Trade War Update: Washington Throws The Kitchen Sink At China

Forbes ^ | May 24, 2019, 03:36pm | Kenneth Rapoza

[Zhang Fei]

Dear emerging markets fund manager: If you think the trade war is ending this year, I want my money back.

China is returning to its subsidy playbook and plans on subsidizing companies hit by tariffs. The latest recipient is tech companies, according to an article in the South China Morning Post on Friday.

State subsidies to favored industries were a key issue in trade negotiations. China has no interest in rolling them back. They're not even signaling a willingness to try. Any Memorial Day happy talk tweets by Trump over the weekend should be glossed over and ignored. We are in a "no deal" situation now.

What makes it worse is the fact that Washington is throwing everything plus the kitchen sink at Beijing.

Here's a list of anti-China measures coming from Democrats and Republicans. Some of them are old, but are being resuscitated as the trade war heats up.

- Expanding the list of Chinese companies on the Department of Commerce's Entity List to include five companies manufacturing video surveillance equipment. Huawei was added May 15th.

- Sen. Marco Rubio, R-Fla. has a bill that seeks to sanction China for its treatment of a Muslim minority group in Western China.

- A bipartisan bill (H.R. 2483) in Congress to sanction Chinese producers of Fentanyl.

- A Department of Commerce proposal on May 23 seeks to impose tariffs on countries that undervalue their currencies.

- China hawk Marco Rubio is reportedly going to reintroduce 2017 legislation (S. 659) to seize assets of anyone involved in “actions or policies that threaten the peace, security or stability” of contested areas of the South China Sea.

"The U.S. strategy is intended to signal to allies and multinational corporates that 'it’s on'," says Brian McCarthy, chief strategist for Macrolens in Stamford, Conn.

[mindburglar]

Another “expert”. The US has many more options. We are nowhere near kitchen sink.

[drdirt333]

IMO its unamerican to buy anything from China. By EO, for purposes of national defence, TURN EVERY SHIP ARROUND, don’t let them touch an American port.
Supply chains will relocate quickly. Manufacturing will return, just not as quickly.
There will be some pain, but less pain than the status quo

[Dave Wright]

I’ve gotten out of all China related or EM index funds. I had high hopes for Alibaba but the depreciating yuan will drive down its ADR dollar value and offset any gains it might manage for the near term. The key indicator that the Chinese are serious about negotiating a real deal will be when their trade minister asks to resume meetings in Washington, DC. Until then I’m ignoring the optimistic tweets and staying on the sidelines.

[neverevergiveup]

I agree with every point you made. I would go a step further and do the research to find out what products use primarily parts from China. Don’t buy these either.

For example, Sharp TVs are made now by a Chinese company. So are Toshiba and Westinghouse.

[bigbob]

If not now, the day will come when we will be. Since Xi was elevated to the level of Mao, he is girding for a war for global domination and has told his people it will be another “long march” that may cost millions of lives.

Every other foreign policy issue pales in comparison to China, and Trump has a one-time opportunity to break them. He must do so.

[A strike]

what a TDS jackA

[BeauBo]

The very things that China could do to mitigate against the effects of tariffs on their economy (subsidies and currency devaluation), are the very things that would violate a fair trade deal.

The communists just can’t afford to make a fair deal, because the current situation is so unfairly in their favor. The tariffs hitting, make it even much, much harder for them to accept a fair deal.

Therefore, I don’t think there will be a deal (unless the communists can compel US capitulation through other means). Instead, I expect an economic divorce of the American economy from communist control - which is going to seriously hurt the economy in China.

Just like Iran or Venezuela, regime change would spare the people the economic pain that is coming their way - but we seem far from that happening.

[BeauBo]

The No Deal Chexit - this is the year.

[entropy12]

If Trump fails to break Chicoms, for sure groper Biden, BS, Buttigirl, or Camel Harris won’t.

[Phillyred]

But where will I buy hoses that break after 2 weeks?

[Blue Collar Christian]

“There will be some pain, but less pain than the status quo”

It’s like new fitness program pain. The piper must be paid to fix this damage from our ridiculous trade deficit.

[Alas Babylon!]

What about Apple products?

[DoughtyOne]

Forbes, now there’s an entity that surely must be on the side of American jobs. Yep, no globalist agenda there... /s

L M A O

[MrEdd]

Yup.
Getting real would be a coal embargo.

[ChinaGotTheGoodsOnClinton]

Read this and weep:

https://www.bloomberg.com/news/features/2018-10-04/the-big-hack-how-china-used-a-tiny-chip-to-infiltrate-america-s-top-companies

[cba123]

Yup.

Part of the problem. Big time.

[vannrox]

Well, what I can tell you is that things are getting much more inexpensive to make things in China compared to the USA. Back in 2008 Obama cut a deal with them, and they agreed to move the rate from 8.9 yuan to 6.3 yuan. Evidence is that the Chinese have been artificially keeping the exchange rate at 6.3 Yuan to the USD.

Now, they are playing hard ball.If this continues, the 25% tariff will have ZERO effect on any products made in China, simply because the USD is no longer artificially valued.

Now, global market exchange establishes the value of the yuan. Not any contractual agreement with the USA.

The only way to mitigate the collapse of the value of the exchange is to tackle the USA dept ratio. I don't think that Congress is willing to do that.

[Zhang Fei]

[Back in 2008 Obama cut a deal with them, and they agreed to move the rate from 8.9 yuan to 6.3 yuan.]

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I’m not sure where you’re getting this from. The yuan was at 6.84 to $1 when Obama took office. It’s slight lower today, at about 6.90 to $1.
https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart

In 1981, it was 1.70 yuan to $1. So the yuan is worth, in dollar terms, 1/4 what it was back then.
https://en.wikipedia.org/wiki/List_of_renminbi_exchange_rates

[vannrox]

I’m not sure where you’re getting this from. The yuan was at 6.84 to $1 when Obama took office. It’s slight lower today, at about 6.90 to $1.

---

That's the thing about the internet. You can rewrite history in so many ways and no one will notice. I have often wondered why China has banned Wikipedia, now this little discrepancy confirms my suspicions.

In 2004, I bought a house in Nanshan, Shenzhen. I converted my USD to RMB. The rate was 8.4 RMB/USD. How do I know? Well, I still have the receipt from the bank of China, Shanghai. It's a little faded, but you still can make out "8.4".

Maybe I am confused, as I have always assumed that all those articles on FR were based on truth, and Obama did actually work out some kind of deal to brink the value of the RMB to USD ratio to be more competitive. Obviously, according to the chart, it looks like that it wasn't Obama that did this, but rather Bush.

Heck! Who would have known?

---

All this aside, my point is this;

1. There was some sort of deal between the USA and China to keep the exchange rate between the two nations, low.
2. Once the talks with Trump collapsed, the RMB climbed in value against the USD.
3. A high rate of exchange of the RMB-USD ratio favors China.

All this talk about this and that is all really just speculation. What you read on the news is mostly half-truths and lies designed to manipulate. And further compounding this fact is that the internet rewrites history.

I don't know what is going to happen, but I'll tell you one thing. It will not be like everything thinks or assumes that it will turn out to be. It will be a surprise of some degree of magnitude.