the U.S. has imposed tariffs on imported steel and aluminum effective March 23, 2018 and proposes tariffs on products imported from China. He has also proposed revoking U.S. participation in the North American Free Trade Agreement (NAFTA) which has enabled a large expansion of trade between the U.S., Canada and Mexico.

Mr. Trump says trade wars are easy to win. Wrong. Everybody loses in trade wars.

Trade Wars Hurt Everyone 

Mr. Trump’s trade war will have a bad effect on American trade and relations with important nations around the world, including Canada, Mexico, China and other Asian nations whose companies do business in the U.S., and European nations.

Prominent American companies whose business will be hurt by Trump’s trade war include Boeing and Union Pacific, to name only two.

Boeing currently sells nearly one-third of its airplanes to China. The Chinese earn U.S. dollars by exporting to the U.S. That is the source of the ability of Chinese airlines to buy Boeing aircraft.

Union Pacific is the largest U.S. railroad. It transports goods, both imported and of domestic origin through much of the U.S. The CEO of Union Pacific has warned that Trump’s trade war will hurt not only the business of the railroad, but many other businesses that transport goods via Union Pacific.

American companies hurt by Mr. Trump’s trade war will suffer shrinkage of their businesses and shrinkage in the number of people they employ.

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

“We Understand The Chinese Government Has Halted Purchases Of US Treasuries”: SGH

April 9, 2018

“We Understand The Chinese Government Has Halted Purchases Of US Treasuries”: SGH

On Friday, we reported that among the five “nuclear” options available to Beijing to retaliate against Trump’s latest $100BN in import tariffs, was the choice whether or not to sell US Treasuries. But what if Beijing did not want to unleash a full-blown market nuke, and instead was hoping for a targeted, EMP hit?

Then it would simply stop buying US paper, instead of dumping it outright; in the process it wouldn’t hurt the US too much – avoiding an angry response –  but it would send a clear signal to the White House, whose fiscal spending plan will more than double net Treasury issuance this year from under $500BN to over $1 trillion, and which needs every possible marginal buyer of US paper, both domestic and foreign.

Which is precisely what a new report by SGH Macro Advisors claims.

According to the consultancy, a long-time favorite of macro hedge funds, Beijing has twice threatened deliberately targeted tit-for-tat punitive measures against the US to date: “first, in response to the Trump Administration’s threat of steel and aluminum tariffs, and second, in response to broader measures aimed at $50 billion of products that lie directly at the heart of Chinese technology transfers, intellectual property violations, and strategic, “Made in China 2025” plan.”

But even as US cabinet officials lined up yesterday to calm jittery equity markets, SGH says in a note released over the weekend that “China had already signaled an aggressive and potentially more ominous escalation in the developing trade wars to the White House”:

From what we understand, the Chinese government has halted its purchases of US Treasuries. Despite the direct encouragement, according to Chinese sources, by US Treasury Secretary Steve Mnuchin for China to “stay put,” Beijing has apparently discontinued purchases of US Treasuries “for the past few weeks.”

Some more details from the note:

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

Were Trade Wars Inevitable?

April 9, 2018

Were Trade Wars Inevitable?

Trade in which mobile capital is the comparative advantage is a system of Neocolonial exploitation of developing-world nations.

Were trade wars inevitable? The answer is yes, due to the imbalances and distortions generated by financialization and central bank stimulus. Gordon Long and I peel the trade-war onion in a new video program, Were Trade Wars Inevitable? (27:48)

Let’s stipulate right off the bat that trade is not necessarily win-win–the winners (corporations, financiers and the financial sector) have skimmed the majority of the gains, leaving the losers with a few pennies of dubious value.

Consumers’ got a nickel in savings and a disastrous decline in quality, while corporations reaped 95 cents of additional profits:

As I explained in Forget “Free Trade”–It’s All About Capital Flows (March 9, 2018), the comparative advantage into today’s global economy is mobile capital: i.e. access to low-cost credit in nearly unlimited sums.

Those with low-cost credit created by central banks issuing reserve currencies in nearly unlimited sums can outbid everyone else for productive assets.

In effect, trade in which mobile capital is the comparative advantage is a system of Neocolonial exploitation of developing-world nations which don’t have reserve currencies they can create out of thin air. Trade is exploitation via cheap credit.

The winners are the few at the top of the wealth-power pyramids in both exporting and importing nations. I discussed this recently in There is No “Free Trade”–There Is Only the Darwinian Game of Trade (March 12, 2018).

Central bank policies don’t just distort domestic economies, they distort global trade, which parallels domestic distributions of winners (a few at the top) and losers (everyone else).

Trade is intertwined with currencies. China has used its currency peg to the USD to avoid being exploited; China has followed a “Goldilocks” strategy that keeps its currency, the yuan/RMB, in a narrow range: not too costly, not too cheap.

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

Trump’s Dangerous Game of Chicken

April 9, 2018 / 1 Comment on Trump’s Dangerous Game of Chicken

Trump’s Dangerous Game of Chicken

As the “tit-for-tat” trade fight between the US and China escalates, Donald Trump is likely to find that he doesn’t “know China” the way he once thought. When he said that during the presidential campaign, he based his understanding of China on one thing: the high rent in Trump Tower that he had exacted from a Chinese bank. Today, he may still assume he can win a game of chicken by upping the ante until the Chinese eventually fold.

But Trump and his crew don’t understand Chinese thinking. The Chinese leadership does not respond well to being bullied, least of all now that they have a means of fighting back. China’s commerce ministry said as much in a statement right out of Chairman Mao’s playbook. Mao had often said when dealing with “US imperialism”: “We will not attack unless we are attacked,” Mao often said. “But if we are attacked, we will certainly counterattack.” A ministry spokesman said today (April 6): “The Chinese way of doing things is like this: We do not pick a fight, but if someone does pick a fight, we will fight resolutely. The Chinese have always been very serious in handling these matters. We mean what we say.” And the commerce ministry added in a formal statement: “On the issue of Sino-US trade, the Chinese position has been made very clear. We do not want to fight, but we are not afraid to fight a trade war.”

Trump and other US officials are saying the US isn’t engaged in a trade war with China. But China’s press is already using that term. Perhaps there won’t be a trade war; Trump may simply be employing his usual bluster to force more favorable terms of trade. He risks stepping over the line, however.

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

Currency Wars Erupt, We Have Reached the Point of No Return

April 7, 2018

Currency Wars Erupt, We Have Reached the Point of No Return

It is happening, and it cannot be stopped.

The Currency Wars that have been discussed at length by many precious metals experts for years are here, and there is now no turning back.

As I have previously discussed, these wars have been ongoing for much of the last decade, if not longer. However, it has remained largely a “gentleman’s” war, with neither side wishing to expose their hand too much.

Now, with the increased rhetoric coming from the Trump administration, things have turned red hot. Shots are being fired back and forth on an almost daily basis.

President Trump has imposed numerous tariffs on Chinese goods entering the United States. The first was $50 billion worth of tariffs, to which China swiftly responded in kind, imposing $50 billion worth of their own tariffs on American imports such as soybeans and small aircrafts.

As expected, President Trump would not let this stand, and he is now discussing an additional $100 billion worth of tariffs on Chinese goods. This action would, of course, be answered with a likewise response from China.

As we can already see, these actions will have a ripple effect through not only the Chinese and US economies, but the entirety of the West, as these countries are two of the largest importers / exporters in the world.

These increased hostilities show no sign of abating and are likely to increase from this point out. Neither side is willing to back down and show weakness. As a result, stock markets have corrected sharply, proving that they too prescribe to my assumption.

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

Here Are China’s Five Options For “Nuclear” Trade War

April 7, 2018

Here Are China’s Five Options For “Nuclear” Trade War

After Trump ordered the USTR to consider an additional $100BN in tariffs, something we said on Wednesday would happen if the market was dumb enough to allow Trump to think he had a trade war victory by closing green…

S&P 500 EXTENDS GAIN ABOVE FRIDAY’S CLOSE, UP AS MUCH AS 1.15%
Seeing favorable market response, Trump next raises China tariffs to $100BN

…China has suddenly found itself in a quandary: as we showed first thing this morning, if Beijing were to continue responding to the US in a “tit-for-tat”, it would be unable to retaliate to the latest Trump salvo of a total $150 billion in tariffs for the simple reason that the US does not export $150 billion in products to China.

Which doesn’t mean that China is out of options; quite the contrary. The problem is that virtually everything and anything else that Beijing can do, would be a significant escalation. In fact, the five most frequently cited options are all considered “nuclear” and would promptly lead to an even more aggressive response from Washington.

Here are the five “nuclear” options that China is currently contemplating:

  1. A Currency Depreciation. A sharp, one-time yuan devaluation, like the one Beijing unexpectedly carried out in August 2015, could be used to offset some of the effect of tariffs.
  2. Sales of US Treasurys. Chinese authorities could sell some of its large official-sector holdings of US Treasuries, which would lead to a tightening of US financial conditions.
  3. Block US services. Chinese authorities could limit access for US companies to the Chinese domestic market, particularly in the services sector, where the US exports $56 billion in services annually and runs a $38 billion surplus.

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

 

Central Banks Have Killed Free Trade

March 24, 2018

Central Banks Have Killed Free Trade

Central Banks Have Killed Free Trade

Defenders and critics of “free trade” and globalization tend to present the issue as either/or:

It’s inherently good or bad. In the real world, it’s not that simple. The confusion starts with defining free trade (and by extension, globalization).

In the classical definition of free trade espoused by 18th century British economist David Ricardo, trade is generally thought of as goods being shipped from one nation to another to take advantage of what Ricardo termed comparative advantage:

Nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently.

While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of the mobility of capital.

Capital — cash, credit, tools and the intangible capital of expertise — moves freely around the globe seeking the highest possible return, pursuing the prime directive of capital: expand or die.

Capital that fails to expand will stagnate or shrink. If the contraction continues unchecked, the capital eventually vanishes.

The mobility of capital radically alters the simplistic 18th century view of free trade.

In today’s world, trade can not be coherently measured as goods moving between nations, because capital from the importing nation owns the productive assets in the exporting nation. If Apple owns a factory (or joint venture) in China and collects virtually all the profits from the iGadgets produced there, this reality cannot be captured by the models of simple trade described by Ricardo.

In today’s globalized version of “free trade,” mobile capital can skim labor, currencies, interest rates, regulatory burdens and political favors by shifting between nations and assets.

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

 

Hidden No More, The Currency Wars Take Center Stage

March 24, 2018

Hidden No More, The Currency Wars Take Center Stage

The market stands on a sinkhole, waiting for the next feather to drop. A feather that will bring down the system and send us into another economic crisis that will make the 2008 crash look like an opening act.

For years, I and many others within the precious metals space have written about a hidden war unfolding behind the scenes. To those with wide open eyes, you can see it, you can feel it. I am speaking of the currency and trade wars that Jim Rickards has written extensively about in many of his books—and now, things have ratcheted up to a whole new level.

Over the course of the past week, the jawboning from the US government has turned into action, and they have placed a number of trade tariffs on China . This is part of a campaign promise that President Trump made, and it appears he intends to keep it, no matter how much it might “rock the boat.”

These steps caught many investors off guard, including seasoned market veterans, as they have been so used to the government making bold statements but never following through with any real action.

Not this time. And the stock market is reflecting this new reality.

Chinese markets were sent for a roller coaster of a ride yesterday, dropping by 3-5% throughout the day, with key stocks dropping over 10% alone. A sea of red could be seen across the charts as the once-cold trade war turned hot.

Today, it is the US markets’ turn, as China fired back overnight, sending Western markets plummeting.

These actions sent the plunge protection team into full swing, resulting in this morning’s pre-open bounce . Unfortunately, I don’t see them being able to hold back the floodgates for too long, as this trade war will only accelerate from this point on. Neither side looks willing to back down.

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

 

China Unveils How It Will Retaliate To US Tariffs, USDJPY Snaps

March 21, 2018

China Unveils How It Will Retaliate To US Tariffs, USDJPY Snaps

While it will hardly come as a surprise considering that trade wars always evolve in an escalating tit-for-tat manner, the WSJ reports that just hours ahead of Trump’s announcement of as much as $60 billion in tariffs targeting Beijing, China is preparing to hit back with its own countertariff aimed at President Donald Trump’s support base, including levies targeting U.S. agricultural exports from farmbelt states in retaliation to the mounting trade offensive from Washington.

At the same time, and in hopes of avoiding further escalation, Beijing is also reportedly weighing concessions, including easing restrictions on foreign investments in securities firms and insurance companies.

In taking a stick-and-carrot approach, President Xi Jinping is seeking to avoid escalating trade tensions with the Trump administration.

“Any Chinese response to new U.S. tariffs would be measured and proportional,” said a Chinese official involved in policy-making.

Should the carrot not work, China’s “stick” is said to target U.S. exports of soybeans, sorghum and live hogs.

Soybean harvest in Illinois last September

And while we said that the news should not come as a surprise, it appears that to FX-trading algos, that’s precisely what the WSJ report was, as it sent both the USDJPY and AUDUSD sliding.

Earlier today, the WSJ confirmed previous reports that the White House is preparing to crack down on what it says are improper Chinese trade practices by making it significantly more difficult for Chinese firms to acquire advanced U.S. technology or invest in American companies, individuals involved in the planning said.

The administration plans to release on Thursday a package of proposed punitive measures aimed at China that include tariffs on imports worth at least $30 billion.

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

 

The Illusion of Free Trade

March 15, 2018

The Illusion of Free Trade

The current trading system was never free; Trump’s tariffs merely change who gets what
Container ships are docked in the Port of Oakland in this file photo. (Justin Sullivan/Getty Images)

The backlash from popular media and the affected countries’ politicians blames Trump for ruining the beautiful “free trade” system built up around the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT).

As with anything Trump says or does, it’s important to step back and look at the bigger context he’s acting within.

Not Free

The first big-picture news flash is that neither the WTO nor the GATT was “free.” Free trade is trade without government intervention.

One country or industry may produce and export a lot of steel, but if it doesn’t get any subsidies and doesn’t have protective import tariffs, then it deserves to capture global market share because it’s the most competitive. It uses the locally given resources of labor and capital in the most productive way.

Another country may be the best in producing solar panels, making it the world leader in solar panels. The two countries can swap steel and solar panels and balance their trade, with each country doing what it does best.

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

Albert Edwards: “Trump Will Soon Turn His Protectionist Fire On Germany. That Will Be Messy”

March 15, 2018

Albert Edwards: “Trump Will Soon Turn His Protectionist Fire On Germany. That Will Be Messy”

We were wondering how long before one of our favorite “perma-skeptics”, Socgen’s Albert Edwards, would chime in on the global trade war that broke out in the past few weeks, especially since trade protectionism, tariffs and subsidies are the opposite side of the same “strategic” coin of currency devaluation which we have observed for the past decade, and both of which have one purpose: to make one nation’s goods and service (and stocks) cheaper to the outside world (curiously, in recent years, it has emerged that “soft” protectionism i.e. currency devaluation, is far more acceptable to the establishment than direct or targeted trade intervention via tariffs and trade protectionism).

We got the answer today when in a note, what else, warning what comes next, Edwards writes that whereas “a trade war and competitive currency devaluation was always going to be the end game in our Ice Age thesis as a global deflationary bust destroyed wealth, profits and jobs” and it now looks that this endgame “might be arriving  sooner than we had anticipated.”

The reason: central banks. The catalyst: Donald Trump.

As Edwards explains, while the world is all too quick to point the finger at Trump for daring to expose that the trading emperor is naked, the real culprit behind massive trade imbalances is elsewhere, usually inside a central bank building:

“Increasing trade tensions are an inevitable consequence of the side-effects of QE pursued by central banks – especially the ECB. In the near term, there are a couple of trade issues rankling the US Administration far more than steel and aluminium that could easily trigger a full-scale trade war. More immediate is the impending result of a US probe into China’s alleged theft of intellectual property. And boiling away in the background are Germany’s, and now too the eurozone’s, outsized trade surpluses.”

Edwards begins his analysis by pointing out something trivial: politicians lie.

In this context, Edwards claims that President Trump “is a most unusual politician. Like him or loath him, he seems to be doing something politicians seldom ever do: namely, attempting to fulfill his election promises. This is most unusual!”

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

The Fed Has Its Finger On The Button Of A Nuclear Debt Bomb

March 15, 2018

The Fed Has Its Finger On The Button Of A Nuclear Debt Bomb

I hear a lot of talk lately in the alternative media (and even the mainstream media) of the potential for World War III. The general assumption when one hears that term is that “nuclear conflict” is imminent. But a world war does not necessarily have to be fought with nukes. For example, we are perhaps already witnessing the first shots fired in a global economic war as the Trump administration gets ready to implement far-reaching trade tariffs. This action might provide cover (or justification) for destructive attacks on the U.S. fiscal system by China, Japan, Russia, the EU, OPEC nations, etc. The ultimate attack being a dumping of their U.S. debt holdings and the death of the dollar’s world reserve status.

Of course, an economic “world war” between nations would in itself be a smokescreen for and an even more insidious internal war being waged against the global economy by central banks.

There is a longstanding misconception that central banks always manipulate economic conditions to make them appear “healthy” and that the main concern of central bankers is to “defend the golden goose.” This is false. According to the evidence at hand as well as open admissions by central bankers, these private institutions have throughout history also deliberately created financial crises and collapses.

The question I always get from people new to the field of alternative economics is — “Why would central bankers crash a system they benefit from?” This question is drawn from a flawed understanding of the situation.

First, there is the assumption that economic systems are static rather than fluid. In reality, vast sums of wealth can be transferred into and out of any notion on a whim and at the speed of light. The collapse of one economy or multiple economies does not necessarily include the destruction of banker wealth. Even if wealth was their top goal (which it is not), global banks and central banks do not see any particular economy as a “cash cow” or a “golden goose.” From their behavior and tactics in the past, it is more likely that they see national economies as mere storage containers.

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

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