Please consider Emerging Markets Threatened by US-China Trade War.
>The intensifying trade war between China and the United States could “shock” emerging markets that are already in danger, the head of the International Monetary Fund said in an interview published Tuesday.
>As a result, crises in Turkey and Argentina could spread, IMF Managing Director Christine Lagarde told the Financial Times.
>If the world’s largest two economies continue on this course, it could have a “measurable impact on growth in China” and could “trigger vulnerabilities” in neighboring Asian economies whose supply chains are closely linked to Chinese industry, Lagarde told the newspaper.
>Some emerging economies find themselves in precarious situations, with currencies weakening in part due to the strong US dollar and investors looking instead to the United States, where benchmark lending rates are steadily rising. Weakening emerging market currencies could also affect eurozone exporters such as Germany and Spain.
>Earlier in the year, Lagarde had already warned against the dangers of a global trade war, hammering the argument that trade in goods and services was a driver of global growth.
Trade War Shock
Also consider the Financial Times report Lagarde Warns of US-China Trade War ‘Shock’ to Emerging Markets.
Lagarde noted the adverse impact in the US would mostly be felt by the “low-income people within the consumer population” who would be hit by higher prices on a wide range of goods.
No Winners
It usually pays to fade Lagarde and the IMF, especially on growth estimates. In this case, she is correct to be concerned about emerging markets. She also stated it could affect EU exporters.
Her warning should have gone further. The entire global economy will be impacted by a major US trade war with China.
Lagarde is correct in that low-income families would get the hardest. But no one will win. Some will simply lose more than others.
“Trade is a positive, trade is a plus, trade needs fixing certainly,” said Lagarde.
Actually, the only “fix” needed is complete free trade.
Alan Greenspan Comparison
Alan Greenspan was another economist it usually paid to fade. However, Greenspan was consistently right on one facet of policy. During his entire economic career, Greenspan was unwavering in his support of free trade.
Expect Contagion
The notion that the US will decouple from the global economy now is as silly as the notion that China would decouple in 2008.
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Mike “Mish” Shedlock
Low income hardest hit? That woman is a GYNOPHOBIC RACIST! Everyone knows that women & minorities are always hardest hit.
To be serious for a moment, when one finds oneself on the same side of an issue as Lagarde and the IMF, it is time to take a walk outside, clear one’s head, and look deeply at the beliefs one holds.
Read and weep. From Junker today/yesterday and I tell you the IMF are on side in ways you would not think. The US has many enemies that will use various barriers to control US policy whether that policy is dumb or not. Expect others wants and needs to be IMPOSED on the US. Talk of care for poor Americans it’s B.S., an excuse to impose limits on action whether the action is sensible or not.
Junker – “In his speech, he also said the EU should flex its potential strength as a world power as the US under President Donald Trump pulls back from international engagement, saying that when united, the EU was a force to be reckoned with.
“Whenever Europe speaks as one, we can IMPOSE our position on others,””
The language the EU elite use is straight out of a fascist playbook.
At least she avoided being locked-up. If that was any of us we’d be in the slammer in an instant.
Another question, what is Mrs IMF intending to do to “fix it”. All the elite talking heads do is highlight problems. READ HER WORDS.
“Trade is a positive, trade is a plus, TRADE NEEDS FIXING certainly,” said Lagarde.
The only fix they will like is one that maintains the status quo and is no threat to the Euro/EU. I’m pretty sure emerging markets will be stressed but are more likely to adapt and recover quickly. Not so the rigid, controlling EU the likes of the French Elite Lagarde loves to defend at all costs. If Germany and others continue with their policies imbalances will only increase until there is a backlash.
The US has indebted itself massively and that alone is a systematic threat. Everyone wants to see a fix until it negatively impacts their own ballywick.
Problem with Trump is that he might lose his nerve in his trade war and tariffs middle of the way because removing the trade imbalance must lead to lowering of profit margins at many companies and this should lead to lower stock market.
Trump boasts about the high stock market a bit too much.
The current stock market has been powered by high profit margins following from offshoring of production and lowering of wages through illegal immigrants and low wage legal immigrants while UNSUSTAINABLE levels of consumption and demand have been kept up by continually increasing debt levels.
The main source of fuel for the stock market is foreign flows looking for safety, which will accelerate as the sovereign debt crisis gets into full swing. The dollar/market haters will continue to be mystified because they are US-centric.
You guys are on mark in a tangential way. The current stock market is being JUSTIFIED by bulls on the basis of some increases in profitability. Recently, the valuations are being somewhat supported by foreign funds who are looking for safety, or perhaps chasing momentum as peripheral markets falter. But really, like everything else in the everything bubble, and like the problems that Legarde is bemoaning, it all gets back to too much liquidity, too much leverage, too much stimulation, too much debt. Trump’s campaign against those rapacious Chinese bastards is just the straw that is breaking the camel’s unsustainable back.
Country should NEVER allow it’s citizens and companies to start taking debt in foreign currencies to fund consumption, real estate or investment in the local market because this ALWAYS leads to catastrophe sooner or later.
Emerging markets have boosted their economies by getting dollar based debts and now this FAKE prosperity is being removed and the crash is much bigger than if they would have taken the debts in their own currency because rising dollar and crashing local currencies make dollar based debts unsustainable and unmanageable and creates a spiraling crisis where in the end banks are broke because debtors can not pay back debts and all this increases the crash of the local currency thereby continually worsening the situation.
There is a reason why “Emerging” markets borrow in US dollars. It is the fact that they are serial money-printers and no sane lender would want to be paid back in a currency that is sure to become toilet paper before the loan is paid off.
Returning manufacturing to USA should give many well paying jobs to Americans.
If this is coupled with DEPORTATIONS of 10-20 million illegal immigrants and stopping current illegal immigration and stopping low wage legal immigration this should lead to big wage increases for all poor low income Americans making them better off even if there is small price increases in some products.
Companies price their products for maximum profit that hey can get as a whole always (profit per product x number of products sold x max profit per product that leads to max total profits through max number of products sold at optimum profit level) so the trade war should lead to smaller margins for companies and thereby lower stock prices but prices of products should stay about the same.
The only problem with Trump regarding trade is that he might lose his nerve because he boasts about high stock market so much and returning trade to a balance through tariffs will inevitably lead to crashing of many companies profit margins which will lead to much lower stock market.
This is the most important sentence……..”Weakening emerging market currencies could also affect eurozone exporters such as Germany and Spain.” It’s EU banks on the hook to Turkey & South America really as well as exports.
They couldn’t care less about poor Americans, but threaten the Euro project, watch out.
Mish, one thing needs to be clear, Lagarde and the IMF only care about the Euro project. Look what they did to Greece to protect the Euro.
No fan of barriers but PLEASE see the other overlapping pictures too.
By “Euro Project” do you mean the loan portfolios of their biggest banks? And as for Greece, you can observe the down-the-road perhaps pre-planned effect of over-indebtedness – banks being given the right to place boot on neck of entire societies.
“During his entire economic career, Greenspan was unwavering in his support of free trade.”
But then he was not in support of free market! It is this one man who is singularly responsible for all the booms and busts over the last 30 years by meddling in the markets and using interest rate as a Weapon of Mass Destruction. Where he showed the way, “Courage to act” Bernanke and “no financial crisis in my lifetime” Yellen followed. When there is no rule of law, no responsibility for wreckers-in-chief and law breakers can go about their merry ways with get-out-of-jail-free card, it is all too easy to talk/pay your way through almost anything.
BTW, I find it amusing that you use the IMF and Lagarde as your support. They are the only group more corrupt than the DC swamp.
Your biased perspective reminds me of the establishment hacks who claimed the bankster are too big to fail. Most of the EM’s are corrupt sh*t holes that borrowed too much dollar-based debt, and now we are supposed to bail them out when a rising dollar and interest rates blow them up? They need a lesson in competitive destruction.
The Fed already gave them a MASSIVE break, at too he expense of savers, pensions, and our Social Security by keeping rates as low as they did for so long.
Unlike China in 2008, global capital is forced to park in dollar-based assets. So, yes, the US has been decoupling from the world, and it will continue until the rising dollar forces capitulation.