The Wall Street Journal reports U.S. Stocks, Bond Yields Fall Amid Trade Tensions.
The latest rhetoric from Chinese officials sent stocks tumbling after Ministry of Commerce spokesperson Gao Fengtold CNBC that the U.S. should “adjust its wrong actions” if it would like to continue negotiations. Investors worry the U.S. and China are moving further apart on trade, potentially exposing U.S. companies and the economy to further retaliation.
Debate Over Baseline Case
Bloomberg reports Full-Blown Trade War Is Quickly Shifting From Risk to ‘Baseline’.
Goldman Sachs Group Inc., Nomura Holdings Inc. and JPMorgan Chase and Co. are among those that have rewritten their forecasts as U.S. President Donald Trump threatens to impose a 25% tariffs on around $300 billion of additional Chinese imports.
Analysts at Nomura have made that hike in duties — which would mean practically all of China’s exports to the U.S. are hit by tariff hikes — their baseline forecast. They see it as a 65% probability before year-end, and most likely to come in the third quarter.
Goldman Sachs economists warned that without signs of progress over coming weeks, implementation of the further tariffs could easily become their base case. “While we still think an agreement is more likely than not, it has become a close call,” they wrote.
St Louis Fed Calls on China to Cave In
St. Louis Federal Reserve President James Bullard says ‘Blue Skies Ahead’ for China if it Accepts All US Demands.
St. Louis Federal Reserve President James Bullard expressed optimism that the United States and China will reach a deal to end their trade war, despite recent negotiating setbacks.
“My base case continues to be that we’ll get an agreement on trade,” Bullard, a voting member on the central bank’s policymaking Federal Open Market Committee this year, said Wednesday in an address at the Foreign Correspondents’ Club in Hong Kong.
“I think it’s good for both China and the U.S.,” he added.
Bullard also said that China should accept U.S. demands in the trade talks in order to attract more foreign capital, saying the country would stand to reap enormous benefits.
“They will establish credibility on trade inside China and will reassure foreign investors that they can invest in China and be treated appropriately,” he said in response to questions from the audience.
Bullard’s Fantasy
For starters, China will not accept all of Trump’s demands.
If anything, Bullard will harden up Trump and the China hawks.
Even if China did accept Trump’s demands, why should China believe Trump would not come back and ask for more?
Bottom Line
It’s easy to blame both sides here, but the bottom line remains the same:
- Trump has not closed a single trade deal with his bullying
- Tariffs are a tax on consumers
- Trump’s trade war case is full of holes
Lose-Lose
Trump can likely inflict more pain on China than vice versa, at least from a GDP standout.
But China has no elections coming up. Trump does. This talk about Trump winning the trade war is nonsense.
For discussion and other views, please see Who Will Win the Trade War? Some Say China, Others Say Trump.
Mike “Mish” Shedlock
The future of our country was done with once and for all, the moment the progressives took over. The Fed, income taxes, prohibitions on anything from alcohol to guns, and the rest of the drivel, is what killed America.
Making Americans even less free, to where they can’t even seek a decent deal for the measly slave wage they have left over after the Fed and its sycophants have debased them, the government robbed them, and the legal “system” leeches bled them dry; sure as heck isn’t going to bring this wasteland of an undifferentiated, totalitarian idiot state, back to anything resembling a worth vile life.
Anyone who isn’t being compensated fairly for the job they do, assuming they do something productive; have only to look at those who have been, and are being compensated by way of asset appreciation, tax money and money spent on lawsuits, insurance and mandates. That’s where the working and middle classes’ wages went. Not to China. Nor to any other imaginary Hobgoblin the leeches who did stole from him is trying to make him scared of.
For every penny an American sends to China, he gets more than a penny worth of goods back. Otherwise he wouldn’t send them a penny in exchange for what they are selling Making America richer. As well as China. That’s what freedom does. Always does. No childish “but its diiiiferent thiiiis tiiiime” nonsense, no matter how loudly it is screeched by illiterate morons, can ever change that.
The same is not even remotely true, for every penny that same American is paying in taxes, insurance, above free market mortgage, and indirectly by way of an army of banksters and “asset owning” deadweight leeches, getting handed the means to drive up the cost of stuff he needs, to where he can no longer afford them. Despite him actually working for his money, while they do nothing whatsoever of value, aside from sitting there being handed stolen wealth by the trillion by the Fed and government mandates and regulations. For all that he is forced to spend on all of the above, by the US government, not the Chinese one, he gets a big fat nothing in return. At best. More realistically, he gets less than nothing.
That’s why he is now poorer than he was before that last sliver of protection he had from rapacious theft, that of a sorta-kinda tie of the currency he is de facto forced to use to Gold. The Chinese have absolutely noting whatsoever, in any way shape nor form, to do with it.
The money stolen from him, is what made Trump rich, in exchange for creating nothing of value. It made millionaires and billionaires out of utter deadweight idiots, in every one of the FIRE rackets. And ditto the John Edwardses of the world. While making public union tax feeders, if not millionaires, at least pretty close to it. All of them, in exchange for doing nothing at all, of any value. Just feeding at the loot through that the Fed puts out for it’s favorite, useless, sycophants.
That’s who stole the working American’s money. And his lifestyle. And his future. And that of his children. And grandchildren. Not the Chinese. Not the Mexicans. Not any other scary Hobgoblin that he is being told he needs governments, banksters, laws and other drivel to supposedly “protect” him from. He was robbed by his fellow Americans. Pure and simple. Just like those living in the Soviet Union. And in Venezuela. And North Korea. And any other pointless terror state existing for no other reason than to enrich a band of undifferentiated, deadweight leeches, by way of robbing everybody else.
Sadly, judging by the comments both here and elsewhere, that same middle American is by now so dumb, indoctrinated and utterly clueless, that he can’t even grasp something which is that plainly obvious, to anyone with half a functional brain.
I agree totally but I don’t know why you sugar coat it so muck Stuki. Sit back relax and watch the train wreck.
The problem is- we are all on the train.
…As were the German Jews… Now, as then, the solution is to decouple, for real, from the locomotive heading for the camps. Then, open the doors to the carts, so that everyone can go wherever the heck they darned well please. As free people. Rather than lackeys and playthings for those operating the locomotive.
This is not a “Trade War”. This is a WAR WAR. China is propping up companies that support their agenda to sell products below cost to destroy industries in other countries and make the world dependent on them for essential products. They are stealing IP and also putting back doors in all of our devices to have the ability to disable them. I do agree Tariffs are silly and only a small part of an overall solution but they grab headlines to focus attention. Going after state own companies like Huawei and dismantling their mercantilist and tech complex espionage is the right approach. The US has the huge upper hand. China is a big pile of bad debts masked by a massively subsidized central planning government. I dont want to hear about their “dollar reserves” because that can be fudged just like everything else there is fudged. In addition, they HAVE to maintain that reserve to keep their currency from skyrocketing due to balance of payments issues arising from deficits. The US holds all of the cards, but it will be painful here, no doubt. But whatever pain is felt here it will be 10x the pain in China.
The best way to explain how trade wars work is to look at a simplified economy. Imagine a very small village, with three people. One is a farmer. A second is a seamstress. The third is the blacksmith. At first they trade, and all have clothes, food, and tools. They all feel the others are taking advantage of them, so a trade war erupts, and they stop trading. The smith has to grow his own food, and make his own clothes. He isn’t that good at either, so his clothes are poorly made, and he barely has enough food to eat. The seamstress has to grow her own food, and make her own tools. She’s not very good at either, so she has barely enough to eat, and her tools are low quality. The farmer has to make his own tools and clothes, and he’s not good at either, so both are low quality. There is no trade at all, so obviously there is no unfair trade, yet all of them are now worse off than before. It turned out that trade benefited all three of them.
In the situation with China, we can stop importing goods from China, and make them here. They will be either lower quality, or more expensive, or will generate toxic pollution (if it weren’t for one of these reason, we would be making them here already). Thus, everything will become more expensive. We will have jobs, but a lower standard of living. Meanwhile, China will have no one to sell to. They will have to do more farming, and less manufacturing, again resulting in a lower standard of living. Again, no one wins.
That said, the Chinese theft of technology can not be accepted. We can’t look the other way from that. It does us no good to invent things, only to have them stolen. Therefore, that needs to be addressed, and perhaps a trade war is the only way to accomplish that.
It’s hard to have a lower standard of living when suddenly 100 million Americans who were on welfare and food stamps are working for a pay check.
Actually, if the trade war continues, you won’t have 100m more people employed. You will have less people employed. The last full blown trade war was in the 1930s, and as trade spiraled down, year after year, so did employment. People who don’t know history are doomed to repeat it, as they say.
As an example, consider the vacuum industry. Hoover was late to move production overseas, so their products became expensive relative to the competition, and they lost market share, and had to sell out. Airway refused to move production overseas. They made marvelously durable vacuums in Alabama (you can find 50 year old ones on EBay), but when faced with a choice between a Chinese vacuum for $100, or a metal vacuum made in Alabama for $800, most opted for the Chinese model, and Airway went out of business. Now, realistically, if you remove the Chinese vacuums, and we would import from Korea, or something, and nothing would change much, but suppose we reverted to making them in the US, and vacuums were $800. That’s not a crazy price, by the way. I remember well buying a Hoover in about 1990 for $390. Adjusted for inflation, that would be $782 today. We think of vacuums today as $100-400 items because that is what we can buy them for, but only because they are made overseas.
So, if people suddenly had to pay $800 for basic vacuums, would that have any effect on standard of living? Would people who did need to buy vacuums cut back on something else? Would overall retail sales fall? Obviously the answer to all of the above is yes. Yes, new jobs would be created in vacuum manufacturing, and in vacuum service (since they would no longer be disposable), but jobs in other areas would decline, because people wouldn’t have as much left over to spend there.
Some African, or Middle Eastern, guy invented the wheel. The we all “stole” it from him. No wonder they’re so poor.
A for me, I’ve been stealing from teachers all my life. From my parents, even! What a horrible person I am! Trump, and Chavez, should do something!! Something which makes things more expensive for regular people! While making incompetent, half literate, zero value add clowns in the PE rackets money from their lobbying effort!! That’l teach me not to steal English from my poor mom!
I have utter contempt for you. I do not steal. I create. I create new methods. I create new cures. I create wealth. I do not copy. Millions of Americans like me create the prosperity that feeds the jerks like you.
” I do not steal. I create. I create new methods. I create new cures. I create wealth.”
As do about one billion Chinese.
And, aside from perhaps the occasional cave dwelling flint stone creator; they, like you, do it by employing knowledge that others have created before you. At least unless you, to, are in the flintstone business.
None of which means either of you are “stealing” that which you use to create.
Stuki, it’s one thing to honor the patent period and allow the inventor to gain some profit from his idea, and quite another to steal it before he ever can get it to market, as often happens today.
There is absolutely no reason why anyone should feel obliged to honor what the US patent rackets have turned into. In the US, people have a gun to their heads, hence not much choice but to channel their inner Ben Dover.. Chinese people don’t. Good for them. For China. And for the world, including America.
China has patent laws as well. Why are theirs, and their means of enforcing them, somehow any less valid than US ones? Aside from their system being less lucrative for ambulance chasers, straight up patent trolls and lobbyists for the above, that is….
In general, if you want to lay claim to your laws, and your government, being somehow more universally valid than those of others; you have little choice but to limit their scope and size. Such that they only cover, and interfere in, areas which are genuinely universally agreed upon, for close to all of humanity. A ban on premeditated murder, tend to fall under that umbrella. The kind of patent laws, interpretations and enforcement which gives rise to huge, well funded patent troll organizations, patents on one-click ordering, and the entire field of “strategic patenting”…. well, not so much.
How could the Chinese possibly trust the US?
The Iranians signed the JCPOA in 2015 – Iran destroyed its stockpiles of low enriched uranium up to 19.75%, mothballed its heavy water nuclear generator, gave up all but 6000 centrifuges and accepted extensive and intrusive UN inspections– it not only got nothing in return but actually had more severe sanctions placed on it, when Trump reneged on the deal!
Without full blown OVERT QE ,the federal gov’t will NOT be able to make the 600 billion interest payment this year which means…….technical default!!!!
Horse Malarkey. The USA can print dollars and debase the currency until the US minimum wage is competitive with Africans and Asians.
And then “we” can be like Africa too! Yippie!
So the solution is to bend over and let the chi-coms reams us out???
Nothing can rattle the “markets”, they are now fully protected, and the players in the “market” know it.
That was quite a 3 pm “stick save” today, though.
The PPT (Plunge Protection Team) had a busy afternoon shaving 170 points off that drop. They will be at it tomorrow to make us forget the whole thing.
The PPT will not save this. My Puts say so!
I think we can survive and thrive without China. The reverse cannot be said.
What will they do when they can’t copy products and steal IP?
Communist regimes have never been able to economically compete.
If the prices at Walmart go up for useless crap, then maybe we wont be buying it. Chinese goods are not things we need just items too cheap to pass up buying.
Anyone buying food products from China is crazy. They have no standards and I wouldn’t feed my dog anything from China. (they did sell tainted dog treats that resulted in death!)
Dog food? What about baby formula lmao! Of course, for me, my dogs are my children and I already refuse to feed them crap comprised of fish meal from China and thrown into an expensive yellow bag.
I remember the tainted baby food tragedy. China dispatched their mobile execution unit, did some justice, and they’ve never had the baby food problem again, as far as I’m aware!
What does “winning the trade war” look like? $50 billion in monthly trade deficits with India instead of China? Really. How will we know that we won?
It looks like full employment and lots of construction jobs building factories in the midwest. It looks like low gasoline prices and low food prices because the Chinese are not driving nor eating.
In the Midwest of India? Why would I move a factory to the US when I could get cheaper labor in India?
Tariffs on India should convince you that you wasted your money.
Because India has much open business model than USA. Indian market is a democratic economy. All US companies are making billions doing business in India.
There is no such thing as a half blown war unless you intend to lose as Lyndon Johnson did Viet Nam. The Chinese have a food supply problem and an employment problem. USA has neither. Profits are a matter of corporations moving production out of China.
The US doesn’t have a food problem because it has avoided trade wars. Trump is capable of creating famine in the U.S. Don’t be so sure that what we have we will always have. Free trade is our lifeblood. Trump is bleeding us.
Our trading partners affect how well our domestic crops grow? Please explain, I don’t understand.
Crops grow well enough in China, yet massive famines recurred there. That a land can yield ample food is not enough. Free markets and access to technology are necessary to produce and distribute food. To the extent we mimic Mao or Chavez with commercial isolation, we jeopardize our food abundance. Granted, the communist food failures had important causes besides commercial isolationism, yet food is no different than any other good. It exists to the extent that there is free market capitalism. Blood and soil doesn’t feed the masses. Freedom does.