Ricks Picks

Did Trump Outsmart China by Tanking Trade Talks?

EST

Was it President Trump’s intention all along that trade talks with China fail? That’s the contention of ‘Farmer,’ a long-time subscriber who lives in Nairobi. He posted on Monday as follows in the Coffee House, a chat room adjunct to the Rick’s Picks Trading Room:

“Just for perspective, the average dollar volume of imports being bought from Russia is only $18 billion during the past five years. That’s just 4% of the goods imported from China. Why? Because after decades as a nuclear cold war adversary, it was seen as ill advised to be running massive deficits with a country we were threatened by.  It is not that Russia could not supply goods cheaply that American consumers needed. They have always been technologically advanced. But if they had been favored over China with billions of dollars of orders in hand, they would be the most powerful nation in Eurasia today.

“The trade-deal narrative may be little more that feathers and sawdust. We should be considering that the Administration has no intention of ever writing a deal with China and that it is no longer acceptable in the strategy room to keep flooding China with dollars. There are a lot of alternatives out there. Since Mr. Xi has been so generous spreading dollars around the globe and buying new friends, then maybe it is indeed time to turn off the spigots. Half a trillion goes a long way.

From Whom Would You Buy?

“So if you are faced with being a generous trade-supporter, who would you buy from? Would it be the country that seeks to dethrone you, or would it be with a hundred other nations champing at the bit to get a piece of America’s business? Maybe it’s time to buy back some of those friends.

“The Chinese have completely underestimated Donald Trump. He walked them right into a deal he knew they would refuse, and now they doubled down and retaliated. What they should have done is signed up, pronto, but now the chance is squandered and it will be impossible to walk it back. I think that was the administration’s agenda all along.  Just like with Russia. How long will it really take for Walmart to switch suppliers?

Dollar Will Strengthen

Unfortunately, two predictable things will now happen. China will face a credit crisis and the dollar will likely strengthen. Dangerous times for all of us. it’s not hard to imagine all the new risks that come with turning off the trade taps (if that is the real agenda). We can’t know for certain of course, but Trump is certainly playing from a position of strength. He picked a fight he is going to win. The charts already say the U.S. trade deficit will start falling, so it’s baked in the cake. An added strategic benefit is that Belt & Road [China’s strategy of building infrastructure to facilitate trade growth with Europe, Asia, Latin America, Africa and the Middle East] will be set back a decade or more. We will see if the Chinese are clever enough to see what just happened and start playing ball, or if pride will be their downfall (I think pride will win out). The problem I see is that China can ill afford to monetize all the debt that has been created. We may be about to enter a critical period of Asian corporate bankruptcies.

“The Chinese will never bow to Imperial America. They would rather eat locusts and grass first.  But with tariffs this high already, the momentum alone could do irreparable damage medium-term. On that note, the threat from China to not buy U.S. grains is just empty words. Who would supply them instead? It’s just the ‘five eyes’ and Ukraine. So they had best play cards better because the big alternative vendors are Canada and Australia.

China Not So Smart

“Everyone will be scrambling. Last one to ink a new deal with an alternate supplier is going to be left holding the bag. Twenty five percent is more than the profit margin. Importers simply have no choice now but to seek new supply. And they must act quickly.   It’s really interesting how fast this whole narrative changed when China retaliated. Such a blunder on their part. Why do we give them so much credit for brains?”

Comments on this entry are closed.

none May 14, 2019, 5:35 pm

‘Attrition’ warfare is a military strategy consisting of belligerent attempts to win a war by wearing down the enemy to the point of collapse through continuous losses in personnel and material. The war will usually be won by the side with greater such resources.

The US Navy has a total of 18 Ohio-class submarines. Offen related or suggested a ‘doomsday device’.

Have a great day Pan.

none May 14, 2019, 12:07 pm

”’New York (CNN Business)”’ 05142019…The United States and China don’t just coexist. Their massive economies are deeply intertwined in ways that make the intensifying trade war unsustainable.

China’s booming middle class is a critical growth engine for Boeing (BA), Apple, Nike (NKE) and other American brands. China is expected to keep growing in importance as a buyer. And America’s insatiable appetite for cheap goods has created a Chinese factory juggernaut that employs millions of workers.
———————————————-
…..Since Nixon, China’s ‘middle class’ has grown,,, averaging the middle class income at 4-6k per year and having about 8% of the population in the ‘middle class’ +/-. Stats are hard to come by in China as their criminal executions are the highest in the world averaging about 35k per year. The USA and China are in a full fledge ‘Trade War’, it will go on for ‘decades’ their will be ‘no positive results’ over the days , weeks and months ahead on this issue.

Things and nations shift towards one another, currencies are a ‘eye openers’ to such events.

Have a great day today Rick!

Pan May 14, 2019, 12:01 pm

Falling empires always underestimate their rivals. It’s only natural of course, for once you’ve had it easy for so long and got fat on the lifestyle, you don’t realize just how unfit and uncompetitive you’ve become.
In fact, you’ve become so blinkered, you even went and elected yourselves a slick talking salesman as a president.
If this eventually comes down to a matter of attrition, I’m sorry to say but, you guys are gonna be the losers.

Ben May 14, 2019, 1:15 am

Well, can’t MAGA without getting some industry back, along with some new trade deals and partners. Of course, China could’ve gone along with it and mutually benefited, and things would’ve been just as well. But I do wish Xi well with his new diet 🙂



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