Trade, Globalization, Strategic Mercantilismm and Globalism itself

[Crafty_Dog]

That is the pure economic argument, but is there not more to it than that?

[DougMacG]

That is the pure economic argument, but is there not more to it than that?

Please expand on your thinking here.

[DougMacG]

https://m.scmp.com/news/china/diplomacy/article/2173738/chinas-truce-deal-includes-offer-buy-more-us-natural-gas

[Crafty_Dog]

Global trade looks bleak. The latest World Trade Organization data shows a drop in activity for all major drivers of global trade. The organization lowered its trade indicator to 98.6. (Anything under 100 shows below-trend growth in trade.) Market analysts have also said the WTO’s estimates for trade growth – 3.9 percent this year and 3.7 percent next year – are too optimistic. Shipping industry data corroborates these numbers. The Netherlands Central Planning Bureau noted that rates for containers carrying finished goods fell by 26.4 percent, and rates for dry-bulk vessels carrying raw materials fell 38.4 percent, from highs posted earlier this year. Much of this has been attributed to the U.S. trade wars, which show no sign of abating. U.S. President Donald Trump said he is ready to make good on his threat to raise tariffs on $267 billion worth of Chinese goods. And yesterday, he warned the United Kingdom that the current Brexit deal too strongly favors the European Union and may affect the U.K.’s ability to trade with the U.S. in the future.

[Crafty_Dog]

https://www.nationalreview.com/2018/11/trade-agreements-are-not-the-place-to-make-laws-on-gender-identity/?utm_source=Sailthru&utm_medium=email&utm_campaign=NR%20Daily%20Monday%20through%20Friday%202018-11-29&utm_term=NR5PM%20Actives

[Crafty_Dog]

Data Watch
________________________________________
The Trade Deficit in Goods and Services Came in at $55.5 Billion in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/6/2018

The trade deficit in goods and services came in at $55.5 billion in October, slightly larger than the consensus expected $55.0 billion.

Exports declined $0.3 billion, led by nonmonetary gold and soybeans. Imports rose $0.6 billion, led by pharmaceuticals, other goods, and passenger cars.

In the last year, exports are up 6.3% while imports are up 8.5%.

Compared to a year ago, the monthly trade deficit is $8.5 billion larger; after adjusting for inflation, the "real" trade deficit in goods is $8.2 billion larger than a year ago. The "real" change is the trade indicator most important for measuring real GDP.

Implications: Trade data have received extra attention of late from pundits looking to play up trade war impacts, but too often they end up missing the forest for the trees. Yes, the trade deficit widened in October to $55.5 billion as imports rose, while exports declined slightly. But what matters more than the headline trade deficit number - and which you will not hear about as much - is the total volume of trade – imports plus exports – which signals how much businesses and consumers interact across borders. Looking at that data, US trade hit a new record all-time high in October – the opposite of what we would expect in a trade war. In terms of the trade deficit in October, exports fell by $0.3 billion, while imports rose by $0.6 billion. Overall, in the past year exports are up 6.3%, while imports are up 8.5%, signaling very healthy gains in the overall volume of international trade and easily outstripping the pace of nominal GDP growth. While many are worried about protectionism from Washington, especially regarding China, we continue to think this is a trade skirmish, and the odds of an all-out trade war that noticeably hurts the US economy are slim. We believe better trade agreements for the United States and world are on the way. We have already seen it happen with several countries, and now China looks to be extending a bit of an olive branch, too. Average tariffs in China will be cut from 9.8% last year to 7.5% this year and on Tuesday, China released a 58-page document showing an array of punishments for IP theft moving forward. We see this as real progress, and just the start. The US's negotiating position simply continues to strengthen, in no small part due to the rise of the US as an energy powerhouse. As recently as 2005, the US was importing more than ten times the petroleum products that we were exporting. As of October, imports are down to 1.2 times exports and this trend should continue. Not only does this reduce US reliance on foreign trade partners and lower their bargaining power, it has served to shift power dynamics on a global scale (witness the political turmoil in Saudi Arabia). So at the end of the day, we will continue to watch trade policy as it develops, but don't see any reason to sound alarm bells. In other news this morning, initial jobless claims declined 4,000 last week to 231,000. Meanwhile, continuing claims fell 74,000 to 1.63 million. Also this morning, the ADP index reported private payrolls rose 179,000 in November. Plugging all of these labor market data into our model suggests Friday's employment report will show nonfarm payrolls rose a healthy 193,000 in November

[Crafty_Dog]

No New Nafta Until Tariffs Have Been Lifted
Trump made a promise, and Congress should hold him accountable for it.
12 Comments
By David McIntosh
Dec. 9, 2018 5:51 p.m. ET

Economists across the political spectrum have cautioned President Trump against tariffs for the harms they inflict on the U.S. economy. That hasn’t stopped the president from imposing them on imports from allies and adversaries alike. Fortunately, with the signing of the United States-Mexico-Canada Agreement, or USMCA, at least some of the tariffs the administration has imposed can be lifted.

That’s what Mr. Trump said he would do. In March he tweeted: “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.” Senior Trump administration officials such as Larry Kudlow and Steven Mnuchin echoed that tariffs were a negotiating tactic to get to a better deal. Well, now we have that deal—“the most modern, up-to-date, and balanced trade agreement in the history of our country,” according to the president. Lifting tariffs on steel and aluminum would show the markets Mr. Trump is following through on his promise and genuinely pursuing his stated goal of zeroing out tariffs.

But for some reason the Trump administration is dithering. Perhaps it misguidedly hopes that Midwestern steel-producing states will reward Mr. Trump in 2020 for keeping the tariffs.

The ball is now in Congress’s court. Congress need not be limited by the president’s take-it-or-leave-it ultimatum on USMCA. Instead, the House speaker and Senate majority leader should refuse to bring the USMCA implementing legislation up for a vote until after Mr. Trump lifts the tariffs, at least with respect to Canada and Mexico.

These tariffs have already wreaked havoc on American businesses that use aluminum and steel to produce everything from automobiles to beer kegs and baseball bats. Twenty-six percent of American steel imports come from Canada and Mexico. Most other countries have only a marginal impact on the market. China, even with its much-trumpeted steel dumping, accounts for only 3% of U.S. steel imports.

By increasing the cost of raw materials, the tariffs are essentially taxes on U.S. companies. They make American-made products more expensive for U.S. consumers and less competitive abroad. They raise the price Americans pay for cars by around $300, according to Morningstar analysts. A study from the Trade Partnership estimates that U.S. steel and aluminum tariffs, in combination with the countermeasures they have provoked, will eliminate around 400,000 U.S. jobs on net in affected sectors.

Now that the USMCA has been signed, there is no reason for the tariffs on steel and aluminum to remain in place. U.S. consumers and businesses have endured them long enough. Congress should not consider the USMCA legislation until after the tariffs have been removed. There should be no question that President Trump will keep his word about ending the tariffs once a “new & fair NAFTA agreement is signed.” The signing happened Nov. 30; the tariffs should be removed today.

Mr. McIntosh, a former U.S. representative from Indiana, is president of the Club for Growth.

[Crafty_Dog]

   

In China, Manufacturers Feel the Heat of the Trade War
Dec 27, 2018
By Phillip Orchard

Summary

The United States and China remain locked in a scrum over trade, present truce notwithstanding. Beijing is grappling for leverage while struggling to keep its own side intact. One of its greatest risks: Some of the biggest exporters in China could simply decide they want no part of this game, take their ball and go, if not home, to some other low-cost manufacturing hub.

According to a Peterson Institute for International Economics study, the first two rounds of U.S. tariffs disproportionately affected U.S. imports from China-based affiliates of multinational firms, rather than Chinese-owned firms. According to an October study conducted by the American Chamber of Commerce in South China – China’s most export-heavy region – around 85 percent of U.S. companies in the region said they were suffering from the new tariffs, compared to around 70 percent of their Chinese counterparts. In other words, the firms in China hurt most by the trade war are the ones most capable of leaving. More than 70 percent of U.S. firms with operations in China surveyed said they were mulling whether to delay or cancel new investments in China or considering leaving for greener, cheaper pastures altogether. (Just 1 percent of the firms said they were planning on moving operations back to the U.S.)

There have been growing hints that a nascent exodus is underway. Samsung, the world’s largest smartphone maker, which has been increasingly relying on factories in Vietnam and India, announced last week it would end production at its factory in Tianjin. On Dec. 5, Pegatron, a key supplier of components for Apple products, announced it’s moving some production to a new factory in Indonesia. Over the past year, Japan’s Panasonic, Suzuki and Nikon all announced closures in China in favor of Southeast Asian hotspots, including Thailand and Singapore, as well as Mexico. Even Foxconn – the paragon of efficient manufacturing at a staggering scale in China – is reportedly eyeing a move to Vietnam.

But there’s a big difference between “considering relocation” and packing up the moving vans, and that difference will define how bad things get for China. This Deep Dive examines China’s vulnerability as the trade war accelerates the rerouting of global supply chains. It looks at what advantages China’s neighbors can dangle in front of firms eager to avoid U.S. tariffs and rising labor and land costs in China, but also considers the reasons why many firms will opt to keep some of their operations in the Middle Kingdom.

Why Firms Are Souring on China

Multinational firms were eyeing the exits in China long before the election of U.S. President Donald Trump, who rode to office threatening a trade war with Beijing. This happens when a country starts to get rich. As China has become wealthier, the increase in living standards has pushed labor and land costs ever higher and driven political demand for costly environmental regulations. And so Chinese exports have become less competitive, giving foreign firms cause to look to more affordable alternatives. The challenge for China intensified as its neighbors in South and Southeast Asia, in particular, began investing heavily in manufacturing and export infrastructure (particularly since they put the regionwide Cold War chaos largely behind them). In northern Vietnam, for example, wages are little more than half those in the manufacturing heartland of southeastern China. As a result, foreign investment has surged in Vietnam, rising nearly 8.5 percent in the first half of 2018 over the same period in 2017 – itself a record year. Across Southeast Asia, net foreign direct investment inflows jumped 18 percent year on year during the first half of 2018 to $73 billion, according to United Nations figures.
 
(click to enlarge)

This ordinarily wouldn’t be all bad news for a country like China. Rising wages generally lead to a more upwardly mobile and less restive populace, and greater consumer power makes a country less vulnerable to a sharp downturn in exports. But the trade war threatens to magnify at least three problems particular to China.

First, the Communist Party of China deeply fears social unrest and thus cannot tolerate the kind of spike in unemployment that would accompany short-term periods of economic disruption. More than 200 million Chinese people work in manufacturing. It’s bad for China if firms hit by tariffs have to start downsizing. It’s a whole lot worse if firms begin abandoning the country altogether and new foreign investment simply dries up.

Second, there are effectively two Chinas. Though the coasts have become wealthy and are scrambling up the manufacturing value chain, like Japan and South Korea did before them, vast swaths of the country – home to hundreds of millions of people – have been left behind, meaning low-skill, labor-intensive manufacturing sectors like apparel are necessary to meet China’s employment needs. (China accounted for just over 30 percent of global apparel exports last year, but this is down from 40 percent eight years ago.) Most of these industries have thus far been spared from U.S. tariffs, but if Trump ever follows through on his repeated threats to effectively tax all imports from China, such operations would be the easiest to move to countries like Bangladesh, Vietnam and Cambodia.

Third, high-value exports like electronics, metals and auto parts – sectors critical to China’s efforts to escape the middle-income trap – are the main focus of the U.S. trade offensive. Exporters in China facing 10 percent tariffs have largely been able to weather the added costs due to a weaker yuan, tax and regulatory changes and the fact that U.S. consumers are absorbing some of the costs. But the tariffs will jump to 25 percent on March 2 if the two countries are, as we expect, unable to reach a comprehensive deal. A 25 percent tax can’t be shrugged off so easily.

These new costs aren’t the only factors making multinational firms uneasy. Businesses are worried about running afoul of forthcoming U.S. rules banning U.S. government agencies from purchasing any products made in factories containing communications or surveillance equipment produced by five Chinese tech giants – tech that’s hard to avoid inside China. There is widespread suspicion that doing business in China means handing over proprietary intellectual property and technology to local competitors.

There’s also concern that China will retaliate against the U.S. tariffs by boosting informal barriers to trade. (More than half the firms polled in the October American Chamber of Commerce survey reported an increase in non-tariff barriers such as stricter regulatory scrutiny and slower customs clearance times.) And now, the U.S.-China trade war appears at risk of devolving to tactics like hostage-taking following the U.S.-requested arrest of the CFO of Chinese firm Huawei in Canada and China’s subsequent detainment of three Canadians.
 
(click to enlarge)

In short, the trade war has created a confluence of pressures on exporters in China. And the siren song of nearby manufacturing hubs – on both ends of the manufacturing value chain – is sounding ever sweeter.

Reasons to Stay Put

Still, there are ample reasons for firms in China to stay put. Less than 19 percent of Chinese exports in 2017 went to the U.S., and other major consumer markets have yet to follow the U.S. lead in imposing tariffs on China. So many of the biggest manufacturers in the country – ones that serve consumer markets across the globe – will be reasonably well-equipped to absorb the tariff costs and keep at least some of their Asian and European Union-focused operations in place.

For firms dependent on the U.S. market, relocating is neither quick nor cheap. Relocation requires new facilities, new workforces to recruit and train, new regulations to navigate, new bribes to pay and new hiccups that can cause catastrophic disruptions. Deep-pocketed multinational firms may be able to swing this, but the small and medium-sized enterprises that China relies on most for employment operate on thinner margins and generally can’t afford missteps.

All told, relocation is generally a three- to five-year process, according to the Economist Intelligence Unit. U.S.-China trade tensions aren’t going anywhere, but that doesn’t mean the current U.S. tariffs will last forever. Companies will be loath to take on the costs of moving unless it becomes clear exactly how the trade war will shake out.

Moreover, if the Trump administration is truly bent on restoring lost U.S. jobs and bringing the broader U.S. trade deficit down, it will need to apply tariffs to other low-cost manufacturers, too. We don’t think this will be the case outside of a few sectors; the broader geopolitical concerns that have bred support for the White House offensive against China do not apply to policies targeting U.S. friends and allies. But the risk of firms finding themselves in the same situation elsewhere is still high enough to give them ample reason to move slowly.

Indeed, even with U.S. tariffs, China is likely to remain competitive as a manufacturing hub. Rising labor and land costs in China are offset (to some degree) by the efficiency of locating operations there. China’s coastal export cities are well-oiled machines: Home to 13 of the world’s 50 largest ports, China’s superb infrastructure reduces time to market. And a massive, well-trained workforce – at more than 630 million strong, twice the size of all of the Association of Southeast Nations members combined – allows companies to scale up quickly and respond to rapid shifts in consumer demand. Perhaps most important, the dense clustering of industries in different parts of China allows for tightly integrated supply chains and the “just-in-time manufacturing” that companies have come to rely on to stay nimble, responsive to market changes and profitable.
Some of these advantages would inevitably be lost outside of China, even though South and Southeast Asia are dotted with advanced manufacturing hubs. Some, like Penang and Port Klang in Malaysia and Thailand’s eastern seaboard, have excellent infrastructure and deep experience in high-tech industries. Some, in countries like Bangladesh, Indonesia and India, have large, low-cost labor pools. Given its proximity to Guangdong, Vietnam offers firms the rare advantage of being able to maintain cross-border supply chains.

But few neighboring manufacturing hubs offer all the advantages China does, and those that do are quickly getting crowded, pushing up labor and land prices and eroding their cost advantage. In Vietnam, for example, land costs in key industrial zones near major deep-water ports have reportedly increased more than 25 percent over the past year alone. As a whole, ASEAN has the world’s third-largest labor force at more than 350 million workers. The bloc is trying to ease the movement of capital and goods and harmonize regulations among its member states through the establishment of the ASEAN Economic Community. But implementation has been very slow, and the group remains rife with both formal and informal trade barriers. ASEAN integration is further hindered by extraordinary geographic fragmentation in Southeast Asia, which is not only home to sprawling archipelagos and unforgiving tropical terrain, but also highly vulnerable to natural disasters. According to the Asian Development Bank, ASEAN states together will need to invest more than $60 billion annually in infrastructure, particularly in energy and transport, over the next 12 years to sustain the bloc’s economic growth. The more a firm’s supply chain is dispersed in multiple countries and the more it has to rely on clogged ports or an untrained labor force, the more likely there are to be delays, hidden costs and so forth.

India perhaps comes closest to matching China’s competitive advantages. Last year, India’s labor force clocked in at a hefty 520 million people, and because of extreme class disparities, it can meet the labor cost needs of firms up and down the value chain. It’s particularly competitive in the garment industry, thanks in part to robust local cotton production. But in 2017, India accounted for 1.7 percent of global merchandise exports compared to China’s 12.8 percent – in part because India’s strengths are mainly in services and low-end manufacturing as it still lacks the infrastructure needed for high-end manufacturing. Due to factors like the convoluted regulatory environment, in 2017, India ranked just 77th on the World Bank’s ease of doing business index (a jump of 23 spots over 2016), compared to 46th for China, 27th for Thailand and 15th for Malaysia. So, despite India’s draws, only 6.5 percent of U.S. firms in China surveyed in a September report by the American Chamber of Commerce said they were considering relocating to India, compared to 18.5 percent for Southeast Asia.

There’s another huge (and growing) incentive to stay in China: It is now home to the second-largest consumer market in the world. According to Bain, if current trends hold, household consumption in China is expected to grow around 5-6 percent annually over the next decade, as some 180 million more people move into the middle class. General Motors sold more than 4 million cars in China in 2017 – over 1 million more than it sold in the U.S.

Even as Chinese economic growth slows – and even if things get really rough for China in the coming years – there are massive consumption gains still to be made as rapid urbanization and technological proliferation boost living standards. Rising competition from Chinese firms to meet this demand is already putting multinational companies at a disadvantage. Many cannot afford the loss of tariff-free access – and, potentially, the political favor often necessary to avoid unexpected hiccups in China – that would come with abandoning the country altogether. ASEAN alternatives, though growing in their own right (the bloc is expected to have the world’s fourth-largest consumer market by 2050), just don’t have the same allure. That’s especially true since the U.S. withdrawal from the Trans-Pacific Partnership. Signatories like Malaysia and Vietnam won’t be able to dangle tariff-free access to the U.S. market unless the United States re-embraces global trade. We expect this to happen eventually, but it could take decades.

The Bottom Line

Nonetheless, firms are increasingly routing their supply chains around China, and the trade war will inevitably accelerate this shift. Well-resourced multinational firms are already well-practiced in building out sprawling global supply chains and have no loyalty to China. They rely too heavily on seizing even minor cost and efficiency advantages, and are too concerned about the political and investment climate in China and enduring tension with the U.S., to stand pat. Infrastructure buildups in low-cost manufacturers in Southeast Asia and Latin America, along with the proliferation of bilateral and multilateral free trade agreements promising preferential trade access to major consumer markets like the EU and Japan, will further narrow China’s long-held advantages. (Ironically, China’s Belt and Road Initiative may work against Chinese interests as its projects help improve rival manufacturers’ competitiveness.)

Even Chinese firms have been increasingly keen to get in on the action, opening large manufacturing operations staffed by local labor in countries like Vietnam, Malaysia and Ethiopia. (Since 2000, in fact, Chinese firms have spent more than $9 billion on 869 greenfield investments in the U.S. alone, according to the Rhodium Group.) After all, Japan sidestepped the middle-income trap by evolving from export powerhouse to investment powerhouse over the past two decades, in large part by becoming one of the first advanced economies to move much of its manufacturing abroad. Chinese firms seeking to dodge tariffs will naturally want to follow suit. The question is whether the employment-obsessed CPC, which would rather see its firms move to lower-cost regions in inland China, will let them.

On the whole, the shift away from China will happen more gradually and haltingly than the headlines may suggest – absent a catastrophic deterioration in China’s domestic political situation or escalation in tensions with the U.S. Given the costs of moving and risks of leaving, perhaps the biggest shift will be that new investments increasingly go elsewhere. And among foreign firms that are motivated by U.S. tariffs to leave, the relocation will generally be partial, confined to operations (like final assembly) that minimize supply chain disruption while satisfying U.S. rules of origin requirements. In other words, they’ll be looking to manufacture just enough of a product elsewhere to stamp it with: “Made anywhere but China.”

The post In China, Manufacturers Feel the Heat of the Trade War appeared first on Geopolitical Futures

[DougMacG]

I don't like the term never-Trump but Prof Mankiw of Harvard, chief economist for Pres. George W Bush
qualifies as an establishment Republican economist not fully on board with this President.  That said, here are the three outcomes of Trump's trade war that we all know but in his words.
-------------------------
President Trump’s belligerent approach to our trading partners worries most economists, including his former economic advisers Stephen Moore and Arthur Laffer. Their recent book, “Trumponomics,” is mostly a hagiography of Mr. Trump and his economic policies. But even Mr. Moore and Mr. Laffer part ways with the president on international trade. They write that he is playing a “high-stakes game of poker” and “if it doesn’t work, the ramifications scare us to death.”

I can imagine three possible endgames in Mr. Trump’s trade skirmishes.

"The best outcome is for the president to get some serious concessions from bad actors. For example, fearing worse outcomes like punitive tariffs, China might agree to start respecting American intellectual property.  [THIS is the goal.  - Doug]

A second, more likely outcome is that our trading partners accept some minor concessions, and Mr. Trump promotes the new agreements as magnificent deals and giant steps forward. This is what happened with the slightly updated Nafta, now rebranded as the United States-Mexico-Canada Agreement.

The third and most worrisome possible outcome is an escalation of global tensions and a retreat from the principles of open trade that have promoted growth in the United States and abroad over the past half-century.

In other words, the open question about trade policy is whether Mr. Trump is crazy like a fox or just plain crazy."    - Greg Mankiw

[Isn't it possible the truth is somewhere in between?  - Doug]

[G M]

https://www.forbes.com/sites/kenrapoza/2019/01/14/china-is-losing-the-trade-war-in-nearly-every-way/

China Is Losing The Trade War In Nearly Every Way

Kenneth Rapoza
Senior Contributor
Markets
I write about business and investing in emerging markets.
TWEET THIS
Exports to the U.S. fell 3.7%, the first nonseasonal decline since October 2016.
China can win if the U.S. stock market sells off and ices Trump’s hawkishness on trade.




China exports fell more than expected in December, signaling more pain ahead as the trade-war fallout starts getting measured by the markets. Photographer: Qilai Shen/Bloomberg © 2018 Bloomberg Finance LP© 2018 BLOOMBERG FINANCE LP

China is still the world’s No. 2 economy and is still the monster of emerging markets, but regardless of those bonafides, Xi Jinping’s country is losing the trade war in nearly every way imaginable.

The arrest of Huawei CFO Meng Wanzhou in Canada last month for breaking U.S. sanctions law, followed by the firing of Huawei sales executive Wang Weijing in Poland last week shows China can be a bad actor, exactly as Washington believes. The Poland story centers around spying allegations, where Wang allegedly sought trade secrets from the government. Huawei’s latest bad headlines show how China tech companies may have risen to prominence by copying foreign technologies in joint venture deals or through white-collar criminal actions such as intellectual property theft and corporate espionage. Huawei is one of China’s most important, private tech firms. It rivals Cisco Systems worldwide.

Thanks in part to Huawei, China is getting beat on the public relations front in the trade war.

Early in the trade war, China thought it get the Europeans as allies. They hate Trump, too. China failed to woo the EU.


The Shanghai Composite is down around 30% in the last 12 months. Only Turkey is doing worse.


China is losing the PR battle. For years, U.S. companies have been complaining that China does not honor intellectual property rights. Washington believes tech powerhouses like Huawei owe much of their growth to IP theft. Photographer: Krisztian Bocsi/Bloomberg © 2018 Bloomberg Finance LP© 2018 BLOOMBERG FINANCE LP

The stock market is a terrible way to measure China growth. Investors know it. So they look to the economic data. Industrial production is still positive but in decline. Quarterly GDP growth is in decline. On Monday, China released weak exports data for the month of December.

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China Trade Data in USD (YoY)

Exports:  -4.4% versus estimate 2% and November’s 5.4%

Imports: -7.6% versus estimate 4.5% and November’s 3%

Trade Balance: $57 billion versus estimate $51 billion and November’s $44 billion

Exports to the U.S. fell 3.7%, the first nonseasonal decline since October 2016. That would indicate an end to the pre-tariff purchasing rush by U.S. companies in the third quarter and into the fourth. Exports to the U.S. had previously climbed over 12% for three consecutive months.

“The Chinese trade numbers released today got all the alarm bells ringing,” says Naeem Aslam, chief market strategist for Think Markets in London and a Forbes contributor. “If you need any evidence how the trade spat is impacting a country’s economic health then look no further than China trade. The lower export number means lower jobs, which means another direct impact on the (Chinese) economy. Donald Trump can be pleased. His policies have brought China to its knees.”

See: Cold War Reboot Pits Chinese Communism Versus American Capitalism — Forbes

 
China down. An investor covers his face in front of a stock board in Shanghai as the A-shares continue to be one of the worst places to invest over the last 12 months. Photograph by On Man Kevin Lee — Getty ImagesGETTY IMAGES

Today’s export growth data also suggest that the recent strength of the Chinese renminbi might be short-lived. Xi may be more eager to strike a trade deal with the U.S. if the economy worsens beyond expectations. Markets expect Xi will have to let real estate and banks loose at the provincial level, something he considers economically unsustainable.

“China needs to take more aggressive measures to stabilize growth,” Nomura economists led by Ting Lu in Hong Kong wrote in a note this morning. Nomura expects China growth to worsen over the next six months.

Recent reports suggest that Beijing will reduce their official GDP growth target to as low as 6% from the current 6.5%. The trade war, a shift in some global business cycles like technology and tighter regulations from Xi’s government are reversing the China growth trend.

Of course, every China bear out there believes the true GDP figure is closer to 2%. Last week’s latest update of China’s inflation showed a drop in prices across the board, not just in oil. Demand is in decline. This is an economy hitting the pause button.

How China Wins


China’s President Xi Jinping plays the long game. He can wait out Trump’s presidency. (Fred Dufour/Pool Photo via AP) photo credit: ASSOCIATED PRESS

China plays the long game. There are no elections on the calendar that threaten to upend Xi’s rule. Unless his economy tanks and unemployment gets out of control, Xi can take a little bit of pain. He’ll be around longer than Trump, who has less than two years left in his first term. Current polls, while early, suggest Trump loses to most Democratic challengers in November 2020. The two biggest China hawks in the Democratic Party—Nancy Pelosi and Chuck Schumer—are not running for president. Xi may be able to assume things return to the status quo, even if current tariffs remain. The previous Democratic administration of Barack Obama preferred only to complain about intellectual property and only used tariffs to target a handful of products, like Chinese tires, under World Trade Organization rules. Trump can care less about the WTO, so China wins if a new Democratic president leaves the trade dispute up to those guys instead of the President. Xi would love that.

Perhaps China's biggest “win” on the trade front is Vietnam’s membership in the Comprehensive and Progressive Transpacific Partnership. For those who have forgotten, Vietnam is an authoritarian country run by Communist Party chief Nguyễn Phú Trọng. Vietnam has become an outpost of Chinese businesses, especially manufacturing and exporters looking for cheaper labor and less regulations. The trade deal is essentially the old TPP, which Trump killed upon entering the White House in 2017.

Like U.S. companies in the past, Chinese manufacturers are shifting some of their supply chains to southeast Asia. This is good for some Chinese companies, but unless they bring Chinese workers with them, it is a headwind for blue-collar workers in China and therefore a brewing problem for Beijing.

China knows the U.S. is slowing, too. U.S. companies like Apple are losing money. Today’s trade data points to evidence that more companies trading with China brought in much less money in December.

Trade analysts from Panjiva research, part of the S&P Global Market Intelligence group, believes the U.S is a net loser from the tariffs because of this. Chinese imports from the U.S. declined 35.8% in December from 10.3% gains in the prior three months. As a result, Chinese imports brought in around $5.8 billion less in December while exports lost $1.53 billion, for a net balance of $4.28 billion of trade value lost, based on Panjiva’s analysis.

China exports account for only 14% of the industrial sector’s revenues, notes Brendan Ahern, CIO of KraneShares, a China-centric ETF firm in New York. That means China is not as export-dependent as the market thinks. “It will be interesting if analysts, who got scorched on the trade data, dial down their expectations for next week’s data dump on retail sales, GDP, industrial production and fixed asset investment,” Ahern says.

They might lower their expectations. China bulls are a dying breed.

“The (trade) numbers suggest that we’re starting to see the impact of the trade war finally feeding into China’s macro-economic data,” says Nick Marro, China analyst for The Economist Intelligence Unit.


The stock market means everything to Trump. If companies report weaker than expected fourth-quarter earnings and blame tariffs, the stock market will fall. Trump may be forced to go easier on China. Xi Jinping would love to keep the status quo, in hopes he can wait out the Trump presidency, now halfway through the first term.

China can win if the U.S. stock market sells off and ices Trump’s hawkishness on trade.

If fourth-quarter earnings show companies getting squeezed because of tariffs and issuing warnings about lower profit margins in the first quarter because of it, then a weaker stock market could put Trump over the edge.

Should the U.S. economy buckle further, and the stock market is taken down with it, Trump might be more inclined to do end the trade war despite his team’s long-term goals to lessen China’s role in the U.S. corporate supply chain. If that happens, Xi will get more time to adjust and ultimately keep things as they were pre-Trump.

[DougMacG]

Good article with balance but I think things are even worse for China than they suggest.  World Bank, I think it was, estimated China's reported 6% pre-tariff GDP growth was closer to 1% which means that decline from there is recession territory already.  This is uncharted territory for this totalitarian regime.  At the start of the trade war, I estimated from published data that they are 6 times more reliant on sales to the US as we are on sales to them.  The economic time line works against China.  If the US is forced to source elsewhere in Southeast Asia or elsewhere, those new sources don't just go away when this is settled. Time works against China (6 times) more so than against the US in my judgment.

From the article:  "The stock market means everything to Trump. ...  China can win if the U.S. stock market sells off and ices Trump’s hawkishness on trade."

The Fed already announced it is pausing the previously scheduled interest rate hikes and may roll back the last increase.  The stock market here is FAR more sensitive to the Fed and interest rate fears than it is to the alleged trade war as all can see from last years' market calendar.

"Should the U.S. economy buckle further, and the stock market is taken down with it, Trump might be more inclined to do end the trade war despite his team’s long-term goals to lessen China’s role in the U.S. corporate supply chain. If that happens, Xi will get more time to adjust and ultimately keep things as they were pre-Trump."

Buckle further?  We doubled our growth rate.  Look at it the other way around.  If Trump caves with Democrats over the shutdown and the wall, China will see weakness - and so he won't cave to Democrats.  If Trump caves with China over stock market jitters, Democrats will see that - and so he won't cave to China.  In what scenario does he see himself better off as a weak leader who caved in difficult negotiations?  Absolutely none.

Trump faces no election for almost two years and already weathered through tough midterms without flinching.  He needs both of these negotiation wins to tell his story in reelection, or keep the issue alive and argue we stay the course.  Going weak now loses his base and gains him nothing!  Plus he doesn't need the job!  Both of these negotiating adversaries need to strike deals that allow Trump to declare victory in order to get a deal - and they need a deal.  What more does Trump have to lose?  Fear of losing reelection will cause him to break campaign promises and appear weak to get reelected??  That makes no sense and China knows it.  They face the very real possibility that he is either a two term President or is followed by someone else committed to his tough China policy - from EITHER party.  In that scenario they wait it out 6 years, 10 years?  What rip does the Kamala-Beto wing of the Dem party give about the stock market, and the Pelosi-Scxhumer wing as mentioned in the article are already anti-China.  By the end of this campaign, no one is going to be arguing that we cave to China's technology theft - to help American businesses.  If they promise that, he will eat their lunch and run the electoral map.

[ccp]

https://en.wikipedia.org/wiki/World_Economic_Forum

So many fat cats get together and decide what is best for the other 7 billion people

Here is CNNs list of people to watch:

https://www.cnbc.com/2018/01/16/wef-18-most-influential-people-to-watch-out-for-at-davos.html

https://www.youtube.com/watch?v=syilW4nPGZ0

More of the worlds greats (and most virtuous ) who humble each other with their presence:

https://www.verdict.co.uk/world-economic-forum-2017-davos-celebrity-spotter/

Shakira must help bring in the rich and powerful to watch her ass in action

[Crafty_Dog]

And a truly stellar ass it is!

[DougMacG]

Chinese lawmakers have been rushing through a new law designed to alleviate American concerns about intellectual property rights and forced technology transfers, something that President Trump has made a top priority.

https://www.foxnews.com/opinion/thanks-to-trump-chinas-economy-is-rapidly-decelerating-heres-what-could-happen-next

[DougMacG]

From a post at Software Times written by our own Denny S:

"... Listen carefully to Trump’s UN speech where he states unequivocally the goals of his administration, "we will defend America to the hilt and every country on Earth should likewise defend theirs." Elsewhere he has said that he wants free trade with minimal tariffs. Lastly read The Art of the Deal. The point of the exercise is to bring America’s trading partners to the bargaining table, not to Beggar Thy Neighbour.

China is playing harder but lots of others have already understood the policy and have come to terms with America. Letting up on China now is a big mistake, specially since the current Chinese president is becoming more autocratic. "Don’t give in, don’t give in, don’t give in…" Churchill’s famous speech. "

https://softwaretimes.com/files/trade+wars+letter+to+john+.html

[Crafty_Dog]

How very nice to see Denny is still in the fight!

How is it that you ran across this?

[DougMacG]

How very nice to see Denny is still in the fight!

How is it that you ran across this?

I'm concerned for him (and everyone there) so I looked at his website.  That post was from September of last year. Nothing much more recent posted.  The events in Ven. are unraveling very much like one of the scenarios that he posted. Would always love to hear his take.

He is spot on with this Trump trade post.

[Crafty_Dog]

March 20, 2019



By Phillip Orchard


How the Trade War Won’t End


Washington wants to cut a deal now, but Beijing is playing the long game.


The U.S. and China are circling ever closer to a trade deal. They just need to agree on how to make it mean something a year or two from now. In the weeks since U.S. President Donald Trump agreed to postpone the March 1 spike in tariffs on $200 billion in Chinese goods, enough progress has apparently been made that both sides are eyeing a “signing summit” between Trump and Chinese President Xi Jinping by June. This cautious optimism is fueled by several factors, from Beijing’s offer to nudge down the trade deficit by binging on U.S. energy and agriculture products, to new laws set to be approved this week that include expanded protections for foreign investors. Trump’s barely concealed urgency to give markets a boost by calling off the dogs is probably furthering hopes in Beijing.

But “ending” the trade war still appears to mean something quite different to each side. China, naturally, wants to put this whole unpleasantness behind it and to turn its full focus to its staggering domestic headaches, and is reportedly demanding that all tariffs be lifted immediately. The U.S., naturally, is wary of China’s history of backsliding on rigorously negotiated deals, and presumably aware that it would take Beijing years to implement some of the structural reforms Washington is demanding. Washington needs to hold on to at least some leverage to ensure that the Chinese follow through. As a result, the U.S. is reportedly offering only to lift tariffs incrementally (while Chinese counter-tariffs would be lifted immediately). What’s more, the U.S also wants snapback mechanisms in place to further discourage Beijing from backsliding.

In other words, the focus of the talks has evidently moved to the thorny issues of implementation and enforcement. This speaks to a core problem bedeviling U.S. aims in the matter: Given that U.S. tariffs are only one of many problems weighing on Beijing, can the U.S.-China trade dispute really be negotiated away?

Keeping to a Deal

Whether the U.S. has any real urgency beyond political interests to wrap up a deal depends on whether it believes its broader strategic aims merit the costs of the trade war. The U.S. economy is at the peak of the business cycle and will eventually come back to earth. And the diminishing returns of a tool as blunt as tariffs for forcing China to make systemic changes are starting to become clear. Already, according to the Institute of International Finance, Chinese counter-tariffs are costing U.S. exporters more than $3 billion per month. The higher cost of imports is falling primarily on U.S. consumers, with losses expected to approach $70 billion this year, according to two new authoritative studies. None of this is devastating to the U.S., but Washington can’t ignore the ghost of the Smoot-Hawley Tariff – which raised duties on 20,000 imported items and contributed to the severe economic deterioration of the Great Depression. Meanwhile, there’s no evidence suggesting Beijing is preparing to make the sweeping structural changes demanded by the U.S. To get everything it wants from Beijing, the U.S. would have to keep up the pressure for years – likely well into an economic downturn, and certainly during a key election year. Moreover, even if annual Chinese growth plummets to 3-4 percent, it will still be adding hundreds of billions of dollars in new consumption. The opportunity cost to U.S. exporters is steep.

If the U.S. deems the costs necessary to stunt China’s rise, then no deal is imminent. Otherwise, the U.S. has an interest in settling for quite a bit less up front. By agreeing to a limited deal, pairing relief from specific tariffs with implementation of select concessions by Beijing, Washington can gradually ease the burden on the U.S. entities hurting most – exporters, firms with supply chains routed through China, firms dependent on lower-cost Chinese inputs, and consumers. And it will still have other tools like export controls, investment restrictions and the embattled but still potent World Trade Organization dispute settlement courts with which to protect U.S. firms and target Chinese practices that pose the biggest long-term threat, particularly in the race for technological supremacy. Whether or not the current negotiations produce a substantive deal, U.S. pressure in these areas isn’t going away.

But to trade hawks in the Trump administration, the sense of urgency to get a deal risks undermining efforts to address the very real problem of post-deal implementation – and giving Beijing incentive to try to run out the clock on what it sees as an impatient president. (Beijing would be foolish to think the next U.S. administration will be fundamentally more dovish, but it’s reasonable to think political and economic complications in the coming years will weaken U.S. appetite for a sustained offensive.) China has a mixed history, at best, of implementing deals. If it had fulfilled all of its WTO obligations, after all, it wouldn’t be in this position in the first place.

Beijing is trapped between oft-conflicting imperatives: economic dynamism and social stability. Under Xi, it has routinely prioritized the latter, deepening state domination of the economy in ways that have provoked the U.S., but that also helped maintain steady employment and manage China’s immense internal financial risks. Tariffs are a far smaller problem for China than internal dysfunction. But the duties are making Beijing’s tightrope walk of internal reform ever more precarious. In all likelihood, China will agree to whatever it deems necessary to make the tariffs go away. But if keeping order necessitates cheating on its commitments and risking a backlash, Beijing won’t hesitate.

What the U.S. Can Do

U.S. Trade Representative Robert Lighthizer is trying to make it harder for Beijing to backslide in a couple ways. The U.S. is insisting that concessions from Beijing be as explicit and quantifiable as possible. (Lighthizer says the agreement will exceed 110 pages.) The easier it is to identify cheating, the greater the reputational costs for Beijing and the easier it will be for Washington to make the case to the U.S. public and allies that pressure be revived. There are two main problems here: One, the Chinese system is exceedingly opaque, especially given the dominance of state-owned enterprises. Two, implementation progress on the biggest issues – forced technological transfers and cyber theft, for example – can’t easily be quantified or monitored. Thus, the U.S. is also demanding the right to independently assess whether China is living up to what it considers the spirit of the deal – and to unilaterally reimpose tariffs, without retaliation, if it concludes Beijing is falling short.

Still, these sorts of measures can do only so much. Trade deals, like most international agreements, last only as long as each side is willing to comply, which is why they tend to work only when they are truly in both sides’ interests. Either way, it’s really hard to make them binding. There won’t be any trade cops to make arrests when there’s a violation. The U.S. isn’t going to threaten war to enforce this sort of deal. Nor can the U.S. really take too much reassurance from measures like China’s new foreign ownership law, which would ostensibly help address the issue of forced technology transfers. The new law is vague, and Beijing has only so much ability and interest to enforce it at a granular level. (Trade lawyers say tech transfer typically happens willingly, often by foreign firms that are desperate for funding or that simply failed to adequately protect themselves under existing Chinese laws.) And when it comes to core technologies Beijing deems critical for initiatives like next-generation military applications, all bets are off. Law in China is applied only to the extent that it serves the Communist Party’s interests.
This isn’t to say China won’t have reasons beyond the lure of tariff relief to continue to comply. A lot of what Beijing will likely concede is fairly low-hanging fruit. For example, it’s expected to pledge to refrain from artificially weakening its currency (currently, it’s trying to keep the yuan from collapsing) and to buy more U.S. goods (items it needs to import anyway). Its measures to improve intellectual property protections, meanwhile, are needed to reassure spooked foreign investors, ease discontent among domestic private firms fed up with their state-owned counterparts, and further erode the U.S. business community’s support for the trade war. Countries often use trade agreements to bring recalcitrant domestic players obstructing needed reforms into line. And Beijing has a real need to repair its image abroad. The trade war has triggered a slow-motion stampede to the exits by foreign firms in the country, while also intensifying the spotlight on internal practices, deterring new investment. It’ll be dealing with the fallout of this for years and has ample reason to let the U.S. lose interest.

But structural reforms like ending industrial subsidies and scaling back the state’s role in the economy would be an order of magnitude trickier for Beijing to implement. These issues also happen to be at the heart of U.S. grievances. Even if the U.S. can pressure China into including concessions in these areas in the deal, it will be an exceedingly wobbly deal, however many pages it runs.

[Crafty_Dog]

Asian Free Trade Proposal Is Broad in Scope, Narrow in Focus
Leaders of the 16 countries negotiating the Regional Comprehensive Economic Partnership assemble for a group photo on Nov. 14, 2018, in Singapore.
(ROSLAN RAHMAN/AFP/Getty Images)


    The proposed Regional Comprehensive Economic Partnership (RCEP)'s comparatively narrow focus on tariffs to the exclusion of nontariff barriers would limit the agreement's boost to Asian trade.
    The 16 countries negotiating RCEP likely will not reach consensus on a final deal until after the conclusion of 2019 elections in India, Australia and Indonesia.
    Because India views free trade as a vehicle for economic growth in an era of rising protectionism, it will remain committed to negotiating an RCEP agreement, though its demands are likely to further delay a conclusive deal.
    Despite its limitations, RCEP offers the Association of Southeast Asian Nations a chance to help promote intraregional trade.
    China will demand a rapid resolution to negotiations so it can seek enhanced market access to offset a cooling economy against the backdrop of its trade war with the United States.

A long-running proposal to create the world's largest free trade zone has stagnated under the weight of its members' disagreements. The Regional Comprehensive Economic Partnership (RCEP) is a trade initiative between the Association of Southeast Asian Nations (ASEAN) and its six free trade partners: India, China, Australia, Japan, South Korea and New Zealand. Ambitious in scope, RCEP would encompass 3.6 billion people and account for a third of the world's total economic output. But 25 rounds of talks spanning six years have failed to produce a consensus. Now, lingering obstacles threaten to dash the prospects of sealing a final agreement by the time a high-level ASEAN summit is held in Thailand in November.

The Big Picture

The Regional Comprehensive Economic Partnership (RCEP) is a mega trade deal covering 16 countries in South Asia and the Asia Pacific. Although the proposal is aimed at integrating major regional economies with Southeast Asia, India's concerns over safeguarding its market from Chinese imports have proved a stumbling block. Yet even if all parties reach a consensus on RCEP, the deal's narrow focus on tariffs means regional trade growth will be modest until members address the nontariff barriers impeding trade flows.

See Asia-Pacific: Among Great PowersSee Southeast Asia: Burdened by Consensus

India, in particular, is the main outlier in RCEP negotiations. Wary that the deal could worsen its politically sensitive trade deficit with China, India is drawing hard lines on the percentage of tariffs it will reduce. New Delhi is taking this position to forestall a surge in Chinese imports, which could hinder its attempts to build a competitive manufacturing base under Prime Minister Narendra Modi's "Make in India" campaign. Yet India also sees a glass half full: New Delhi hopes a well-negotiated agreement will enable it to tap into the burgeoning markets of Southeast Asia as a growing destination for its services exports, its strong suit in trade.

For ASEAN members — Indonesia, Malaysia, Thailand, Vietnam, Brunei, Cambodia, Myanmar, Laos, Singapore and the Philippines — RCEP offers a chance to boost low intraregional trade by easing tariff barriers. This task will grow all the more urgent in the face of rising protectionism and unilateralism at a time when the U.S.-China trade war is affecting ASEAN. And for China, the biggest economy involved in the trade negotiations, RCEP would enable it to tighten regional trade links, helping buffer Beijing against Washington while fostering greater economic interdependence with regional powers, which include Australia, South Korea, India and Japan.

A map showing the 16 nations of the proposed Regional Comprehensive Economic Partnership trade agreement.

Clinching an RCEP agreement is unlikely until after this year's elections in India, Australia and Indonesia. Nevertheless, India, which views free trade as a vehicle for economic growth in an increasingly protectionist era, will remain committed to negotiating an RCEP agreement, though its demands — especially in gaining services access — are likely to further delay a conclusive agreement. ASEAN and China, which share India's anxieties over rising protectionism, have stressed the urgency of finalizing a deal this year, suggesting they will smooth over their mutual concerns in order to sign a deal at the ASEAN summit in Thailand. But all these issues aside, as long as RCEP does not address the nontariff barriers that impede supply chain integration, the agreement will be modest in its impact, even if it comes through.

RCEP: A Response to the Asia Pivot

When informal discussions for RCEP began in 2012, the geopolitical currents in the Asia-Pacific were shifting. Then-U.S. President Barack Obama was pushing for the Trans-Pacific Partnership (TPP). The regional trade bloc — which excluded China — fit into Obama's "Asia pivot" of redirecting U.S. strategic attention from the wars in Iraq and Afghanistan to the Asia-Pacific. For the United States, this shift toward China was informed by a core tenet of its grand strategy: containing the rise of a rival power on the Eurasian landmass.

For China, the natural response to the TPP was to support another regional trade bloc, hence RCEP. India, also excluded from the TPP, threw its support behind RCEP, too. And for ASEAN, the initiative offered a new and more expansive trade proposal that would allow it to consolidate its bilateral free trade agreements with various Asian economies.

RCEP garnered widespread support as the first round of official talks began in 2013. More than two dozen rounds later, India has positioned itself as an outlier in the negotiations.

To Right the Wrongs: India's Approach

From India's point of view, RCEP is an opportunity to improve upon its existing free trade agreement with ASEAN. The 2010 India-ASEAN deal was meant to boost India's exports while deepening trade links with Southeast Asia — especially through India's stagnant northeastern wing — as part of New Delhi's "Act East" policy. While exports have grown, a parliamentary report found that India's trade deficit with ASEAN has doubled, jumping from $5 billion in 2010 to nearly $10 billion in 2017.

A chart showing India's trade deficit with China.

The report also highlighted concerns over the laggardly pace of services liberalization, a core concern given India's competitive advantage in this sector: Last year, India's booming information technology (IT) services industry earned $126 billion in export revenues. India will face an uphill battle in extracting concessions, though. Because the India-ASEAN free trade agreement has benefitted ASEAN, the bloc has few incentives to change its terms with India, placing the burden on New Delhi to demonstrate why services liberalization will benefit ASEAN. And in the past, Singapore — one of India's most important trade partners within ASEAN — has expressed concern that a liberal visa regime that enables Indian tech professionals to move about more freely could displace Singaporeans from local jobs.

For India, its trade concerns with ASEAN are all the more relevant to China. While India views China as its principal strategic rival, trade between the two countries is growing. In 2017, bilateral trade amounted to $84 billion in goods. Chinese exports to India — led by electronics, machinery and chemicals — amounted to $72 billion, yielding a $59 billion deficit (a decade ago, India's trade deficit with China was only $15 billion). For Indian politicians, a growing trade deficit matters because of its implications for jobs under Modi's Make in India campaign, which aims to boost manufacturing's share of the economy to 25 percent by 2025. Given these concerns, India is unlikely to offer further concessions on tariff liberalization unless it receives reciprocal access in services.

A Three-Layered Cake? India's Elaborate Proposal

RCEP is focused on eight areas of cooperation: goods, services, investment, economic and technical cooperation, intellectual property rights, competition, dispute settlement, and a final category for other issues. In practice, trade in goods is the dominant issue. India was enticed by the so-called flexibility clause of RCEP, which allows for varying rules for countries according to their circumstances. New Delhi initially proposed a three-tiered tariff structure.

For ASEAN countries, India would reduce tariffs on 80 percent of its goods; 65 percent would be reduced immediately while the remaining 15 percent would be phased in over a decade. For Japan and South Korea, India would reduce tariffs on 65 percent of imports in exchange for an 80 percent reduction on Indian exports. And for China, Australia and New Zealand, India would offer a 42.5 percent liberalization phased in over two decades in exchange for 42.5 percent liberalization from China, 65 percent from New Zealand and 80 percent from Australia. Even so, India would exclude certain sectors from tariff liberalization akin to its free trade agreement with ASEAN, in which it shielded several goods, including potatoes, onions, rice, ginger, mustard, cardamom, sugar and wheat.

For India, the surest way to compensate for a continuing deficit in goods is to boost the export of its services.

Facing a backlash from China in a 2016 round of talks, India eventually moderated its tariff proposals. Today, New Delhi is willing to reduce tariffs on a range from 74 percent to 86 percent of goods for all RCEP members, though disagreements with China persist. The two sides have locked horns over a variety of issues, including the length of time during which India would phase in a tariff liberalization — with New Delhi seeking a longer timeline so it can bolster its competitiveness — and the number of tariffs. The remaining RCEP members are seeking a reduction on 92 percent of goods, while India isn't budging from 86 percent.

Then there are services. For India, the surest way to compensate for a continuing deficit in goods is to boost the export of its services. New Delhi will drive a hard bargain to achieve services liberalization, including the free movement of its IT professionals into RCEP nations. (While India earned a pledge from RCEP nations on services liberalization in September 2018, the actual details remain scant.)

Strength in Numbers: Why RCEP Matters for ASEAN

Though ASEAN is riven by internal bickering, its members broadly agree on the benefits of RCEP. For starters, unlike the TPP, RCEP includes all 10 ASEAN members. Its emphasis on tariff reduction appeals to the bloc's lesser-developed economies seeking to boost trade and attract investment. RCEP can also act as a hammer against high tariff barriers, one of the reasons only a quarter of ASEAN's total trade takes place within the bloc. Most ASEAN countries maintain relatively high tariff barriers on selective defensive interests. For instance, Thailand, Vietnam, Cambodia and Laos have high tariffs on agricultural goods, and countries such as Malaysia and Indonesia impose high tariffs on selective areas to insulate domestic industries.

RCEP would allow ASEAN to draw its six regional free trade agreements under a single tent. This would strengthen the bloc's bargaining power and enable greater trade and investments from China and Japan, Asia's largest economies. And while elections in Indonesia, Australia and Thailand may add a wrinkle to negotiations, these short-term political dynamics are unlikely to alter the deep-seated interest ASEAN nations collectively see in joining a vast free trade zone encompassing East Asia and South Asia, the world's two most populous regions.

China's Interests

For China, the importance of a regional free trade bloc like RCEP has only grown because of its ongoing trade war with the United States. Although Beijing's dominance in regional trade is undeniable — China is the largest trading partner of all RCEP members — expanded market access would help revive a cooling economy. RCEP is also rife with strategic implications for China as it tries to deflect World Trade Organization pressure from the European Union and the United States. Beijing also hopes to use the free flow of goods to improve its sometimes-frosty relations with neighboring powers.

And though China may be the economic giant in RCEP, its focus on rapidly reaching an agreement that emphasizes tariff reduction, while showing flexibility on some contested provisions, is squarely in line with most ASEAN economies — unlike the lobbies from more developed economies such as Australia, New Zealand and Japan. Beyond Southeast Asia, RCEP could pave the path for a de facto trade negotiation with Japan, as China looks to expand market access to Japan, with the two sharing concerns against U.S. protectionism policy.

Constraints on the Road Ahead

For all of its ambition, RCEP won't be a game changer, even if all 16 countries reach a consensus in November. With its laser focus on tariffs, RCEP overlooks the nontariff barriers that impede greater regional trade flows and supply chain integration. Its limited depth of coverage is another issue, with several of the tariff lines not dropping to zero even after liberalization. And unlike the TPP, RCEP is focused at a government-to-government level instead of penetrating deeper to the industry level, where market impulses that may be minimally affected by a free trade agreement's framework dictate key trends shaping trade demand. And in ASEAN, while lowering tariffs will stimulate trade, the redundancy of exports among several of the economies means that until more specialization takes place, the demand for ASEAN exports will remain greatest outside of Southeast Asia. And the limited inclusion of services and provisions for the free movement of labor also narrows the scope of what RCEP can accomplish in a region where all 16 economies are dominated by the services sector.

However, lower tariffs will still produce some benefits — at least enough to justify a continuous push from all countries to reach an agreement as they struggle to reconcile the realities of economic division with the hopes of a mutually beneficial trade zone.

[Crafty_Dog]

I am told by a China hand that the trend continues.

https://www.nbcnews.com/business/business-news/gopro-moving-production-out-china-citing-tariff-worries-n946101?fbclid=IwAR2n4-1Yex4oJDzh8LVC8XDUsgePxBTFO1tQ7eBBVAcvjsI0gdnhNVCAJhU

[G M]

I am told by a China hand that the trend continues.

https://www.nbcnews.com/business/business-news/gopro-moving-production-out-china-citing-tariff-worries-n946101?fbclid=IwAR2n4-1Yex4oJDzh8LVC8XDUsgePxBTFO1tQ7eBBVAcvjsI0gdnhNVCAJhU

It's my understanding that lots of westerners, some who have been doing business in China since the 90's are pulling the plug and getting out.

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Trade War Hysterics To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/13/2019

Since hitting new all-time highs two weeks ago, the S&P 500 has fallen about 2.2% as trade negotiations with China hit a snag. Last week, the US announced new tariffs on Chinese imports. This morning, China announced new tariffs on some US goods. Many fear a widening trade war.

Don't get us wrong. We want free trade, and we understand the dangers of trade wars and tariffs (which are just taxes on consumers). At the same time, we think trade deficits themselves are not a reason for trade wars. We all run personal trade deficits with the local grocery store and benefit from that. Even if the entire world went to zero tariffs, the US would almost certainly still run trade deficits, even with China.

But today, the trade deficit with China is partly due to the fact that China has higher tariffs on imports than the US does – working to eliminate these lopsided tariffs is worthwhile.

In 1980, China was an impoverished nation. Then it began adopting tools of capitalism – property rights, markets, free prices and wages. Chinese businesses started to import the West's technology, and growth accelerated.

Initially, China didn't have to worry about intellectual property. When you replace oxen with a tractor, all you have to do is buy the tractor, not reinvent the internal combustion engine. But China has now picked, and benefited from, the lowest hanging fruit. So, China decided to steal the R&D of firms located abroad. Some estimates of this collective theft run into the hundreds of billions of dollars.

That's why normal free market and free trade principles don't neatly apply to China.

Remember President Reagan's old story supporting free trade? "We're in the same boat with our trading partners," Reagan said. "If one partner shoots a hole in the boat, does it make sense for the other one to shoot another hole in the boat?" The obvious answer is that it doesn't, and so our own protectionism would hurt us.

But China hasn't just shot a hole in the boat, they've become pirates. If Tony Soprano and his cronies robbed your house, would free market principles require you to trade with them to buy those items back? Of course not!

It's true tariff increases will not help the US economy. But $100 billion of tariffs spread over $14 trillion of consumer spending is not a recession inducing drag. It's true some business, like soybean farmers, are hurt. But the status quo means accepting hundreds of billions in theft from companies that are at the leading edge of future growth.

Either way, if tariffs nick our economy, China's gets hammered. Last year we exported $180 billion in goods and services to China, which is 0.9% of our GDP. Meanwhile, China exported $559 billion to the US, which is 4.6% of their economy. We have enormous economic leverage that they simply can't match.

An extended US-China trade battle means US companies will shift supply chains out of China and toward places like Singapore, Vietnam, Mexico, or "Made in the USA." If that happens, the Chinese economy is hurt for decades.

Anyone can invent a scenario where some sort of Smoot-Hawley-like global trade war happens. Realistically, though, that appears very unlikely. We're not the only advanced country China's piracy has victimized, and China may realize it's more isolated than it thought. In the end, China wants to trade with the West, not North Korea, Russia, and Venezuela. China needs the West. And all these trade war hysterics just aren't warranted.

[G M]

Wesbury is correct.

Monday Morning Outlook
________________________________________
Trade War Hysterics To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/13/2019

Since hitting new all-time highs two weeks ago, the S&P 500 has fallen about 2.2% as trade negotiations with China hit a snag. Last week, the US announced new tariffs on Chinese imports. This morning, China announced new tariffs on some US goods. Many fear a widening trade war.

Don't get us wrong. We want free trade, and we understand the dangers of trade wars and tariffs (which are just taxes on consumers). At the same time, we think trade deficits themselves are not a reason for trade wars. We all run personal trade deficits with the local grocery store and benefit from that. Even if the entire world went to zero tariffs, the US would almost certainly still run trade deficits, even with China.

But today, the trade deficit with China is partly due to the fact that China has higher tariffs on imports than the US does – working to eliminate these lopsided tariffs is worthwhile.

In 1980, China was an impoverished nation. Then it began adopting tools of capitalism – property rights, markets, free prices and wages. Chinese businesses started to import the West's technology, and growth accelerated.

Initially, China didn't have to worry about intellectual property. When you replace oxen with a tractor, all you have to do is buy the tractor, not reinvent the internal combustion engine. But China has now picked, and benefited from, the lowest hanging fruit. So, China decided to steal the R&D of firms located abroad. Some estimates of this collective theft run into the hundreds of billions of dollars.

That's why normal free market and free trade principles don't neatly apply to China.

Remember President Reagan's old story supporting free trade? "We're in the same boat with our trading partners," Reagan said. "If one partner shoots a hole in the boat, does it make sense for the other one to shoot another hole in the boat?" The obvious answer is that it doesn't, and so our own protectionism would hurt us.

But China hasn't just shot a hole in the boat, they've become pirates. If Tony Soprano and his cronies robbed your house, would free market principles require you to trade with them to buy those items back? Of course not!

It's true tariff increases will not help the US economy. But $100 billion of tariffs spread over $14 trillion of consumer spending is not a recession inducing drag. It's true some business, like soybean farmers, are hurt. But the status quo means accepting hundreds of billions in theft from companies that are at the leading edge of future growth.

Either way, if tariffs nick our economy, China's gets hammered. Last year we exported $180 billion in goods and services to China, which is 0.9% of our GDP. Meanwhile, China exported $559 billion to the US, which is 4.6% of their economy. We have enormous economic leverage that they simply can't match.

An extended US-China trade battle means US companies will shift supply chains out of China and toward places like Singapore, Vietnam, Mexico, or "Made in the USA." If that happens, the Chinese economy is hurt for decades.

Anyone can invent a scenario where some sort of Smoot-Hawley-like global trade war happens. Realistically, though, that appears very unlikely. We're not the only advanced country China's piracy has victimized, and China may realize it's more isolated than it thought. In the end, China wants to trade with the West, not North Korea, Russia, and Venezuela. China needs the West. And all these trade war hysterics just aren't warranted.

[ccp]

https://townhall.com/columnists/patbuchanan/2019/05/14/tariffs-the-taxes-that-made-america-great-n2546272

[Crafty_Dog]

China, U.S.: With the Trade War Raging, Beijing Makes a Risky Appeal to Nationalism
(Stratfor)

The Big Picture

The intensified U.S. economic offensive against China is weighing heavily on China's leadership. Instead of offering concessions, Beijing is hardening its position and stoking nationalism. Though the strategy will help Beijing build public support in the short term, it could backfire in the longer term.

What Happened

With Washington's targeting of Huawei raising tensions to new heights, the U.S.-China trade conflict shows no signs of abating. Now, the Chinese government has hardened its position on trade and is seeking to fan the flames of nationalist sentiment.

Five days after Washington increased tariffs on $200 billion of Chinese goods, state broadcaster CCTV on May 13 used its most popular news program to issue a strongly worded statement exuding confidence in China's ability to stand up to the United States. The tone stood in marked contrast to Beijing's relatively muted attitude in the preceding months as trade talks dragged on.

The statement coincided with Beijing's announcement of retaliatory tariffs and a high-level Politburo meeting, suggesting a degree of consensus among China's top leadership. In the following days, a series of commentaries and editorials from the state media and affiliated social media accounts continued to whip up nationalist sentiment in the face of U.S. pressure.

Why It Matters

The shift toward a nationalist tone coincides with Beijing's hardened trade negotiating position, which includes its rejection of U.S. demands for changes to Chinese law. Now, China is sticking to its line that any deal must involve the removal of all tariffs, respect China's dignity and steer clear of expecting the country to purchase an unreasonable amount of U.S. goods. If Washington does not rethink its demands and the sides fail to reach a deal within the United States' four-week deadline, China is implying that it is willing to accept an escalation of the trade war. These developments, accordingly, mean Chinese-U.S. trade tensions are less likely to diminish any time soon.

If Beijing sees little prospect of a U.S. de-escalation, it could impose restrictions on U.S. businesses and individuals in China and even refuse to sell strategic commodities like rare-earth elements to Americans.

Beyond select regulatory obstacles, Beijing has yet to erect major official obstacles against U.S. businesses and individuals. This stands in contrast to Beijing's tougher approach to Canada, whose citizens and exports it has targeted. If Beijing sees little prospect of a U.S. de-escalation, it might impose restrictions on U.S. businesses and individuals in China and even refuse to sell strategic commodities like rare-earth elements to Americans. Increased nationalism could also lead to public boycotts, protests or even attacks on U.S. assets and individuals beyond the state's control.

An intensified conflict over trade and nationalism that results in harm to U.S. interests will make China less appealing to foreign investors, something Beijing can ill afford at a time when its economy is already slowing. Moreover, previous protests have shown that promoting nationalism can boomerang on the Chinese state and lead to unwanted social disruptions.

Background

Given widespread and powerful resentment over China's "Century of Humiliation," nationalism can always be a powerful instrument to forge national cohesion during challenging times, allowing the Communist Party to muster popular support. Chinese President Xi Jinping has harnessed this force to manage the country's socio-economic transition. But despite increasing tensions with the United States since early 2018, Beijing had until now refrained from deliberate appeals to nationalism in the trade war, leaving more space for de-escalation and continued trade negotiations.

[Crafty_Dog]

https://asia.nikkei.com/Economy/Trade-war/Exclusive-Sharp-eyes-moving-printer-output-from-China-to-Thailand?fbclid=IwAR2nlmN4g2-acK7GzRzcBB8Xwny1rzgZNykk1F-xnKWEfd620QIerDzX90w

[Crafty_Dog]

https://www.cnbc.com/2019/06/19/mexico-ratifies-usmca-trade-deal-via-senate-vote.html?fbclid=IwAR0bRsCpnzRuhE9WNKdBJasAzzw7stRnMH0K4VwNkm_5ptgYRZp3MCk0e3w

[Crafty_Dog]

By George Friedman


China, Mexico and US Trade


China is no longer the United States’ top trade partner. What does this mean for Mexico?


Last week, it was widely reported that in the first half of 2019 Mexico replaced China as the United States’ top trade partner. China is now in third place, while Canada is in second. There has been a great deal of discussion in the media about what this means for U.S.-China economic relations. Much less attention has been devoted to what this new alignment means for economic relations within North America.

A Third World Country?

The importance of U.S.-Mexico trade may surprise some. In the minds of many Americans, Mexico is still a Third World country whose largest export is poor people looking for jobs. Truth is, Mexico has the 15th largest economy in the world measured in U.S. dollars. Australia ranks just one spot above Mexico, and countries like Spain, South Korea and Canada are not too far ahead either.

Measured in purchasing power parity, however, Mexico ranks as the 11th largest economy in the world. PPP measures economic activity against the ability of a country’s currency to buy goods. Both PPP and nominal gross domestic product measurements have their flaws. Measuring purchasing power in a country as diverse as Mexico is tough, to say the least. Measuring it against the dollar is also difficult, as currencies fluctuate against the dollar all the time, thereby changing their GDP totals and rankings even though the economy itself hasn’t grown or declined. (Those who already knew this – and those who didn’t want to know this – please forgive me for explaining this in detail.)

The important point here is that Mexico’s economy, whether it’s ranked 11th or 15th, isn't a developing economy. It is a major economy and a major target for investment. Some parts of Mexico, particularly those in the south and some areas of major cities, resemble the Third World. But most countries have major regional inequalities. Mexico’s are somewhat larger than the average, but its economy is nonetheless substantial. The U.S. and Chinese economies are highly intertwined, but so too are the U.S. and Mexican economies – Mexican auto parts, for example, are indispensable to U.S. car makers. Mexico is also an aeronautical hub, housing Airbus and Bombardier manufacturing plants.

We’re presented, then, with two geopolitical realities. First, North America’s trading bloc is now larger than the European Union in terms of both population and GDP. Many believe that the alternative to globalism is insular nationalism. Many also believe that the only path to regional integration is a high degree of political integration. The European Union demonstrates that excessive politicization of a trade block can breed potentially uncontainable tension. The North American trade system has no significant joint political structure. The U.S., Canada and Mexico have not compromised their sovereignty, yet they are part of a successful trade system that was renegotiated in such a way that maintained the level of interdependence between the three major trade partners, despite expectations that renegotiation would lead to a decline in trade.


 

(click to enlarge)


The second geopolitical reality is that increased trade creates increased vulnerability. China learned that excessive dependence on exports to the U.S. gives Washington leverage. Exports are essential to economic development but pose political risks. Interdependence – particularly in economic terms – seems an innocuous concept. But it also means vulnerability to forces in other countries that are less reliant on the trade relationship.

In Mexico’s case, the sense of vulnerability goes back to the 19th century, when the United States defeated Mexico in the Mexican-American War and seized much of what is today the American southwest. Mexico remained in a subordinate position to the United States for more than a century. In emerging from its past and becoming an increasingly potent economic player, Mexico can neither avoid the relationship nor feel comfortable with it. The size of the U.S. economy makes it less dependent on Mexico than the Mexican economy is on the United States. And that leads to political friction.

Political friction between nations is inevitable. It also exists between Canada and the U.S. The U.S. has the same economic advantage over Canada that it has over Mexico. But having economic advantage doesn’t necessarily mean a country will use it – at least, not without political cause, as the U.S. had with China. Even in unequal relationships, the less powerful party can still have an economic impact on the more powerful party.

The Migration Issue

The problem is that there are both historic and contemporary political issues with Mexico, primarily over migration. Mexican migration to the U.S. has declined significantly. Mexicans used to migrate north for economic reasons, but economic conditions in Mexico over the past few years make it more attractive to remain in Mexico than to go north. The current wave of migrants crossing the U.S. southern border comes from Central America. In an ironic twist, Mexico doesn’t want Central American migrants to enter Mexico, but like the U.S., it can’t seal its southern border to stop them from crossing into its territory. Until recently, Mexico did not want to give them asylum, and those it could not block or expel were permitted to move north to the U.S. border.

Migrants are often the cause of tensions between and within countries. Historically, the U.S. metabolized Mexican immigrants. Mexico has had more difficulty metabolizing Central American migrants because the regions they entered in the south were among the poorest in Mexico, Mexican institutions are not well-equipped to handle the influx, and some Mexicans have objected to the influx. Mexico, therefore, sought to shift the burden north, triggering a political confrontation with the U.S.
Mexico knows that it cannot press the U.S. too hard. Mexican politicians threaten impractical retaliations, but they know the U.S. can absorb an economic rupture with Mexico more than Mexico could bear one with the United States. The U.S. can’t press Mexico too far, either. Imposing a heavy economic penalty on Mexico would not only disrupt access to the agriculture and manufacturing supplies on which the U.S. economy depends and hurt the economies of border states like Texas and California, but it would also threaten to energize 130 million people with a historic grievance and an economy that is now world-class.
Mexico has come a long way and is now the United States’ leading trade partner. But that position makes it vulnerable and limits its political options against the U.S. China has discovered what that vulnerability can lead to if it engages in political actions unwelcomed by its biggest trade partner. Mexico understands the U.S. far better than China did. But what will happen if Mexico moves from the 11th-largest economy to the fifth-largest? At a certain point, the risk-reward ratio shifts.

A final point on what Mexico becoming the United States’ largest trade partner means for China. China is following Japan’s path. Japan was the leading exporter to the United States in the 1980s, but it was increasingly squeezed by higher costs, falling profit margins and competition from other countries. There was also significant political tension between the United States and Japan over informally closed Japanese markets. It did not lead to massive tariffs because Japan buckled under the weight of its own economic weakness and became a less-important trade partner for the U.S.

China was doing the same before the U.S. imposed tariffs. Its products were facing stiff competition, inflation was pushing its own costs higher, and profit margins in key sectors were falling. As with Japan, China faced serious problems with its banking system. U.S. tariffs compounded China’s problems and perhaps accelerated the process, but the path it is following is not new.

[Crafty_Dog]

Aug. 14, 2019
By Phillip Orchard


In the Yuan, Washington Finds Its Latest Trade War Target


The U.S. is running out of ways to escalate the trade war with China.


Last week, after nearly two decades of threats from U.S. President Donald Trump and his predecessors, the U.S. Treasury formally labeled China a currency manipulator. This followed Trump’s announcement that new 10 percent tariffs on some $300 billion in Chinese goods would kick in on Sept. 1, which sent the Chinese currency crashing to less than 7 yuan to the dollar for the first time since 2008.

The move has been widely characterized as a dramatic escalation in the trade war, expanding the U.S. offensive from tariffs, tech controls and investment to asset prices. But by the United States’ own definition, China hasn’t actually been intentionally weakening its currency. Quite the opposite, in fact. And the label itself won’t do anything to pressure China into major concessions. What it really suggests is that the U.S.-China trade war has entered a new phase – one marked by waiting around for a change in conditions that forces one side or the other to blink.

How China Manages the Yuan

For more than a decade beginning in the early 2000s, Beijing was indeed quite transparently keeping the yuan artificially weak, buying up some $4 trillion in U.S. treasuries in the process to maintain a peg of around 8.2 yuan to the dollar. Given China’s large balance of payments surplus and large net investment inflows, had the yuan been allowed to float relatively freely like the dollar, yen or euro, it’s estimated to have been less than 6 yuan to the dollar. China kept its currency weak to offset some of the stiffening headwinds facing its export sector, which had begun grappling with factors like rising wages that threatened its low-cost export growth model. This accelerated the exodus of U.S. manufacturing jobs while suppressing demand for U.S. goods among Chinese consumers. Naturally, this generated no small amount of political backlash in the U.S., sowing the seeds for the political consensus in the U.S. today that China’s rise has been aided by an unlevel playing field.
Around 2014, however, China switched course and began allowing the yuan to move more in line with market forces. Narrowly speaking, China has continued to “manipulate” the yuan; to avoid wild swings in value, it sets a daily trading band allowing just 2 percent change in either direction. But this doesn’t meet the U.S.’ own criteria for currency manipulation. In fact, by and large, whenever the People’s Bank of China has been forced to intervene to keep the value within the daily trading band, it’s been to strengthen the yuan. The U.S. Treasury has consistently admitted as much, including in its most recent report on the yuan published in May. Between 2014 and 2015 alone, China spent more than $1 trillion of its foreign exchange reserves defending the yuan.

China switched gears for several reasons. For one, it’s been keen to reduce its dependence on exports by boosting domestic consumption (which generally benefits from a stronger yuan) and the private sector (much of which relies on dollar-denominated bonds, which get more expensive to repay when the yuan weakens). For another, a strong, stable yuan is critical to its sweeping reform and financial de-risking efforts. Most important, a range of macroeconomic factors began placing downward pressure on the yuan and raising fears of capital flight. This was underscored in the August 2015 stock market crisis, which was triggered by China’s decision to allow the yuan to fall more than 4 percent – in line with market forces – in two days.

Defending the yuan has become considerably harder – and more expensive – since Trump launched the trade war 18 months ago. In the year before tariffs kicked in, the yuan had strengthened more than 9 percent. Since then, it has dropped around 5.4 percent. This is not artificial.


 

(click to enlarge)


To be sure, the weak yuan has taken much of the sting out of U.S. tariffs. But China fears an uncontrollable cycle of depreciation (akin to what it experienced in 2015 and what Turkey faced earlier this year) and the risk of a cascading wave of defaults far more than it fears the tariffs. The numbers make this plain: In 2018, China exported some $550 billion in goods to the U.S. By comparison, it’s estimated to now have more than $3 trillion in external debt. If the yuan weakens, the cost of servicing this debt goes up – as does the risk of lenders refusing to roll over loans, putting Chinese firms in a major fix. This dynamic is what sparked the 1997 Asian financial crisis. Moreover, China’s ongoing liquidity crunch is already biting; bond defaults between 2017 and 2018 quadrupled and are on pace to triple yet again this year, according to Bloomberg figures.
Rather, the yuan’s devaluation is a natural result of the tariffs, which have pushed the dollar up against nearly all currencies largely in tandem while reducing dollar flows into China. For most of the past two years, to improve the prospects of a trade deal and guard against capital flight, Beijing has continued defending the yuan. But this is expensive; China’s foreign exchange reserves have dropped to around $3.1 trillion. On Monday, in response to Trump’s announcement of a dramatic expansion of tariffs, China didn’t intervene to weaken the yuan in retaliation. Rather, it merely took a break from propping it up. What the U.S. is demanding now, in other words, is that China manipulate it more forcefully.

So, What’s the Point?

The Trump administration’s goal in slapping China with the manipulator label isn’t exactly clear. To be sure, the U.S. has ample economic reason to want to narrow the gap between the two currencies; it’s hard to imagine the bilateral trade deficit ever disappearing if the yuan remains so much weaker than the dollar. And there’s some support on both sides of the aisle for dramatic efforts to weaken the dollar.

But the label won’t do much to move either currency in the direction the Trump administration wants. The next step outlined by U.S. law doesn’t involve any sanctions – it’s merely a consultation with the International Monetary Fund, which is unlikely to agree with the Trump administration. (Like the U.S. Treasury, the IMF has consistently concluded that China doesn’t meet its criteria for currency manipulation.) This may dash U.S. hopes to build a multinational consortium to force China to strengthen the yuan. International support has proved invaluable to the U.S. in the past, particularly in the 1985 Plaza Accord, when the U.S. persuaded France, Germany, the United Kingdom and Japan to manipulate exchange rates and bring the dollar down as much as 50 percent against the yen and Deutschmark. This time around, with the U.S. lacking a valid case against China and launching trade disputes with most of the allies it would otherwise court on currencies, such a consortium seems far-fetched.
It’s possible the U.S. is just building a case for greater unilateral escalation. Even when Beijing was flagrantly inflating the yuan from 2002 to 2014, past U.S. administrations repeatedly declined to do anything more than threaten the manipulator label, primarily because none were prepared to follow up with punitive measures like tariffs that may not have survived a World Trade Organization challenge. Trump has no such qualms about wielding tariffs or ignoring the WTO. Still, there’s only so much further Trump can go without tanking the U.S. economy once the next round of tariffs starts to kick in in September (to avoid sticker shock during the holiday shopping season, several big-ticket consumer items will be exempted until mid-December) – effectively taxing nearly every Chinese product exported to the U.S. And the White House can continue its economic offensive without the manipulator label, anyway.

Ultimately, for the move to have any teeth, the U.S. would have to make the leap into direct intervention in currency markets, using tools like the Exchange Stabilization Fund to essentially buy up the yuan as it claims China should be. But intervening against the yuan won’t be easy. Unlike the yen and euro, the supply of yuan available to offshore buyers just isn’t very high, meaning the impact of such a move would likely be limited – and, in some ways, it could weaken U.S. leverage by essentially funding China’s development. The U.S. has more capacity to try to weaken the dollar by buying up a range of foreign currencies. But this is expensive and would have an unpredictable impact on already-spooked markets and potentially undermine the U.S. dollar’s invaluable role as the global reserve currency. It would also further expose U.S. consumers to sticker shock after implementation of the next round of tariffs, which cover consumer goods that had thus far been spared, raising the risk of a political backlash that makes waging a trade war of attrition untenable. (After the last round of tariffs kicked in, the U.S. Federal Reserve estimated that the trade war will cost the average U.S. household $831 per year.) On Friday, Trump backtracked on earlier statements and ruled out the possibility of direct intervention against the dollar – for now.
All this illustrates a critical point: The U.S. is running out of ways to pressure Beijing into major trade concessions, and the tools it has left in its arsenal all have major costs attached. Tariffs are approaching the point of diminishing returns, and trade negotiations have stalled. China has proved more resilient to tariffs than many expected, in part because the yuan’s depreciation and tools like tax cuts, diversion of exports to other markets, and transshipments have offset some of the pain, but also because U.S. consumers and firms have eaten much of the costs. Beijing can’t stomach most of the major structural concessions the U.S. is demanding, and it thinks its economy has stabilized enough to hold steady and wait to see if the political and economic risks of sustaining the trade war in an election year – one that may very well coincide with the start of a recession – force the U.S. to back down.

In these conditions, the White House loses leverage if Beijing thinks it can simply run out the clock, so it needs to counter the expectation that it’ll be desperate to strike a deal before November 2020 – and persuade Beijing that the U.S. is the one better positioned to hold the line until China’s immense structural economic and political vulnerabilities force Beijing to back down. (Trump has pointedly begun lowering expectations that a deal will be reached anytime soon.) Blaming yuan manipulation (and, for that matter, the Fed) for the lack of success of Trump’s tariff-centric trade strategy in bringing down the trade deficit, however disingenuous the case, is one way for the White House to try to prevent domestic political constraints from forcing it to bow out of the trade war prematurely. Meanwhile, raising the possibility of a direct U.S. intervention in currency markets, however steep the costs, may give the U.S. some leverage; Beijing would rather not find out if the White House is serious, and it’s reportedly willing to at least agree to a non-depreciation pact. In other words, there’s negotiating leverage to be had from stoking uncertainty – market jitters and conventional economic wisdom be damned.

[Crafty_Dog]

rump Is Losing the Trade War With China
The markets doubt tariffs will bring about any major concessions. The U.S. needs a multilateral approach.
By Jason Furman
Aug. 19, 2019 7:00 pm ET
Chinese President Xi Jinping speaks alongside President Trump in Beijing, Nov. 9, 2017. Photo: ANDY WONG/ASSOCIATED PRESS

President Trump’s China strategy is failing. His tougher approach has yielded no meaningful Chinese concessions but is increasingly damaging the U.S. economy. Today China is more integrated with the rest of the world while the U.S. is more isolated. To combat China’s unfair, statist economic practices effectively, the U.S. must change its approach, enlisting allies and international institutions to advance a more focused set of demands.

Tariffs on China have caused clear harm to the U.S. economy in the short run. In the second quarter of this year they contributed to the decline in business fixed investment, and they’re likely subtracting about half a percentage point from growth in gross domestic product this year. This isn’t necessarily an indictment of Mr. Trump’s policy. When workers go on strike, they do so knowing they will lose wages in the short run, but they expect to recoup those losses through larger long-run wage increases.

Yet equity markets have made clear that investors don’t expect potential concessions from China to make up for the short-run losses. The decline after the president announced a new round of tariffs Aug. 1 indicates that, in present value, the strategy is a negative.

China’s growth has also slowed, but much of the downturn can’t be credited to U.S. trade actions. Instead, the slowdown largely reflects the limits of Beijing’s tendency to prop up growth through short-term investment and state-owned enterprises, even as its demography worsens and productivity growth slows.

Market movements have also blunted some of the impact that tariffs might have had, reducing U.S. leverage in the trade war. The yuan has weakened, which offsets the tariffs by making Chinese exports cheaper. This is the inevitable result of Mr. Trump’s de facto strong-dollar policy, driven by larger budget deficits that have increased foreign demand for U.S. dollars as well as tariffs on China that have reduced U.S. demand for the yuan. Before the latest round of the tariff war, China was helping bring about Mr. Trump’s desired weak dollar by intervening in currency markets to keep the yuan strong. Yet when Beijing gave markets more latitude, the administration branded China a currency manipulator.

In January 2018 China had average tariffs of 8% on imports from the U.S. and the rest of the world. In response to U.S. actions it raised its average tariffs on the U.S. to 20.7% by this June while cutting its tariffs on the rest of the world to 6.7%, according to Chad Bown at the Peterson Institute for International Economics. China has cut its imports from the U.S. but increased its imports from elsewhere. China’s exports to the rest of the world are also growing.

No wonder China isn’t in a hurry to make the major concessions Mr. Trump has demanded. It isn’t even clear what concessions would get the U.S. to settle. One set of Trump administration demands is the “shopping list,” insisting that China purchase more U.S. products like soybeans and Boeing jets. Another set is that China change its economic model, relying less on state-owned enterprises, opening more to foreign direct investment, and honoring intellectual property. A third set, regarding alleged national-security threats from companies like Huawei, has moved in and out of negotiations as the administration has sought bans on Chinese technology.

The administration needs to change its strategy radically. The first step should be to work with, rather than against, U.S. allies. That means shelving Mr. Trump’s threatened trade wars against close partners, such as across-the-board tariffs on Mexico or tariffs on car imports from Europe. The U.S. should deepen ties with partners, including by re-entering the Trans-Pacific Partnership, which doesn’t include China.

The U.S. should also use multilateral organizations and international rules, bringing cases against China at the World Trade Organization, where past U.S. administrations have had a remarkable success rate. The Trump administration instead has chosen to undermine the WTO by blocking the appointment of appellate judges who likely would rule in America’s favor.

Another positive step would be to drop the shopping list. Demanding that China buy more Boeing jets isn’t a way to get Europe on our side in the trade dispute. Such a demand could also further entrench China’s statist economic model while doing little for the U.S. economy in the medium and long run.

The final change would be to adopt a consistent protocol for responding to Beijing’s national-security threats. If state-directed espionage through telecommunications equipment is a serious threat, the U.S. should address it as such and not signal that it’s willing to trade security for slightly more purchases of U.S. products. The notion that national-security concerns are merely another trade bargaining chip suggests that the U.S. is negotiating in bad faith, again making it more difficult to gain allies’ support.

These three changes would allow the U.S. to focus on combating China’s forced technology transfers, weak intellectual-property laws, biased treatment of foreign companies in antitrust law, unfair preference for domestic companies through state-owned enterprises, and many other practices about which the U.S. has legitimate grievances.

Such an approach could also win the support of reformers inside China, who understand that most of the practices America wants it to end are impeding China’s ability to shift to a new phase of innovation-led growth. But can it win over President Trump?

Mr. Furman, a professor of practice at the Harvard Kennedy School, was chairman of the White House Council of Economic Advisers, 2013-17.

[DougMacG]

Not too surprising that Obama's chief economic advisor doesn't fully agree with Trump's policies. I would like to come back and answer this in detail.

In the first place, he evaluates the challenge to China ask if this is the end of the game. This might be the second inning and it might be the 7th inning but of course it's not worth it if where we are today is the end result.

[G M]

Not too surprising that Obama's chief economic advisor doesn't fully agree with Trump's policies. I would like to come back and answer this in detail.

In the first place, he evaluates the challenge to China ask if this is the end of the game. This might be the second inning and it might be the 7th inning but of course it's not worth it if where we are today is the end result.

Hard to argue his success as Obama's economic advisor!

[DougMacG]

"Hard to argue his success as Obama's economic advisor!"

Yes, the people who sent a planeload of cash to the world's indisputable leading state sponsor of terror.  Did they run that one past their chief economic adviser?  What could possibly go wrong?  The people who watched 4600 major companies leave our country while our business taxes were the highest in the world and opposed any reform on the basis of "fairness"?  The people who thought Solyndra, cash for clunkers and shovel ready government jobs were the keys to long term prosperity? 

One question for Prof. Fuhrman, what US patented technologies went to China under your watch with absolutely no objection and what is the price we are paying for it now?  We had zero enforcement and zero help from these international bodies he cites.  Only Hunter Biden profited from the policies of that period.

To those on the Left who hate Trump personally and politically, keep in mind it was the failed economic policies of his predecessor that led to his election, more than all the flaws of candidate Hillary.

[ccp]

" ."Hard to argue his success as Obama's economic advisor!"

If anyone has heard otherwise ,

I have not heard any other way to deal with China other then with the tariffs
other then the same old tired nonsense:
more diplomacy  go to organizations that couldn't give two shits for the US for "help"
etc.

Obama and his mob
appeared to have  decided it was not worth taking on China, Iran nucs, Korean nuks
that the US is destined to go into a decline and we should just accept it , while at the same time push for a one world nation etc . blah blah blah

[Crafty_Dog]

https://www.ftportfolios.com/Commentary/EconomicResearch/2019/8/30/the-so-called-trade-war?fbclid=IwAR1-4EWVtALpPjTsFS_rdgpaC3nZuMt4xSHdXsf5GKNA4isQbTTq5F6YphY

[G M]

https://www.ftportfolios.com/Commentary/EconomicResearch/2019/8/30/the-so-called-trade-war?fbclid=IwAR1-4EWVtALpPjTsFS_rdgpaC3nZuMt4xSHdXsf5GKNA4isQbTTq5F6YphY

Wesbury is making sense. Waiting for the walls to start bleeding.

[Crafty_Dog]

https://www.theepochtimes.com/us-farm-deals-with-south-korea-and-japan-to-limit-china-trade-war-retaliation_3156340.html?utm_source=Epoch+Times+Newsletters&utm_campaign=71f100df26-EMAIL_CAMPAIGN_2019_11_26_01_01&utm_medium=email&utm_term=0_4fba358ecf-71f100df26-239065853

[Crafty_Dog]

https://m.thebl.com/video/us-trade-deal-passes-japan-parliament-trumps-victory-for-american-farmers/

[ccp]

https://news.yahoo.com/us-china-trade-deal-gets-tepid-reception-015910263--finance.html

rushing deals no matter what to look good against impeachment?

[DougMacG]

https://news.yahoo.com/us-china-trade-deal-gets-tepid-reception-015910263--finance.html
rushing deals no matter what to look good against impeachment?

I don't like the idea of a partial deal; it partly lets the Chinese off the hook on larger issues. 

OTOH, removing agriculture in particular from the argument strengthens the President in his reelection. 

It also signals that the end game is free trade, not tariff-based relationships.

[Crafty_Dog]

Arguably sets up an empirical experiment as to whether the Chinese will enforce the new rules.  If not, then Trump is inoculated against certain attacks/accusations when he takes a hard line down the road.

[DougMacG]

Arguably sets up an empirical experiment as to whether the Chinese will enforce the new rules.  If not, then Trump is inoculated against certain attacks/accusations when he takes a hard line down the road.

Good points.

[G M]

Arguably sets up an empirical experiment as to whether the Chinese will enforce the new rules.  If not, then Trump is inoculated against certain attacks/accusations when he takes a hard line down the road.

Good points.

Yes.

[ccp]

https://markets.businessinsider.com/news/stocks/us-canada-mexico-trade-deal-usmca-nafta-details-dairy-auto-dispute-resolution-2018-10-1027579947

I guess it is ok
don't know who to believe on what I read

[Crafty_Dog]

https://www.gatestoneinstitute.org/15305/china-trade-agreement-hole

[Crafty_Dog]

https://www.theepochtimes.com/why-the-us-china-phase-one-trade-deal-has-the-ccp-in-a-stranglehold_3176283.html?utm_source=Epoch+Times+Newsletters&utm_campaign=1ef0d2e611-EMAIL_CAMPAIGN_2019_12_18_12_22&utm_medium=email&utm_term=0_4fba358ecf-1ef0d2e611-239065853

[DougMacG]

https://www.theepochtimes.com/why-the-us-china-phase-one-trade-deal-has-the-ccp-in-a-stranglehold_3176283.html?utm_source=Epoch+Times+Newsletters&utm_campaign=1ef0d2e611-EMAIL_CAMPAIGN_2019_12_18_12_22&utm_medium=email&utm_term=0_4fba358ecf-1ef0d2e611-239065853

"The agreement requires the Chinese regime to carry out structural reforms to protect intellectual property, stop coercive technology transfers, and open its market for agricultural products and financial services. China also promised to buy more U.S. goods and services in the coming years.  In particular, the U.S. statement emphasized that the agreement has an enforceable mechanism."

The items in bold I did not know were in there.  If true, this is a BIG deal.  I have to hold off judgment on it as different facts and opinions keep coming out.

Even if they cheat on it and this goes on for years in contention, this, if true, is a big step forward.

[Crafty_Dog]

https://www.theepochtimes.com/the-us-china-phase-one-fake-out_3178016.html?utm_source=Epoch+Times+Newsletters&utm_campaign=897272427f-EMAIL_CAMPAIGN_2019_12_18_10_20&utm_medium=email&utm_term=0_4fba358ecf-897272427f-239065853

[Crafty_Dog]

    Daily Memo: Cease-Fires on Battlefields and Trade Wars
By: GPF Staff

Trade deal details leaked. The details of the “phase one” trade deal expected to be inked this week by Chinese and U.S. trade delegations in D.C. are starting to leak. According to Reuters, the South China Morning Post and others, China will agree to purchase some $200 billion in U.S. goods per year, including $75 billion worth of manufactured goods, $50 billion in energy, $40 billion of farm products, and between $35 billion and $40 billion worth of services. The U.S., in exchange, is expected to lower the 15 percent tariffs it imposed earlier this year on $120 billion in Chinese goods to 7.5 percent and continue to hold off on staggering new 25 percent tariffs it had threatened to impose in December. All other existing U.S. tariffs will remain in place, and the deal is not expected to touch on the biggest sources of bilateral tension, particularly state support for Chinese firms.

As always, the devil will be in the details, and there are two things to watch for in the final text. One is the language on enforcement. The U.S. has struggled to come up with ways acceptable to Beijing to ensure that China makes good on its pledges. The other is the doubt over whether China can really absorb such a large spike in imports of U.S. goods; language allowing it to make up any shortfalls by increasing services imports may be more feasible.

Meanwhile, the Trump administration formally lifted its designation of China as a currency manipulator. China hasn’t artificially weakened its currency in years, so the tag was always a hollow gesture; its main significance was to demonstrate just how much trouble the U.S. was having pressuring Beijing into major trade concessions. It won’t get easier from here as the two sides shift focus to negotiating a more substantive “phase two” agreement.
Europe steps up pressure on Iran. France, Germany and the U.K. have triggered a dispute resolution mechanism in the 2015 Joint Comprehensive Plan of Action over Iran’s continued violation of the agreement’s terms. European leaders now have 15 days to resolve their “differences” with the deal’s other signatories. According to one European diplomat, the move is an attempt to restore Europe’s credibility. British Prime Minister Boris Johnson suggested it could pave the way to signing a new deal with Tehran, though it’s also possible it could lead to the imposition of new sanctions against Iran for violating the JCPOA by, for example, activating centrifuges in nuclear facilities and increasing uranium enrichment. The move also suggests that the EU is adopting a stance on Iran more in line with that of the U.S., a departure from previous efforts to establish a financial mechanism to help circumvent sanctions while still doing business with Iran.

[Crafty_Dog]

GPF:

Currency war? The U.S. Commerce Department is set to unveil new rules effectively granting the administration broad powers to unilaterally impose countervailing duties on countries Washington suspects of undervaluing their currencies. This could mark a significant tactical shift in U.S. policy on trade – and on any number of other issues. While the rules are ostensibly about currency manipulation, the way they are constructed makes clear that the move is mainly aimed at making it easier to use tariffs as a tool whenever a U.S. administration deems them politically or strategically useful. (For example, tariffs can be imposed even if the Treasury Department exonerates suspected manipulators in its biannual report to Congress.)