Tag Archives: China Trade

Why America Has All The Leverage In China Trade Negotiations, In 3 Charts

Those curious who is more impacted by the sudden re-escalation in trade hostilities between the US and China can get a quick answer by looking at the market reaction to Sunday’s unexpected news: while the S&P is down barely 1%, overnight Chinese stocks plunged nearly 6%, their biggest drop in over three years, indicating just how much more sensitive to every twist and turn in trade relations Chinese stocks are.

Of course, one can counter just how smaller – and far less relevant – the Chinese stock market is in comparison to the S&P500, which is also the basis for the vast majority of household net worth for Americans, and global investors (whereas in China, it is the local housing that is far more critical and accounts for roughly 70% of household net worth).

But it’s not just the stock market that shows why China should tread very lightly in its ongoing negotiations with Trump, or why the US president has decided suddenly to re-escalate. Below we lay out [ ] charts showing just why the US indeed continues to have the upper hand in negotiations with China, starting with the relative importance of the US and European economies to China rather than vice versa.

As the first chart below from Deutsche Bank shows, the US and Europe are “much more important for China than China is for US and Europe” as China remains the nation with the highest beta, or the highest relative impact, from a 1% move in either direction for either the US or the Euro area.

https://www.zerohedge.com/s3/files/inline-images/US%20China%20relative%20importance.jpg?itok=iXqy1JCi

Second, whereas the US is now actively contemplating the launch of MMT, and exploding the US twin deficit by issuing virtually unlimited amounts of debt – which it ostensibly can do as long as the US Dollar is the world’s reserve currency – China is already near its leverage peak. In fact, as shown in the chart below, both China’s willingness and ability to lever up is now quite limited according to Deutsche Bank’s Torsten Slok.

https://www.zerohedge.com/s3/files/inline-images/China%20willingness%20and%20ability.jpg?itok=rL6mXCii

Last, and certainly not least, is what we said back in January represented a “tectonic shift” in China’s economy, when we observed that this year, for the first time in history, China’s current account deficit will turn negative meaning that China will henceforth need financing from the rest of the world, and specifically the US. Which is why, as we said five months ago, it is not Beijing that has leverage over the US, but rather the US whose ability – and desire – to allocate capital to China could mean all the difference for China’s economic growth, or lack thereof.

https://www.zerohedge.com/s3/files/inline-images/China%20current%20account%20deficit.jpg?itok=E8NcTR6h

Finally, and tangentially, assuming trade talks collapse and Trump follows through on his threat of hiking taxes on Chinese imports, it would, as Torsten Slok shows in his latest chart, push US tariffs – which are already higher than most advanced economies – higher than many emerging market countries making the US one of the leading protectionist countries in the work.

https://www.zerohedge.com/s3/files/inline-images/US%20tariff%20levels.jpg?itok=0aUb3gwr

That alone would cripple China’s economy, and is perhaps the main reason why Trump decided to once again flex his muscles, if so far only on twitter.

Source: ZeroHedge

Trade Deal Dead: Trump Says 10% China Tariff Rising To 25% On Friday, Another $325BN In Goods To Be Taxed

So much for months and months of constant leaks, headlines, tweets, and press reports that US-China trade talks are going great, and are imminent amid an ocean of “optimism” (meant solely to sucker in amateurs into the most obvious bull headfake since 1987). 

Just after noon on Sunday, President Trump tweeted that 10% tariffs paid by China on $200 billion in goods will rise to 25% on Friday, and that – contrary to what he himself and his chief economist, Larry Kudlow has said for months, talks on a trade deal have been going too slowly.

And, just to underscore his point, Trump also threatened to impose 25% tariffs on an additional $325 billion of Chinese goods “shortly.”

With the tariff rate on numerous goods originally set at 10% and set to more than double in 2019, Trump postponed that decision after China and the US agreed to sit down for trade talks; following Trump’s tweet it is now confirmed that trade talks have hit an impasse and that escalation will be needed to break the stalemate.

It was as recently as Friday that Vice President Mike Pence told CNBC that Trump remained hopeful that he could strike a deal with China (at the same time as he was urging for a rate cut from the Fed).

Curiously, on Wednesday, the White House – clearly hoping to sucker in even more naive bulls to buy stocks at all time highs – said the latest round of talks had moved Beijing and Washington closer to an agreement. Press secretary Sarah Sanders said, “Discussions remain focused toward making substantial progress on important structural issues and re-balancing the US-China trade relationship.”

In recent weeks there were multiple reports that China and U.S. were close to a trade deal, and an agreement could come as soon as Friday. Major sticking points the U.S. and China have been intellectual property theft and forced technology transfers. There has also been disagreement as to whether tariffs be removed or remain in place as an enforcement mechanism.

While it was not clear why Trump has decided to escalate his tariff policy, the most obvious explanation is that for a White House, which has been obsessed with pushing the S&P to record levels, this was the last lever it had at its disposal. And now that the S&P is back at all time highs, the lies can end, if only for the time being.

Source: ZeroHedge

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S&P Futures Plummet As China Said To Cancel Washington Trade Trip, All Eyes On S&P 2,890

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Steven Mnuchin better have the PPT on speed dial tonight…

Charon took the newly dead across the river Acheron or Styx if they had an obolus to pay for the ride. Those who could not had to wander the banks of the Acheron for one hundred years. Corpses in some regions in ancient Greece were buried or burned with 2 gold coins, called an aureus on their eyes to pay the fare.

Trump & Lighthizer Announce Round #2 Tariffs on $200 Billion of Chinese Imports

…When you plant your trees in another man’s orchard, don’t be surprised when you pay for your own apples…

https://theconservativetreehouse.files.wordpress.com/2017/04/trump-xi-jinping-4.jpg

President Trump has instructed U.S. Trade Representative Robert Lighthizer to execute Round Two of tariffs on Chinese imports. The first round applied to $50 billion in products. The current round applies a 10% tariff to $200 billion (effective Sept. 24, 2018), until January 1st, 2019, when the tariff increases to 25%.

The list of products is particularly focused, and happily we note it includes almost all Chinese processed food imports.

Chinese food processing is sketchy, and China has refused to comply with most international food safety programs. However, President Trump spared smart watches from Apple and Fitbit and other consumer products such as bicycle helmets and baby car seats.

In a statement announcing the Round-Two tariffs, President Trump warned China if they take retaliatory action against U.S. farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”  That would hit Apple and all consumer good imports. Here’s the announcement and the list of products:

Washington, DC – As part of the United States’ continuing response to China’s theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) today released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs.

In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent. Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.

The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018.

[…] In March 2018, USTR released the findings of its exhaustive Section 301 investigation that found China’s acts, policies and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory and burden or restrict U.S. commerce.

Specifically, the Section 301 investigation revealed:

  • China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.
  • China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.
  • China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.
  • China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.
  • After separate notice and comment proceedings, in June and August USTR released two lists of Chinese imports, with a combined annual trade value of approximately $50 billion, with the goal of obtaining the elimination of China’s harmful acts, policies and practices.

Unfortunately, China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property. Instead, China responded to the United States’ tariff action by taking further steps to harm U.S. workers and businesses. In these circumstances, the President has directed the U.S. Trade Representative to increase the level of trade covered by the additional duties in order to obtain elimination of China’s unfair policies. The Administration will continue to encourage China to allow for fair trade with the United States.

A formal notice of the $200 billion tariff action will be published shortly in the Federal Register.  (read more)

https://theconservativetreehouse.files.wordpress.com/2018/05/eagle-and-dragon.jpg

A PDF list of the Round #2 impacted products is Available HERE.

Source: by Sundance | The Conservative Tree House
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China Retaliates: Beijing To Levy $60BN In Tariffs On US Goods Effective Sept 24

https://www.zerohedge.com/sites/default/files/styles/teaser_desktop_2x/public/2018-09/us%20china%20trade%20war.Jpeg?itok=g6Cuz4ch


As expected, Beijing did not waste much time responding to Trump’s latest tariffs, and moments ago China issued a statement disclosing what its planned retaliation would look like.