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Savings–Not Tariffs Will Make America Great Again

While the farcical Kavanaugh confirmation hearings dominated the news cycle for the past couple of weeks, little mention was made of a disturbing economic headline – the August US trade deficit. Despite all the bluster from the Trump Administration about “winning trade wars” and “trade wars are easy,” America’s trade imbalances for August were the highest ever and its deficit with its most contentious partner – China – reached an all-time high.

Some highlights or low lights for the Trump Administration and the clueless economic nationalists were:

  • August imports of industrial supplies and materials ($49.7 billion) were the highest since December 2014 ($51.8 billion).
  • August imports of automobile vehicles, parts, and engines ($31.7 billion) were the highest on record.
  • August imports of other goods ($9.1 billion) were the highest on record.
  • August petroleum imports ($20.5 billion) were the highest since December 2014 ($23.6 billion).*

These numbers will probably mean that the Trump Administration will push for more and stiffer tariffs, although the President is set to meet with Chinese President Xi Jinping next month. Yet, if anything comes out of the meeting, it will have little impact on US trade imbalances or the economy overall.

President Trump does not have to meet with the Chinese President or, for that matter, any other head of state, for the cause of US trade problems emanate right where he currently resides – Washington, D.C. The US trade deficit is the culmination of years of ruinous Congressional and Presidential polices of high taxes, onerous regulations, and deficit spending which have gutted the nation’s manufacturing base. The US simply does not produce goods like it used to and has been kept afloat by its status as the world’s reserve currency. “King Dollar” has allowed America to consume without having to produce.

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

In Latest Provocation To Beijing, US Plans New Warship Passage Through Taiwan Strait

In Washington’s latest attempt to provoke Beijing, the United States is planning to send warships through the Taiwan Strait according to Reuters, a mission meant to ensure “free passage” through the strategic waterway and which will further heighten political tensions with China. Reuters sources did not discuss the potential timing for any fresh passage through the strait.

The last time the US conducted a similar crossing under the “free passage” umbrella, China responded angrily over what it saw was the latest US incursion in its geopolitical sphere of influence and a fresh mission would only exacerbate the state of affairs between the two superpowers; meanwhile any repeat would be seen in self-ruled Taiwan as a fresh expression of support by President Donald Trump’s government.

China, which views Taiwan as a wayward province, has been ramping up pressure to assert its sovereignty over the island and it raised concerns over U.S. policy toward Taiwan in talks this week with U.S. Defense Secretary Jim Mattis in Singapore.

Ironically, even as Washington mulls ordering a fresh passage through the strait in a show of support for Taiwan and defiance of China’s growing sphere of influence, it has been trying to explain to Beijing that its policies toward Taiwan are unchanged. Mattis delivered that message to China’s Defense Minister Wei Fenghe personally on Thursday, on the sidelines of an Asian security forum.

“Minister Wei raised Taiwan and concerns about our policy. The Secretary reassured Minister Wei that we haven’t changed our Taiwan policy, our one China policy.

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

Welcome to the G-20 from Hell

US Commerce Secretary Wilbur Ross, left, chats with Chinese Vice-Premier Liu He during 'trade dispute' talks in Beijing earlier this year. Some sort of agreement could be reached at the G20 summit. Photo: AFP / Andy Wong

US Commerce Secretary Wilbur Ross, left, chats with Chinese Vice-Premier Liu He during ‘trade dispute’ talks in Beijing earlier this year. Some sort of agreement could be reached at the G20 summit. Photo: AFP / Andy Wong

Welcome to the G-20 from Hell

World leaders wrestle with a maelstrom of complex, burning issues as they prepare for November 30 summit

The G-20 in Buenos Aires on November 30 could set the world on fire – perhaps literally. Let’s start with the US-China trade war. Washington won’t even start discussing trade with China at the G-20 unless Beijing comes up with a quite detailed list of potential concessions.

The word from Chinese negotiators is not at all bleak. Some sort of agreement could be reached on about a third of US demands. Debate on another third could ensue. But the last third is absolutely off-limits – due to Chinese national security imperatives, such as refusing to allow the opening of the domestic cloud computing market to foreign competition.

Beijing has appointed Vice-Premier Liu He and Vice-President Wang Qishan to supervise all negotiations with Washington. They face an uphill task: to pierce through President Donald Trump’s limited attention span.

On top of it, Beijing demands a “point person” with the authority to negotiate on behalf of Trump – considering the mixed-message traffic jam out of Washington.

Now compare this with the message coming from the research institute fabulously named Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era under the Party School of the Central Committee of the Communist Party of China (CPC): the US has started the “trade friction” essentially “to hinder China’s industrial upgrading.”

That’s the consensus at the top.

And the clash is bound to get worse. Vice President Mike Pence accused China of “meddling in American democracy,” “debt diplomacy,” “currency manipulation,” and “IP theft.” The Foreign Ministry in Beijing dismissed it all as “ridiculous.”

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

The Perfect Storm Bringing China And Russia Together

The Perfect Storm Bringing China And Russia Together

Nat Gas

During the Cold War, China and the Soviet Union regarded one another as strategic adversaries. Relations between Beijing and Moscow, however, have significantly improved over the years. Besides political alignment, the countries have complementary economies; China has an insatiable appetite for the raw materials which Russia has in abundance and Beijing has the financial strength to protect Moscow against the sanctions related to its annexation of Crimea.

Bilateral trade, as a consequence, has increased dramatically over the years. At the end of 2017, it stood at $80 billion, an increase of 30 percent year-on-year, with an aim to reach $200 billion by 2024. Much of this growth will need to come from energy trade, of which natural gas will likely make up a large part. An example of this natural gas growth is the Power of Siberia pipeline – which is currently nearing completion – and the Altay pipeline project which looks set to follow.

China’s booming demand for energy

The transformation of rural China a couple of decades ago into a global economic powerhouse has been admired across the globe. Even during the financial crisis of 2008, China served as a stabilizing force amid the turmoil. The Asian country’s expanding economy requires ever-larger volumes of energy to power homes and factories. Beijing’s adoption of more stringent rules to counter air pollution has created an energy revolution due to the coal-to-gas switch. This has had serious consequences for the global gas market.

Until recently, the LNG market was facing an oversupply. Growing demand in China due to its new rules on air pollution has absorbed much of the glut. According to analysts from Sanford C. Bernstein & Co., new supplies of LNG are “being easily mopped up by rampant market growth”. Political developments, however, have somewhat shifted Beijing’s focus from LNG to more pipeline gas from Russia. This has come at the right moment for Moscow as relations with its biggest customer, the EU, have deteriorated.

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

Beijing Eases Policy, Yuan Slides Towards 10-Year Low

On Sunday, the Bank of China cut the level of cash that banks must hold as reserves. The Yuan continued its slide.

Shares in Asia stumbled in early trade on Monday as investors waited with bated breath as China’s markets prepare to reopen following a week-long holiday and after its central bank cut banks’ reserve requirements in a bid to support growth.

Investors will be focused on markets in China, following a decision on Sunday by the People’s Bank of China (PBOC) to cut the level of cash that banks must hold as reserves in a bid to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States.

Reserve requirement ratios (RRRs) – currently 15.5 percent for large commercial lenders and 13.5 percent for smaller banks – would be cut by 100 basis points effective Oct. 15, the PBOC said, matching a similar-sized move in April.

Trade War

China said it would not devalue the yuan in response to a trade war. Actions speak louder that words.

The CNH is once again dangerously close to the PBOC’s redline of 7.00, with 3-month USD/CNH points, which have reached their highest this year, suggesting that a breach of that level is increasingly probably and implying a CNH yield of around 2% above equivalent USD 3-month rates. At the same time, the 1-year forward is also flirting with 1,000 pips, another signal that traders see a weaker yuan. The rate of appreciation in the forward curve this month is the quickest since June, when the U.S.-China trade war crossed the Rubicon.

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

China Cuts Reserve Ratio, Releases 1.2 Trillion Yuan Amid Rising Trade War, Record Defaults

China’s central bank announced it would cut the Required Reserve Ratio (RRR) for most banks by 1.0% effective October 15 for the fourth time in 2018, a little over three months after the PBOC announced a similar cut on June 24, as Beijing seeks to stimulate the slowing economy amid the growing trade war with the US, a slumping stock market, a sliding yuan and a record number of bond defaults.

The People’s Bank of China announced on Sunday local time that it lowered the required reserve ratio for some lenders by 1 percentage point according to a statement on its  website. The cut, which will apply to a wide range of banks including large commercial banks, joint stock commercial banks, city commercial banks, non-county rural banks and foreign banks, will release a total of 1.2 trillion yuan ($175 billion), of which 450 billion yuan will be used to repay existing medium-term funding facilities which are maturing, and the remaining RMB 750bn will help offset the seasonal rise in liquidity demand during the second half of the month due to tax payments, according to the PBOC.

But the real reason behind the RRR cut is that it is intended to boost sentiment before the onshore equity market re-opens on Monday after the week-long holidays, as well as to support liquidity conditions at a time when global interest rates have suddenly spiked to multi-year highs..

Commenting on the cut, Goldman economists said that while they had been expecting one RRR cut per quarter in H2, “the 1pp magnitude surprised us on the upside.”

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

US, China Diving Into A New Cold War; Jack Ma Warns: “When Trade Stops, Sometimes War Starts”

One of the most significant themes heading into 2019, is the new US-China Cold War. Recent tit-for-tat exchanges on economic, political and strategic fronts threaten to escalate into a full-blown conflict between both superpowers.

As Washington squeezes Beijing economically through an escalating trade war, it simultaneously uses Freedom of navigation (FON) to sail its warships and or fly its nuclear-capable Boeing B-52 bombers dangerously close to Beijing’s militarized islands in the heavily disputed South China Sea. This high-stakes game of chicken is now spiraling out of control and could lead to a possible military conflict.

Last month, President Trump slapped Beijing with new tariffs on an additional $200 billion worth of Chinese products, adding to the $50 billion applied on Chinese imports earlier this year, said Asia Times.

Trump also threatened to slap tariffs on another $267 billion of Chinese imports if Beijing failed to address concerns over what his administration views China’s predatory and unfair trade practices.

China responded by applying retaliatory tariffs on $60 billion worth of American imports while suspending trade negotiations with Washington.

Asia Times said China “views its roiled relations with the US as an existential struggle, with the ongoing trade war seen as part of a broader containment strategy Washington is now intensifying through military means in the South China Sea.”

Alibaba founder Jack Ma recently warned that Trump’s trade war with China could lead to military conflict.

“When trade stops, sometimes the war starts. So trade is the way to stop wars,” Ma warned Tuesday during an opening panel discussion at the World Trade Organization Public Forum in Geneva. “Trade is the way to build up trust,” he continued. “Trade is not the weapon to fight against each other.”

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

China Vows Not To Negotiate Under Threat, As Trump Teases “Major Broadside” Against Beijing

Investors had managed to cling on to optimism that the ‘trade skirmish’ between the US and China would reach a swift conclusion – and that the US would ultimately be better off, as China would be forced to curtail practices like its IP theft from US companies.

But as downbeat markets observed on Monday morning, hope of a harmonious resolution died when Beijing cancelled plans to send two delegations to Washington. The delegates would have engaged in the fifth round of talks since the trade conflict – war, whatever you want to call it – began earlier this year.

Meanwhile, the US formally imposed 10% tariffs on roughly $200 billion in Chinese goods just after midnight on Monday morning, pushing China to impose tariffs on roughly $60 billion of goods. Even before the tariffs took effect, US stock futures and the yuan tumbled after the start of trading Sunday night, leading European and Asian stocks lower (to be sure, these moves took place with holidays in China, Japan and South Korea, which led to much thinner trading volumes).

Those losses were exacerbated when Beijing-run Xinhua news wire published a white paper where Chinese officials revealed that they would not engage in any further negotiations while the US continues to threaten further tariffs, per Bloomberg.

“The door for trade talks is always open but negotiations must be held in an environment of mutual respect,” according to a white paper carried by the state-run Xinhua News Agency. Negotiations “cannot be carried out under the threat of tariffs.”

This confirms that “the trade war is now a reality,” according to Fitch chief economist Brian Coulton.

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

Here comes the 30-year trade war

Here comes the 30-year trade war

Trade tensions between the US and China could drag on for decades but China’s focus on its Belt and Road Initiative could provide relief

We might be at the start of a decades-long trade war between China and the US. Photo: iStock

We might be at the start of a decades-long trade war between China and the US. Photo: iStock

China Threatens US With “Consequences” If It Does Not “Immediately” Revoke Sanctions Over Russian Weapons Deal

Just hours after Beijing called off trade talks with the US in the biggest escalation of the trade feud between the two nations, the war of words between China and the US ratcheted up on Saturday, when Beijing lashed out again at Washington, saying that China’s decision to buy fighter jets and missile systems from Russia is “a normal act of cooperation between sovereign countries” and the United States has “no right to interfere”, defense ministry spokesman Wu Qian said on Saturday.

The U.S. approach is a blatant violation of the basic norms of international relations, a full manifestation of hegemony, and a serious breach of the relations between the two countries and their two militaries,” Wu said in a notice posted on the Chinese defense ministry’s official Wechat account according to Reuters.

He also warned that the US would face “consequences” if it did not immediately revoke the sanctions.

The comments came two days after the U.S. State Department imposed sanctions on China’s Equipment Development Department (EED), the branch of the military responsible for weapons procurement, and its director, Li Shangfu, for engaging in “significant transactions” with Rosoboronexport, Russia’s main arms exporter.

The sanctions are related to China’s purchase of 10 SU-35 combat aircraft in 2017 and S-400 surface-to-air missile system-related equipment in 2018, the State Department said. They block the Chinese agency, and Li, from applying for export licenses and participating in the U.S. financial system, Reuters reported previously.

They also followed similar comments on Friday from Foreign Ministry spokesman Geng Shuang, who told reporters in Beijing that the move seriously harmed bilateral relations and military ties.

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

A Path To War? China Cancels US Trade Talks As ‘Skirmish’ Escalates

Following a surge in Chinese, European, and much of the US equity markets this week amid hopes that the so-called ‘trade skirmish’ was less ‘war-like’ than expected, China just dropped an early Saturday morning (local time) tape bomb that is sure to resurrect ‘trade war’ talk.

After President Trump slapped a fresh round of tariffs on Chinese goods, targeting 10 percent duties on $200 billion of goods; the two camps were scheduled to meet in order to dial back tensions. As we noted earlier in the week, China had ‘downgraded’ the team with a mid-level delegation from China due to travel to the U.S. capital to pave the way for Vice Premier Liu’s visit.

That was what sparked hope that this was just a trade skirmish (as Jamie Dimon attempted to play down), sending stocks soaring all week.

However, that is all over now.

The Journal  just reported on Friday that, according to sources, China has rescinded the proposals to send two delegations to Washington.

Chinese officials have said such pressure tactics wouldn’t induce them to cooperate.

By declining to participate in the talks, the people said, Beijing is following up on its pledge to avoid negotiating under threat.

“Everything the U.S. does hasn’t given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang said at a press briefing Friday.

“We hope that the U.S. side will take measures to correct its mistakes.”

*  *  *

The timing of this news, after the exuberant equity week, is also noteworthy as it follows Ray Dalio’s, founder of Bridgewater, warnings that the current trade tensions mirror those of the 1930s:

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

“Trump Won’t Back Down”: Bannon Warns Trade-War Will Be “Unbearably Painful” For China

Steve Bannon – who claims to have helped President Trump draft the battle plan for the ongoing trade war, says that Trump’s strategy is to make the conflict “unprecedentedly large” and “unbearably painful” for Beijing, according to an exclusive interview with the South China Morning Post.

The ultimate goal, says Bannon – is not just to force China to give up its “unfair trade practices,” but to “re-industrialize America” since manufacturing used to be the core of the nation’s power. Bannon also criticized the “Made in China 2025” plan for Beijing to catch up with the West in 10 key tech sectors – saying that Chinese firms were relying in generous government support to reduce future technological reliance on the West.

Bannon, who claimed to have helped Trump draw up the trade war plan, said that in the past, tariffs had been limited to imports of between roughly US$10 billion and US$30 billion but the sheer magnitude of the more than US$500 billion in question this time had “caught Beijing off guard”.

“It’s not just any tariff. It’s tariffs on a scale and depth that is previously inconceivable in US history,” Bannon said.

He said Beijing had relied on “round after round of talks” to take the momentum out of the US punitive measures, but the delaying tactics would not work.

“They always want to have a strategic dialogue to tap things along. They never envisioned that somebody would actually do this.” –SCMP

Bannon says he and Trump were convinced that the US would win a trade war, and that Chinese elites were worried about the same, with “so many senior Chinese officials exhausting all channels” in order to move their money out of China and snap up West Coast and New York real estate.

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

China Retaliates: Beijing To Levy $60BN In Tariffs On US Goods Effective Sept 24

Just as Donald Trump was further threats aimed at Beijing after he launched another $200BN in tariffs targeting Chinese imports, and warning that “there will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”, China’s Ministry of Finance issued a statement disclosing that it would retaliate by levying tariffs on another $60BN in US goods (effectively covering all US imports with tariffs), which would take effect from Sept. 24 at 12:01 p.m.

While the retaliation was expected, in what appears to be an olive branch to Trump, Beijing said that it would impose a 10% tariff rate on goods that it previously listed at a 25% rate, and a 5% rate for goods that previously were seen as being in the 10% rate bucket.

Here are the highlights, from Reuters and Bloomberg:

  • CHINA SAYS NEW TARIFFS ON U.S. GOODS EFFECTIVE AT 1201 LOCAL HOURS ON SEPT 24
  • CHINA TO LEVY TARIFFS ON $60B U.S. GOODS
  • CHINA SAYS TO LEVY TARIFF RATES RANGING BETWEEN 5 TO 10 PERCENT ON U.S. GOODS
  • CHINA SAYS NEW TARIFFS WILL BE LEVIED ON 5,207 U.S. PRODUCTS, UNCHANGED FROM INITIAL PROPOSAL

China also said that if the US insists on raising tariffs rates on Chinese goods (from 10% to 25% or more), China would respond accordingly, but noted that it hopes to stop trade frictions and hold a constructive dialogue.

The full statement, google translated:

According to the “Notice of the Customs Tariff Commission of the State Council on Adding Tariffs to Certain Imported Goods Originating in the United States (Second Batch)” (Announcement of the Taxation Committee [2018] No. 6), the relevant implementation matters are hereby announced as follows:

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

 

China Halts Licenses For US Companies Amid Tariff Battle

As the tariff battle between Washington and Beijing worsens, China has halted license applications from American companies in financial services and other industries until progress is made towards settling the trade dispute, reports APciting an official belonging to a business group.

The disclosure marks the first public acknowledgement that US companies expect their operations in China, or access to China’s markets, may be disrupted by the dispute over Beijing’s technology policy.

China is running out of American imports for penalties in response to U.S. President Donald Trump’s tariff hikes, which has prompted worries that Chinese regulators might target operations of U.S. companies.

The license delay applies to industries Beijing has promised to open to foreign competitors, according to Jacob Parker, vice president for China operations of the U.S.-China Business Council. The group represents some 200 American companies that do business with China. –CNBC

In meetings held over the last three weeks, Cabinet-level officials told USCBC reps that applications from US firms will be put off “until the trajectory of the US-China relationship improves and stabilizes,” according to Parker.

Chinese officials, meanwhile, have promised to increase non-US foreign access to several areas, including banking, insurance, securities and asset management.

“There seem to be domestic political pressures that are working against the perception of U.S. companies receiving benefits” amid the dispute, said Parker, who added that Chinese officials want an end to Trump’s tariff hikes as well as a negotiated settlement.

Beijing matched Trump’s earlier tariff increase on $50 billion of imports but is running out of American goods for retaliation due to their lopsided trade balance. China bought American goods worth about $1 for every $3 of goods it exported to the United States.

Trump is poised to decide whether to raise duties on $200 billion of Chinese goods. Beijing has issued a $60 billion list of goods for retaliation. CNBC

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

China Moves Into Afghanistan As Part Of Its Global Expansion Mission

For many, it was a stunning development. China will build a brigade-size military training facility in the strategic Wakhan Corridor, the land bridge between Tajikistan and Pakistan, which is located in Afghanistan’s northeast Badakhshan province and borders China.

Although Beijing denied the claim that hundreds of Chinese soldiers will be deployed to Afghanistan, a source close to the Chinese military stated, “Construction of the base has started, and China will send at least one battalion of troops, along with weapons and equipment, to be stationed there and provide training to their Afghan counterparts.”

For those who have been closely following growing Chinese influence in Afghanistan, the above report comes as no surprise.

A year earlier on August 14, 2017, Spogmai radio quoted the spokesman for the Afghan Ministry of Defense (translation): “A brigade base will be built to maintain the security of Badakhshan, which will be funded by China.”

The spokesman stated that China has steadily increased its military cooperation with Afghanistan and had, at that point, already provided $73 million in military aid.

Beyond the enormous geopolitical implications of a Chinese military base inside Afghanistan, the Badakhshan installation is the final security link between Tajikistan, vital to China’s commercial interests in Afghanistan, and Pakistan, China’s “all-weather” ally in South Asia.

It was largely unreported that China financed border outposts and deployed troops to Tajikistan’s eastern Gorno-Badakhshan Autonomous Region, which borders Afghanistan’s Badakhshan province and is part of the Wakhan Corridor.

Consolidating a Chinese presence in Badakhshan province, the Afghan Ministry of Information and Technology has discussed signing a contract with China Telecom for a fiber optic network connecting China to the Wakhan Corridor. No doubt, the intention is to couple that system to the larger network linking China with Pakistan, the Middle East and Africa.

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

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