Trade War with China

taxiya · Apr 6, 2018

On April 6th

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Very interesting development.

The fight between China and US is a time when everybody else has to determine which side to ride with. At the beginning everybody is silently looking at the wind. If China backed down (not delivering tit for tat actions), we will see SK, Japan and EU jump on Trump's bandwagon eating China's flesh. If China stand up to the challenge from Trump, others will join in rank by retaliating tariffs on Trump. It is like a jungle where predators big or small will eat the dead ones after a fight even if that dead one is a lion killed by pack of hyenas. The SK move is apperantly encouraged (not saying coordinated with, far from it) by the actions from China. I will be watching Japan's move as it has more disputes than SK with US.

In other words, there is less and less room for either China or Trump to backdown openly. It is a showdown that decide who to be the leader of economical order from now on. It is the final 100 meter dash of a marathon race.

plawolf · Apr 6, 2018

Lethe said:
No doubt Washington would seek to contain the broader fallout by circumscribing China as a "national security threat" and continuing to pay interest on all bonds not owned by Chinese entities. The negative consequences for Washington (i.e. higher interest rates on future bonds) would still likely outstrip the benefits, but one should not place too much faith in American rationality. And indeed there is a politically powerful contingent in the US that would welcome a crisis in America's ability to borrow as an excuse to dismantle non-military public spending.

All the trend lines in the relationship are negative and we can expect that to continue for the foreseeable future. It is far from a given that the relationship will deteriorate to the point of mutual economic exclusion, war, etc. but it is certainly possible, and China must insulate itself as best it can from any and all conceivable US actions. And part of that involves divesting itself of US treasury bonds.

Government treasury bonds are effectively a form of hard currency, they can be freely traded, and it is almost impossible to determine who holds which bond certificates.

The only thing America can do is to refuse to pay if, at maturity, it’s the Chinese government who wish to collect on the bonds.

But there are plenty of ways for China to get around that, like selling bonds before they mature, or redeeming matured bonds via brokers and other 3rd parties.

But the critical factor is that like all current forms of hard currency, treasury bonds have no intrinsic value. They only have value because people believe they do. If America so much as hints at trying to not honour its bond commitments, US treasure bonds, all of them, effectively becomes worthless overnight. Along with those bonds, so will the US dollar, as hyper inflation kicks in.

If one wished to commit economic suicide, it is hard to think of a more effective way.

Make no mistake, trying to void bonds you have issued is the economic nuclear option. Only it’s more like a suicide vest rather than a missile. Once you trigger it, the first victim will be your own economy.

The main reason China buys US treasury bonds is because of the trade between the two countries, and China’s big trade surplus.

If a trade war hits that trade and surplus, then it removes the primary reason for China to buy more US T-Bonds.

China may well start steadily selling off its T-Bond holdings in the event of a trade war, if it has not been busy secretly doing so already. But it cannot do so too quickly or else it will cause US T-Bond value to plummet if the market things China is divesting from US T-Bonds.

Both America and China are far too important to each other for economic insulation to be effective.

Neither could effectively hedge against the losses from a trade war, and the costs of such a trade war will be huge for both economies and people’s because trade is a two way street.

taxiya · Apr 6, 2018

Lethe said:
No doubt Washington would seek to contain the broader fallout by circumscribing China as a "national security threat" and continuing to pay interest on all bonds not owned by Chinese entities. The negative consequences for Washington (i.e. higher interest rates on future bonds) would still likely outstrip the benefits, but one should not place too much faith in American rationality. And indeed there is a politically powerful contingent in the US that would welcome a crisis in America's ability to borrow as an excuse to dismantle non-military public spending.

All the trend lines in the relationship are negative and we can expect that to continue for the foreseeable future. It is far from a given that the relationship will deteriorate to the point of mutual economic exclusion, war, etc. but it is certainly possible, and China must insulate itself as best it can from any and all conceivable US actions. And part of that involves divesting itself of US treasury bonds.

Besides what PikeCowboy has pointed out, a big chunk of China's holding of the papers is through proxies. Belgium just come to my mind.

The bonds are auctioned by the US treasury department to first hand bidders. The department does know who they are and how many even though the papers (electrical) have no numbers. Subquent trading of these papers are not traceble when the department can not determine who the second hand traders really are. They see an commercial entity.

The usage of proxy company of another country will remove the knowledge of China's real purchasing even in the first hand bidding, it will also remove the knoledge of China's selling. These proxies can be state entities such as state wealth fund or pension fund that act on agreement which will prevent them from revealing the information of the true holder.

Premier Li Keqiang visited Belgium a year or two ago, the key words in that visit was "strenghing finacial cooperation". That is surely not about some commercial banking activity.

B.I.B. · Apr 6, 2018

taxiya said:
Besides what PikeCowboy has pointed out, a big chunk of China's holding of the papers is through proxies. Belgium just come to my mind.

The bonds are auctioned by the US treasury department to first hand bidders. The department does know who they are and how many even though the papers (electrical) have no numbers. Subquent trading of these papers are not traceble when the department can not determine who the second hand traders really are. They see an commercial entity.

The usage of proxy company of another country will remove the knowledge of China's real purchasing even in the first hand bidding, it will also remove the knoledge of China's selling. These proxies can be state entities such as state wealth fund or pension fund that act on agreement which will prevent them from revealing the information of the true holder.

Premier Li Keqiang visited Belgium a year or two ago, the key words in that visit was "strenghing finacial cooperation". That is surely not about some commercial banking activity.

Interesting, but whats your thoughts on this extract from an old article?

"........................Under international law as it has been understood for centuries,

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. But currently,

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(many of them denominated in gold) sold to them by the Republic of China. Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. The debt owed to the American people should be paid. The U.S. government could dollar for dollar offset bond interest we owe China with interest, principal and penalties China owes us. ............................

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plawolf · Apr 6, 2018

B.I.B. said:
Interesting, but whats your thoughts on this extract from an old article?

"........................Under international law as it has been understood for centuries,
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. But currently,
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(many of them denominated in gold) sold to them by the Republic of China. Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. The debt owed to the American people should be paid. The U.S. government could dollar for dollar offset bond interest we owe China with interest, principal and penalties China owes us. ............................

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Utter BS trash without merit or the most basic critical thought.

No legal principle is ever merely ‘understood’. Countries sign up to international laws through treaties and agreements. They never just get saddled with commitments based on what other countries ‘understand’.

Also, thanks to American meddling, the Replic of China still exists to this day, so if they got beef, they can take it up with Taiwan.

taxiya · Apr 6, 2018

B.I.B. said:
Interesting, but whats your thoughts on this extract from an old article?

"........................Under international law as it has been understood for centuries,
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. But currently,
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(many of them denominated in gold) sold to them by the Republic of China. Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. The debt owed to the American people should be paid. The U.S. government could dollar for dollar offset bond interest we owe China with interest, principal and penalties China owes us. ............................

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Under international law as it has been understood for centuries
This is the foundation and let's deciphor it word by word.

International law is Treaties signed by states. Anything else is just somebody's wish. For example, UN charter is international law upon member states when they sign up. It is not law over Switzerland for example as a non member. Switzerland may choose to adhere to UN charter on its own, but not oblidged to. No court can force that on Switzerland.

So what international law is it in this claim above? Without seeing a signature by PRC, it is nothing. And no court in the world except the kangaru courts will and can claim a jurisdiction.

The above claim also stated "understood", not "signed and ratified". That is BS. Whose understanding? As I understand, Invasion of China to protect Opium traders was a war crime and damage should be paid by the UK government today. Also as I understand, all those western countries that colonized Africa, South America and Asia own a huge astronomical debt that should be paid first before anyone there can talk about the "bond from ROC". Does my understanding carry weight? Surely not in the eyes of these ROC bond holders. But a lot of weight in the Chinese eyes. In the end, it is just understanding.

P.S. since these holders bought bonds from ROC, they may need to talk first to the US government why the US did not clear that issue with ROC on Taiwan before 1979.

These kind of news like Fox always use some "according to my understanding" rubbish. The other example is the "international law" in the SCS "arbitration" farce when they skipped the real international law on the sea (UNCLOS) whose chapter granted China to exempt from arbitration on territorial matter.

Hendrik_2000 · Apr 6, 2018

Did some one here said there will be no individual farmer who will get affected by this trade spat. Wrong read this article

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Iowa soy and pork farmers have a lot to lose in a high-stakes trade war with China.
Farmers, including one who voted for President Trump and another who hosted Chinese President Xi on his farm years before he became president, are already feeling the pain from a trade war that isn't fully underway.

Soybean farmer Grant Kimberly of Maxwell, a town of less than 1,000 people 20 miles from Des Moines, exports one third of his soy crop to China.

"We need food," Kimberly told Martin Savidge of CNN. "Everybody needs food. So let's not get this caught up in a trade dispute."

China announced $50 billion

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earlier this week. The move by Beijing came in response to President Trump's plan to impose $50 billion worth of tariffs on Chinese goods for what he says are China's unfair trade practices and its theft of intellectual property.

Trump ratcheted up the rhetoric on Thursday, by saying that he was considering

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worth of tariffs on Chinese goods. China fired back saying it didn't want a trade war but "will not hesitate to fight back at any cost."

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Iowa farmers say they are already feeling the impact.

"It's a matter of concern when your largest soybean export customer is having negotiations with your government," said soybean farmer Ron Heck of Perry. "It's been a really tough week. The price of soy really took a hit earlier in the week."

The price of soybeans slipped 3% at the beginning of the week, though it recovered part of those losses. The price of pork, which has been falling all year, slipped another 1% this week.

The Chinese tariffs target a list of US products that includes soy and pork. China bought $12.3 billion

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last year, according to the Department of Agriculture. But now China said it is planning to impose a 25% tariff, matching the first set of tariffs planned by Trump. There are 300,000 jobs in the soybean industry in states like Iowa, Illinois, Minnesota, Indiana and Nebraska.

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Kimberly, who hosted Xi on his farm in 2012 when he was a vice president, said the Chinese leader knows exactly what he's doing.

"The fact he's been here, he's got some inside information, he understands both agriculture and politics and they go hand in hand," said Kimberly. "He's very politically astute as are all the Chinese. I'm sure they understand the importance of agriculture to Iowa and to the Midwest."

Kimberly said, "It is no surprise that they chose some agriculture products as a counter measure to some of the tariffs that are being proposed on both sides."

China is the third biggest buyer of US pork, importing half a million tons of hog meat worth about $1.1 billion last year, according to the United States Meat Export Federation, an industry group.

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"I think the president's making a mistake in this," said hog farmer Dave Struthers of Maxwell, who said he voted for Trump. He said that he exports a quarter of his pork, including about 3% to China and Hong Kong.

Struthers said that he hopes that Trump and the Chinese government don't go through with their plans to impose tariffs. But even the threat of them is hurting agriculture.

"You're losing in the meantime," he said. "That's the problem. You know there's innocent victims here."

--CNN's Nathaniel Meyersohn and Daniel Shane contributed to this report.

Jura The idiot · Apr 7, 2018

Hendrik_2000 said:
Excellent a very combative and ready to counter strike anytime Kudo That is how you behave against a bully This time the CCP has spine on their back

also hilarious is

"Trade liberalization and an open economy are the right choice for China and for every other economy. The United States is more than welcome to plunge its head into the sand and pretend to know otherwise, but no one is convinced."

inside Commentary: U.S. tariffs must prepare to meet their doom
Xinhua| 2018-04-06 22:15:33
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Jura The idiot · Apr 7, 2018

now I read
Opinion: Can Trump win a trade war?
2018-04-06 16:43 GMT+8
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According to US President Donald Trump, in his tweeted sentiments over the past couple of weeks, the US have been the losers in a long-term trade war with China for “many years”.

But now “you [the US] can’t lose” in a trade war since it is so far behind in its trade deficit with China, and that “trade wars are good, and easy to win.”

Although Trump framed his campaign in protectionist rhetoric, his general tolerance for trade and lifting of Obama-era regulations saw the US stock market rocket upward along with modest job growth and economic improvement after his one year in office.

A team of advisers sympathetic to free trade and good relations with China included his daughter and son-in-law along with former head of the National Economic Council Gary Cohn. With the internal policy battle between free trade and protectionism tilting toward the latter, Cohn resigned on March 6.

Advisers like Peter Navarro and Commerce Secretary Wilbur Ross are ascendant, presenting greater hostility to China, emphasizing unfair currency manipulation, failure to respect intellectual property rights and discriminatory treatment toward US products. The result: imposing tariffs on steel (25 percent) and aluminum (10 percent) for "national security" reasons, along with proposed 25 percent tariffs on around 1,300 Chinese exports. Volatility in the global stock markets has become dramatic, and the trade row threatens to jeopardize the bigger picture of US-China relations.

Furthermore, manufacturing jobs are not coming back to American shores in significant numbers unless US wages are much lower. The US is a consumer-driven economy and with such low barriers to trade globally, it experiences yawning trade deficits with most countries. In fact, the trade deficit (now around 375 billion US dollars) is more about American (and other) companies that have set up shops there and export their products to US consumers with a Made-in-China label. American anxiety will only grow when those labels increasingly include Chinese brands; already the US has blocked market access to Huawei as it rolls out its newest smart phone.

American competitiveness is dependent on innovation and the technologies of the future, along with improved infrastructure and better primary and secondary education that will enhance worker productivity, while maintaining access for highly-skilled immigrants.

Moreover, getting tough with Beijing will not see the same accommodating results that occurred with Tokyo three decades ago. China has no compunction to "give in" to US pressure: its economy is increasingly driven by domestic consumption and less reliant on exports, possessing enormous capital reserves to withstand a period of fiscal malaise, and able to offer a coherent strategic response from a position of strength that both complies with international norms (initiating a case at the World Trade Organization) and fractures US domestic constituencies, politely reciprocating targeted tariffs against US exports, specifically targeting products made in key swing states (soybeans from Iowa, cars from Michigan) or reliably Republican areas (whiskey from Kentucky, beef from Texas).

This will not end well for Trump. Although China-bashing is often an easy target to win votes in a presidential campaign, an actual trade war will not resuscitate the Republican Party either in the midterms or in the 2020 presidential election, particularly as the Party is the chief advocate for free trade.

Wall Street is unhappy, rising prices for American consumers will not win votes, and American producers will be shut out of the lucrative Chinese market. Already, groups from farmers to business leaders have objected to the US policy and the retaliatory effects, and the Trump team has already walked back its broadside on trade to suggest that these are mere negotiating tactics.

Perhaps the Trump team finds a face-saving outlet where Beijing makes some minor accommodations on foreign investment access to China, on intellectual property rules, or expands the currency fluctuation bandwidth. Otherwise, the US may either rescind the planned tariffs and take a humiliating defeat or continue down the road to a trade war that will give back all of the market gains over the past 18 months, raise costs and sacrifice jobs, and accelerate that sinking feeling in the swamp of Washington, D.C.

Jura The idiot · Apr 7, 2018

now I read
What is China’s ‘red line’ on China-US trade friction?
2018-04-07 16:07 GMT+8
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“This [the announcement] is really saying there is really no retreat; that there is no way we [Chinese] are going to be bullied into the negotiating room and then be flogged by Donald Trump over issues that can be resolved through negotiations, but not through threats,” said Einar Tangen, a current affairs commentator, when talking about the messages being sent out by the press conference of the Chinese Ministry of Commerce on Friday.

He thought the strong wording reflected China’s red line on China-US trade friction that it would sit down to talk only if the US withdrew its unilateral threats.

“This is not China versus the United States. This is China and the rest of the world, the existing international order versus an individual who doesn’t believe in it,” said Tangen. “He doesn’t believe anything except being a playground bully asking everyone for their lunch money.”

In contrast with some US officials who have hinted that the two sides are in talks, Gao Feng, spokesperson of the Chinese Ministry of Commerce, said there have been no talks over economic and trade issues between Chinese and US economic officials recently. He said that it was impossible for the two sides to engage in any negotiations under current conditions when US President Donald Trump on Thursday announced tariffs on yet another 100 billion US dollars worth of Chinese imports.

“It’s very concerning to me,” John Gong, a professor of economics at the University of International Business and Economics said. “The Washington side needs to really read into what’s behind these lines.”

Gao Feng said the US side adopted extremely bad actions in ‘lifting a stone, and hitting its own feet' and the Chinese side is fully prepared and will not hesitate to fight back immediately with all options possible.

“It implies a message here that probably includes options going beyond just economic options,” said Gong. “We can talk about the political side, and the security side. Other things are on the table as well. For example, foreign exchange can be leveraged off as can China’s holdings of US treasury bonds, bills. And also keep in mind that corporate America’s operation in China amounts to between 300 billion US dollars and 500 billion US dollars.”

“So at the end of the day, this is something that can be targeted too, which is something which nobody wants to do,” concluded Gong.

Trade War with China

taxiya

Brigadier

plawolf

Lieutenant General

taxiya

Brigadier

B.I.B.

Captain

plawolf

Lieutenant General

taxiya

Brigadier

Hendrik_2000

Lieutenant General

Jura The idiot

General

Jura The idiot

General

Jura The idiot

General