Last Week the self-proclaimed “Tariff Man” raised tariffs on all remaining goods in China.
Bond Inversions Strengthened on the news.
Tariff Man Returns
China Quickly Responds
In response, China Halts U.S. Agricultural Purchases.
China’s state-run agricultural firms have now stopped buying American farm goods, and are waiting to see how talks progress, the people said, declining to be identified as they’re not authorized to speak to the media. Meanwhile, the private crushers haven’t received notices from the government on any policy change since the U.S. escalated tensions last Thursday, people said.
“The leverage that China has is its large agricultural purchases,” Darin Friedrichs, a senior analyst at INTL FCStone’s Asia commodities division, said in an interview on Bloomberg TV. “This does affect U.S. farmers and the rural U.S. voting base that’s normally in support of Donald Trump. If they hit back before the election, that’s the obvious way to retaliate.”
China Soybean Imports Plunge to 2004 Level
Yuan Slides
Not only did China halt agriculture imports from the US, it also let the yuan slide.
Bloomberg reports China Takes On Trump by Weakening Yuan, Halting Crop Imports
China responded to President Donald Trump’s tariff threat with another escalation of the trade war on Monday, letting the yuan tumble to the weakest level in more than a decade and asking state-owned companies to suspend imports of U.S. agricultural products.
Editorials in state-run newspapers suggested Xi will reject any deal that either retains punitive tariffs or forces China to make concessions on issues like state-run enterprises that could weaken the party’s grip on power.
The onshore yuan weakened 1.4% to 7.0391 a dollar, falling sharply on Monday morning after the PBOC set its daily reference rate at a weaker level than 6.9 for the first time since December.
By linking today’s devaluation with the renewed tariff threat, the PBOC “has effectively weaponized the exchange rate,” said Julian Evans-Pritchard at Capital Economics in Singapore. “The fact that they have now stopped defending 7 against the dollar suggests that they have all but abandoned hopes for a trade deal.”
Allowing the yuan to weaken is not without risk for China. A mid-2015 devaluation spurred capital outflows and destabilized global markets, though tighter capital controls this time around should help prevent another exodus.
OK None At All
Trump hiked tariffs of China Thu (10% on $300b of goods effective Sep 1)
He did it because China was not buying US ag products like they promosied.
China just answered … ok, we will then buy none at all!
*CHINA SAID TO ASK STATE BUYERS TO HALT U.S. AGRICULTURE IMPORTS
— Jim Bianco (@biancoresearch) August 5, 2019
Trade War Becomes Currency War
Looks as if the trade war has expanded into a currency war. China Yuan falls past CNY7 per dollar for first time in 11 yrs. China’s CenBank blames tariffs and protectionism as previously defended floor gives way. https://t.co/sLnLooPp8K pic.twitter.com/FRPnaoh2hO
— Holger Zschaepitz (@Schuldensuehner) August 5, 2019
Trump Accuses China of Currency Manipulation
China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
Note the Major Irony
Interest rate cuts to weaken the dollar and letting support level pegs drop are both signs of currency manipulation.
Negative interest rates in Europe and Japan are more of the same. Currency wars started long ago, and The Bernanke Fed slashing rates to zero in 2008 were part of it.
Did you catch the major irony?
Trump says the currency manipulation will “greatly weaken China over time”, yet he wants the US to do the same, constantly moaning about a dollar that is too strong and interest rates too high.
Not Easy to Win
Hello President Trump!
Are you still sticking to your nonsensical statement “Trade wars are good and easy to win”?
Expect Recession
A Manufacturing Recession was Already Underway.
As the Bond Market Screams for More Rate Cuts, Trump Policies Ensure They Come
Yields are lower still today, and they have fallen every day since the FOMC announcement.
A global recession will soon follow, including the US
Mike “Mish” Shedlock
Trade wars are a great way to start a depression. I hope the President knows what he is doing because the U.S. economy will sink or swim based on how this deal works out.
With all the chatter, I have yet to read anybody who argues that the yuan would increase in price if left to market forces. This is what Trump & the Treasury are alleging, literally.
All central bank actions are currency manipulation one way or the other. The term is nonsensical in a world of floating currencies.
I’m not a Trump supporter, but I do support his stance on China as do I think most sensible people. It’s just his piss-poor way of negotiating that makes me really wonder if he’s ever really had to negotiate anything before. It doesn’t help either that he has a Jim Jones like personality cult of supporters. For everything that goes right, it must be Trump and for everything that goes wrong, it’s all part of his grand plan and we just need to suffer and be patient for the reward….sounds like people lost Jesus and found Trump instead.
I think that I will look at commodity futures this week. Haven’t purchased any in a long while, but this has the look of the 1970s. Ag commodities don’t increase by snapping your fingers, and surplus forecasts can disappear over night in that world. Keep me informed on the always popular Apocalypse forecasts.
Cue taxpayer-funded bailout of US farmers (read: Trump base) in 3 … 2 … 1 …
Living proof that when your uncontrolled mouth(& twitter thumbs) joins forces with an arrogant yet wholly ignorant brain one tends to paint oneself into inextricable corners. He & many of his minions may believe that he is playing 4D chess but this game is Xiangqi.
You shouldn’t talk about yourself that way Aaaal!
toddler
Wait to China decides not to keep honoring Trump’s sanctions against buying Iranian oil. If they start buying, oil prices will plummet. I hope they do it it. Trump needs to get cut down a few notches.
This blog is focussed on economic policy not the cult of personality. Mish is fostering a discussion of our country’s and the world’s economic policies. For example if I were to Trump bash I could talk about his policy of scapegoating the brown people from the south for our country’s problems not to mention all of the exaggerated media coverage(misrepresentation) of the issue at our southern border. I could discuss how when Governor Pete Wilson played the race card here in California he managed to completely decimate the long term prospects of the CA Republican party. For the record I am absolutely not a Clinton fan
So Mish decided to censor my reply to him. Very google of you. Block any disagreement.
Go find the post where you said anything positive about Trump. No shortage of posts where you criticize.
I tried to give you every opportunity to show you could be balanced and look at the bigger picture — but you censored me instead.
Its your blog, but if you kick all the other kids out of your sandbox then its just you playing with yourself.
Other readers should take note, disagree with Mish and get censored
I need to find a better blog where people have intelligent disagreements
“But Mish wants to blame Trump and only blame Trump”
Stop being an ass.
I have blamed the Fed, Congress, and central banks in general so stop being an ass.
The fact of the matter is: Tump policies have made matters worse.
Nowhere did I say Trump “caused” them.
I am sick of fools who cannot accept ANY criticism of Trump.
‘
Please highlight the blog post where you say anything nice about Trump. I looked for one the other day, and couldn’t find a single case.
Trump is human, with good points and bad points. You only see one side.
Its not that readers don’t see problems with Trump or accept that he deserves SOME criticism.
You don’t do anything other than criticize Trump. Post after post after post.
Exactly. This is despite people like me and Mish actually having voted for Trump. Political hacks need not post this blog anymore. Anyone is allowed to criticize the President or anyone else for their actions.
That said…. I am a lifelong democrat that will consider voting for the GOP nominee no matter who that is, over socialist far left “progressives” who are taking over my old party. We can fix the damages of an incompetent president, but once the road to socialism is taken there are no U turns and socialism is just spiteful theft and admission of defeat in fixing real problems.
You do know there is socialism right? But ou for the wealthy and the banks. Medicare and Medicaid is socialism, social security is socialism….you should research why they came to be and why FDR had to implement the programs. Pure capitalism is not the way either….2008 was proof of that…but then again the wealthy people’s loses were all socialized at the expense of the common man.
Exactly. All roads lead to the cost being spread across the entire country. This is what the pure capitalists wanted. If everyone actually got rich under capitalism, there would be no one to clean shit up.
There is unequal distribution of national income of course, and there should be, but, we have gone something like 1,000 times beyond what can possibly be justified in any economic theory and we are treading very close to revolutionary revenge politics that would end capitalist functions. Do that and millions will die because capitalism is the only system that can allocate capital and create markets of scale. Socialism cannot. 7.7 billion people are alive because of capitalism, if socialism had always been our model we would see far fewer people and their lives would be savage misery.
Herkie – I hate to break this to you but a central bank that buys assets in order to prevent them from being priced correctly by a free market is actually socialism. You are living under socialism right now. Look at the Federal Reserve balance sheet.
That actually was what I was saying, that the ability to determine the value of money automatically means you are determining the the value of everything priced in that money, by doing so you are claiming at least part ownership. Money and produced goods and services can be seen as having an = sign between them. So he that controls the value of the fiat also controls production.
I do not think we have any disagreement there. Where we might disagree is how the division of the national income is getting divided, and possibly the reasons why it needs to change, very soon.
Many conservatives do not want to see that change come because they fear it will come in the form of socialism, I say that is not necessarily so, the demands for socialism as a cure for this gross inequality would evaporate if distribution of national income changes, and some of the more glaring flaws of capitalism are repaired.
But, I will warn that if we do not improve the current situation socialism will be inevitable and sooner than you think. And yes it will be every bit as bad as Venezuela, only more violent. That is WHY we need to fix capitalism and wealth inequality urgently. Standing in the way only guarantees that when the vast majority demand it you will not be able to stop it any longer, and you will not like what you see. (none of us will like it, but it will be too late to do anything about it because the only way socialism can possibly stay alive is through repression and coercion, then all the conservative nightmares will come true, gun confiscation and all).
I agree for the most part. We will never get a Venezuela type environment though. Trying to pin the Democrats as that type of socialism is just stupid.
The biggest glaring flaw of capitalism is repeatedly driving down the cost of labor and giving all the profits to the top tier of a company along with “shareholders”. If employees actually had equity in companies they worked at, things would be better off for everyone including the pure capitalists. Pure capitalism or pure socialism doesn’t work. The problem we have now in America is the extremes have the loudest bullhorn because of social media. So then you get people like Trump, AOC and others as the “voice”. Either way the system is set for destruction soon. Maybe we get some reasonable voices who find an answer in the middle but I don’t hold out much hope of it. America use to have the golden egg but we destroyed it over the years with greed, corruption and not looking out for our citizens. It started in Washington and we are now seeing what happens when people turn on one another.
What makes you think there are not socialistic aspects already ? Do you think the US is some free market haven ? What exactly do you think a CENTRAL BANK is ?
I never said there were NOT some aspects of socialism ingrained in our economy, the very fact that the Fed controls the value of our dollar and heavily influences the value of others is a quasi socialist phenomenon. Remember that having safety nets for the poor like social security, or food stamps, THAT IS NOT SOCIALISM! None of those programs control the means of production. But, having a vast impact on monetary policy does make them in part owners de facto in production.
One of the things that really is dumbfounding is how and why the far right so called “conservatives” label any type of safety net as socialism, they are exposing their stupidity and ignorance when they do. And the same when you see bumper stickers that say taxes are theft. No they are certainly not.
What these people on both the left and right are just not getting is that there must be a certain level of reward, or safety, comfort for the greater population or the greater population will come for your corporations, your vast estates, ask yourself why our current Secretary of Education needs a fleet of 11 yachts, do you know how much they cost? Forget the boat itself, that is a minor part of the cost, there must also be crews and their salaries are at least a million per year, then fuel that is in the several hundred dollars per hour of cruising. People see things like this and get really very pissed off, now, have that same cow take away their kid’s school lunches and you start to see that what most Americans are thinking is that there is socialism alright, from all of us to a very few of them. And you cannot defend that charge, nothing you say will be honest or realistic in the face of such unequal wealth.
But REAL socialism is a disaster, because that is were the collective owns and controls the means of production and it has been tried several times, always a disaster. Worse, once you go down that road there is no way back without violence and human catastrophe.
I am all for generous social programs if they keep the people from lighting those torches and grabbing those pitchforks. But more than that, you cannot say that human potential is limited to the top 10% or 1% or some other arbitrary number. And it takes what economics calls public goods to develop that human potential. Really, nothing makes me laugh more than idiots who say tax is theft. I would love to see their stone aged lives if we did not have taxes, they would shitting in a pit in the back yard. And drinking water from a hole right next to it.
Well I know a shit ton more about it than you seem to in part because I am old and also have an advanced degree in economics and finance.
By the way, we are on the way to MMT one way or another. Even capitalists like Ray Dalio now openly admit this. They even say the way to solve society’s ills is to understand MMT and see how it can be used to make money.
I forgot who said it but it’s true…you can vote socialism in but after that you have to shoot your way out. I remember as a young radical myself yelling…”one man one vote”. Now I realize the radical left (be they national socialists (nazi…national socialist germ workers party) or the international socialists (Stalinists) meant “one man one vote…One Time…until they get in.
Any person that says that the Nazis were socialists and equates to democrats has zero credibility. Quit your KoolAid habit and go back to school.
Not an ass … a Russian bot
This is hardly a war. Many headlines read like the tariffs(not in effect) are causing mass economic damage. This is just not the case.
Agreed. Whatever effect they will have (future tense) hasn’t happened yet.
Meanwhile, there is a bigger picture that entangles lots of issues including trade, emigration, central economic planning and demographics
Just as every long journey starts with the first step every economic war (trade/currency) also started with the first shot fired. We are not talking about reasonable sober adults here, we are talking about a bloviating narcissist that knows as much about economics as a typical cinder block, and a Chinese government that has it’s back against a wall of overpopulation and extreme poverty.
“Allowing the yuan to weaken is not without risk for China. A mid-2015 devaluation spurred capital outflows and destabilized global markets, though tighter capital controls this time around should help prevent another exodus.”
…
We’ll see. China had to burn thru foreign reserves last time ($ 4trillion —> $3.1 trillion) to defend. If things get SERIOUS will Mr Market call (bluff)?
Though, once again proving the adage of being too early is still wrong … I believe Kyle Bass’s position that yuan is one step above toilet paper (hey, gotta like the pretty pictures). Since the recession China’s debt – much of it non productive paper-overing of zombies/RE – has soared from $8 trillion to $40 trillion. At SOME point there will be MAJOR printing of yuan to cover.
So China will stop importing food. Good luck with that strategy!
I think food (agricultural product) is pretty much a commodity with a global market. If they don’t buy food from the US, they will need to buy it somewhere or starve!
Kind of like boycotting oil. Unless you can force the rest of the world to go along with it, the impact is minimal.
Impact definitely non-minimal
Can you read a chart?
Soybean imports from US at 2004 levels.
China buying from others. US farmers suffering. How the heck can you not see that?
I don’t see it because I don’t live my life in charts. I live in the real world where most people that want a job, have a job. The market is vastly higher than it was a few years ago, most peoples earnings are better than they were a few years ago. I don’t care about daily movements in markets.
We are better ff than we were 3 years ago by almost every conceivable measure.
How the heck can you not see that?
I think he is trying to say Mish that most Ag products are fungible, if the Chinese do not buy from the US they will buy from Argentina or Canada or some other producer and their normal customers will in turn come to the US to buy, that there is only so much Ag production out there and it all gets used by someone.
I agree with that to a point, but I also think the Chinese were paying more because they felt the pressure to drive down the towering trade imbalance between us. It is possible that rather than sell at a lower price American Ag will prefer to allow it to sit and rot.
If that was actually the case farmers would not be begging to be rescued. The reality is that 1. AG is fungible but nothing says that it has to be for soybeans for soybeans. 2. Other countries will increase their output if they see the shift is permanent
“…that there is only so much Ag production out there and it all gets used by someone.”
Where that ag production is located, is determined both by expected price, where the US is a competitive locale; but also by variance/riskiness. Most ag production is bought on contracts. Making the US a riskier place to source ag goods from, will slowly see buyers attempting to wean themselves off dependence on US sources.
Coming up on lunch time in the USA, and SHOCKER! Mish has yet another post complaining about Trump.
Maybe the unrest in Hong Kong has at least something to do with Yuan weakening?
Or maybe the problem is global – central planning is failing everywhere. What is the big difference between the yellow vests in France and the protesters in Hong Kong? Other than China’s government has shown restraint (so far), while Macron is using violence against his own citizens?
But Mish wants to blame Trump and only blame Trump. There can’t possibly any other explanation for anything. Maybe Trump is part of the problem, but its naive to suggest that explains the whole picture.
Its Monday, and that’s Trumps fault too! 🙂 Or maybe Putin paid Facebook $10K to trick social media weenies into thinking its Monday, and Robert Mueller was just Putin’s puppet for doing so! Yeah, that’s the ticket
Its Trump Derangement Syndrome
On the plus side the Trump Derangement Syndrome will go away when Trump loses in 2020. Win win win win
BTW show me a single point in history when trade wars have succeed economically to all involved….
One last thing as 2020 gets closer Trump will get more desperate.
Apparently you were out to lunch for the democrat debates.
Trump already won 2020. Get used to it
Really? I know we will ask Tsar Vladimir if this is his plan.
Sure because talking crazy during his fight for the republican election did Trump lots of damage.
There was the Smoot-Hawley Tariff Act imposing import duties just a few months after the crash of 1929, and arguably the real cause of the Great Depression. The US went from a sugar rush boom to more than 30% unemployment practically overnight, mostly because the banksters called their loans in the wake of the crash in equities. And a fed that saw now reason for liquidity injections or lower rates. But the market crash by itself should not have been able to produce the depression that lasted for so many years. It was the tariffs that were the straw that broke the camel’s back and added to deflationary forces. Particularly in you guessed it AGRICULTURE. The trade war is a disaster, especially in this interconnected global marketplace, and now a currency war on top of it, we will have stagflation from about October 2019 through about next June, at that point it will morph into a monstrous deflationary depression with at least 20% unemployment (of course they will just not count the jobless by changing the definition of unemployed, but they are still going to be without paychecks). That is my glance into the crystal ball take it or leave it 🙂
I hope you are wrong, but I am thinking seriously about setting up a second residence on some tillable land with water
Should he lose, we will have socialism (communism) and perpetual failures.
Tariffs are an effective means of protection and funding government. Before the awful income tax, the US was funded almost exclusively by tarrifs and seemed to do OK.
Agreed — Big taxes funded Big government and Big central planning… and we are seeing people all over the world rebel against central planners. Its been happening in UK, Germany, Italy, France, USA, and just recently Hong Kong.
Macron is responding with violence. Merkel and old school Washington DC are responding with childish insults. Italy tried insults but the old guard lost already. The UK tried scare mongering and a saboteur as PM — that didn’t work, jury is out whether Johnson will change things. Trump was elected to “drain the swamp”, jury is out on that too.
Central planning messed up Sweden and eastern Europe (illegal immigration). Central planning made a mess of Brazil (see car wash scandal). And central planning absolutely wrecked Venezuela, but we have allegedly educated people in the USA wanting to emulate Venezuela here (yeah, sure it will be different this time).
China’s army could crush Hong Kong in an hour or two, but doing so would send a message to all special economic zones. China’s economy would be crushed almost as fast as the protests — and China’s government would face another Tianamen square on the communist party 100 anniversary.
Trump is a symptom of a much bigger trend, but blind hatred of the man is preventing a lot of people from stepping back and seeing the bigger picture
The twin threats of trade war and currency war WILL result in some form of massive economic dislocation before November of next year, so you cannot take for granted a win even with all the help Putin can give him. On the other hand, a recent Pew Research poll says that 69% of democrats have an unfavorable view of socialism, something I think you need to give them more credit for. I myself have been a democrat since I first registered to vote in 1975, I hated to do it but I just changed my party affiliation to GOP mostly so I could vote for Weld in the primary. Also to send a warning to my party that if they nominate a “progressive” socialist Bernie bot they cannot count on my vote. If there is a so called progressive on the ballot next year the GOP will win by the biggest margin since Reagan kicked Carter’s ass. If the nominee is a centrist moderate I can still vote for them.
‘Capitalism…is no longer the progressive force described by Marx’; the free market era ‘has been followed by a new one in which production is concentrated in vast syndicates and trusts which aim at monopoly control’. Giant multinational technology companies ‘freeze out other competition to forestall independent technological innovation’. Financial control ‘has passed from the industrialists themselves to a handful of banking conglomerates – the creation of a banking oligarch”
Imperialism: The Highest Stage of Capitalism
Lenin
Lenin
What the hell are you talking about Mish is a equal opportunity criticizer….did the same thing when Obama was in office. If a policy is stupid it’s stupid no matter who initiates it. That’s what’s wrong with the country now….cant call a spade a spade without someone needing to change their tampon
Trump supporter’s have TDS as well. If economy limps along, then it was their Savior Trump that prevented recession. If economy crashes, then it was the evil “dark” forces that conspired against him.