Well, well…let’s see what is going to happen now. Trump is placing tariffs on goods from China, and China is figuring out how to respond. It ain’t lookin’ good out there folks. I have Three articles from GalacticConnection.com for you to read about this topic.
I dunno, instead of all things looking better and better, and leading up to “The Event”, perhaps things need to actually get worse. Why? Because with more of the Earth’s population mentally involved with world despair, perhaps human consciousness will become more “open” to the fact that the current status of BEing really DOES need to change!
So…please read these articles to better understand why cheap-o goods “made in China” may not be so easy for find soon, know that good attitudes and self-love are WAY more important that political intrigue, and…
Trump Slaps China With $50 Billion In Tariffs
Update: President Trump will sign an executive memo that will enforce $50 billion in tariffs against China over IP theft, an administration officials tell reporters. The full list of tariffs will be published within 15 days, opening a 30 day public comment period before they take effect, so there is a 1 month grace period before the trade wars officially start.
According to the official, many of the proposals reflect areas where China has sought to acquire advantage through unfair acquisition or forced tech transfers from U.S. companies.
He added that Trump is also directing the U.S. trade representative to pursue dispute settlement at WTO in order to address China’s licensing practices, which U.S. says are discriminatory, and will also direct Treasury Dept to consider expanding limits on Chinese investment and acquisitions in U.S. beyond current CFIUS reach
Stocks briefly popped on the headlines as, supposedly, this pushed the start of the trade war off by 60 days.
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President Trump will fire the first shots (retaliatory or not) in the new global trade war today as he announces plans to crack down on China with what is expected to be $50 billion in tariffs, controls on investment, and possible visa restrictions.
As we detailed previously, American officials have been raising their concerns about China’s IP practices since Bill Clinton was president, and Beijing has repeatedly failed to deliver on promises to reform, but now, as Bloomberg reports that the order will target more than 100 different types of Chinese goods, according to a person familiar with the matter, who spoke on the condition of anonymity.
The value of the tariffs was based on U.S. estimates of economic damage caused by intellectual-property theft by China.
This will be Trump’s first trade action directly aimed at China, which he has blamed for the hollowing out of the American manufacturing sector and the loss of U.S. jobs.
For decades, western companies have griped that Beijing is forcing them to hand over tech secrets and source code as a price of access to the Chinese market.
Now they have a White House prepared to act forcefully to stop it – starting tomorrow, Axios’ Jonathan Swan reports – but the fear is a costly tit-for-tat trade war.
Live Feed (due to start at 1230ET…)
But China is drawing up a reprisal list that includes soybeans, sorghum and live hogs, report the WSJ’s Lingling Wei, Yoko Kubota and Liza Lin.
Finally, as a reminder, China will begin trading its petroyuan futures contract next week (3/26) – so perhaps this action by Trump is a pre-emptive strike?
Here Are All The Ways China Can Retaliate To Trump’s Trade War
Picking up where the WSJ left off yesterday, Reuters reports that China is preparing a range of responses to the just announced $50BN in U.S. tariffs and will “stand up to protectionism”, but that it still hopes for dialogue, according to Beijing’s WTO ambassador, Zhang Xiangchen.
As a reminder, yesterday the WSJ reported that China is preparing to hit back with its own countertariff aimed at President Donald Trump’s support base, including levies targeting U.S. agricultural exports from farmbelt states in retaliation to the mounting trade offensive from Washington.
“Any Chinese response to new U.S. tariffs would be measured and proportional,” said a Chinese official involved in policy-making. Specifically, China is said to target U.S. exports of soybeans, sorghum and live hogs.
However, as a first step Reuters notes that Zhang Xiangchen said China was considering a WTO complaint against the package of tariffs that President Donald Trump is expected to announce later on Thursday.
“This is a legitimate right for China to do that. But I would not exclude other options, because if the flood approaches you have to bank up to keep it out,” he told Reuters.
Meanwhile, as Trump just said moments ago, Thursday’s tariff announcement is the first in a string of U.S. trade restrictions aimed squarely at China and intended to curb alleged theft of U.S. technology. U.S. Trade Representative Robert Lighthizer said on Wednesday the tariffs would target China’s high-technology sector and could also include restrictions on Chinese investments in the United States. Other sectors like apparel could also be hit: full details are set to emerge over the next 2 weeks.
And while we wait for the details, the imminent question is what China will do next.
To answer this question, Deutsche Bank has laid out several possible scenarios of how China will retaliate to the Trump tariffs.
As the German lender notes, Europe has already outlined the limited actions it would take in response to the steel and aluminum tariffs, targeting areas of US imports that may be politically important to key congressmen (bourbon from Kentucky, motorcycles from Wisconsin, and so on). It notes that if these actions do not spiral upward, their overall magnitude is likely too small to have significant macroeconomic implications.
Digging into the specifics, here are the details from Deutsche on every possible scenario:
Baseline: Under the baseline, we expect China would actively negotiate with the US to avoid an escalation of trade frictions. The US administration has reportedly asked China to reduce the bilateral trade deficit by $100bn. It is not clear what the time horizon for this goal is, though the number itself is too large to be achieved in a short time period (and definitely not before the US mid-term election).
China nonetheless would be willing to offer to import more from the US in products such as automobiles, airplanes, and natural gas. China already announced that it will cut tariffs for automobiles and “some consumer goods.”
Other products where China could potentially cut tariffs and increase imports from the US include plastics, meat, cotton, glassware, fruit, and beverages – China has a weighted average tariff of 15% on US exports of these products, compared to 9% on all trade partners.
China has also promised to open up its manufacturing sector completely, and improve market access to services sectors. There are already discussions about opening up foreign holdings of financial institutions, and China could further open up market access in telecommunication, healthcare, education, elderly care, and electric cars.
Trade war light, Scenario A: Limited tariff on tech imports: Under the trade war light scenario, we would expect China to retaliate, but not aggressively. The Chinese government is likely aware that trade tensions are related to the US political cycle. If the damage from trade frictions is manageable on the macro level, the Chinese government may want to avoid further escalation. The policy options could include:
- 1. Higher tariffs on selected US exports to China: China would likely target imported products that would have significant impact on the US, and that China could afford to import less from the US. Based on these criteria, we have identified the following products: seeds and fruits (including soybeans), aircraft, pulp, nonferrous metal, wood, ores, and raw hides (Figure 8). Imports of these products amount to about $40bn. China could select from this list and retaliate by imposing “reciprocal” tariffs on imports from the US. It remains to be seen how such retaliation will play out under WTO’s rules.
- 2. Some warning shots on US business interests in China: Many US firms already generate significant shares of their revenues from China, and their sales may not be reflected in the bilateral trade data. General Motors, for example, has a joint venture in China which supplies the Chinese market. The latest data show that while GM’s global auto sales were down by 9% in Q4 2017, its sales volume in China was up 6%. China already accounts for half of GM’s global sales as of Q4. A USChina trade war potentially puts companies like GM in a tough position. Similarly, when the diplomatic relationship between China and South Korea cooled in 2016, some Korean companies with large operations in China suffered losses in their sales revenue, suggesting that non-tariff barriers can be as damaging as tariff measures.
- 3. Delay the process to open up the service sector, or provide preferential access to countries other than the US.
Trade war heavy scenario: The imposition of a 45% tariff on all imports from China would cause significant damage to China’s economy. In such an extreme scenario China would have to respond with drastic measures. Here are the various actions that could be taken and our judgment on the likelihood they would be taken.
- 1. Impose higher tariffs on all US exports to China: China imported $153bn of goods from the US in 2017, based on data from China’s Customs Office. Assuming China also imposed a 45% tariff and a price elasticity of 1.2, this would lead to a drop of US$83bn of US exports to China, equivalent to 3.6% of total US exports in 2017. As China runs a large trade surplus against the US, hiking bilateral tariffs by the same percentage will cause more damage to China than to the US. Hence China may go beyond tariff measures to retaliate.
- 2. Restrict market access for US firms in China: Similar to what we discussed under the trade war light scenario, China may set barriers and obstacles for China-based US firms. US business interests in China would suffer as a result.
- 3. Provide preferential treatment to US competitors: China may try to strengthen its relations with the EU and other countries to offset the damage of an emerging bilateral trade war with the US. This may lead to more free trade agreements without US participation. China may also open part of its service sector to other countries rather than the US.
- 4. Restrict US travels by Chinese nationals: Similar to what happened with South Korea, China may make it more difficult for Chinese nationals to personally travel to the US, such as for tourism or education purposes. Chinese spend $30bn per year on their US travels (including accommodations, shopping, education expenses, etc.). The impact could potentially be large, depending on the scope of such restrictions and how strictly they will be implemented.
- 5. Sell US treasuries and buy other government bonds: China does not disclose the composition of its reserves holding. According to the IMF COFER database, the typical holding by central banks is 64% in US dollar assets, most of which US government bonds. The US TIC data shows that China holds $1.18tn of US treasuries as of December 2017.
Among these policy options, 1 through 4 are likely to happen. One advantage of these measures is that they are bilateral. Rebalancing reserve holdings away from US treasuries would have global ramifications given the role of US interest rates in global financial markets. A disruptive rise of US interest rates would be damaging for China’s economy as well. Hence, we think it is less likely than the first four options.
Besides government actions, private companies in China will likely diversify their production base to other countries such as Vietnam. This process has been ongoing for several years, but a trade war could accelerate its speed. Countries in Latin America, such as Brazil and Argentina, could potentially gain from the trade war by taking the lost market shares both in the US and in China. Countries and regions closely integrated with China’s supply chain, such as Korea, Malaysia and Taiwan, would still lose on a net basis.
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And while there are many nuances, these can be summarized into two general categories: trade war light and trade war heavy, or “nuclear.” The latter could escalate into a recession:
- In the “light” scenario, a significant but contained increase in tariffs on US imports from China on a scale very recently floated by the Administration would likely be met by a similar imposition of tariffs on China’s imports from the US. Assuming no further escalation, the net effect would be a modest decline in growth and a smaller increase in inflation in both countries, with limited net spillover to other economies.
- In the “heavy” scenario, US-China trade tensions spiral into a larger conflict with high tariffs imposed across-the-board by both sides. This could move the US economy into recession. China might be able to significantly damp the negative effects on its economy via large scale fiscal stimulus, though not without risk to that country’s financial stability in the longer term.
And now all eyes on what China will actually do next.
Is China Days Away From Killing The Petrodollar?
Not long ago, there was a popular joke in China that went something like, “Who is Xi Jinping?”
The answer was, “The husband of Peng Liyuan,” the famous singer Xi is married to.
Today, Xi is China’s president. He leads 1.4 billion people. And he’ll likely be the most powerful person in the world soon.
As I mentioned last Wednesday, Trump’s new steel and aluminum tariffs are part of a larger, escalating battle between the US and China.
China is rapidly displacing the US as the dominant global power. This shift is inevitable.China’s economy will be twice as large as the US economy by 2030.
This leaves the US with limited options…
- It could kick back and let China displace it as the most powerful country in the world.
- It could start a military war with China.
- And it could push the current trade battle into an all-out economic war against China.
I think a full-blown economic war is the most likely. Under President Trump, it’s all but certain.
That said, the Trump administration seems to underestimate China’s position—in both the short and long term.
For decades, the US has been able to exclude virtually any country it wants from international trade. Right now, if one country wants to trade with another, it basically needs US permission first.
That’s because (for a short while longer) the US dollar is the world’s most important currency. The US Navy also dominates the world’s oceans, controlling most major shipping lanes.
But China is building a new international system. Eventually, it will let China and its trading partners totally bypass the US.
And, as I’ll explain shortly, a key piece is set to fall into place on March 26…
History’s Biggest Infrastructure Project
The New Silk Road is the centerpiece of China’s new plan.
In the coming months and years, it will include high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. It will link the Atlantic shores of Europe to the Pacific shores of Asia.
China expects to have its New Silk Road fully up and running by 2025.
This is history’s biggest infrastructure project. The whole point is to completely re-draw the world economic map. If it’s successful—and it most likely will be—China will dominate Eurasia.
President Xi announced the $1.4 trillion plan in late 2013. When it’s done, a train leaving Beijing will be able to reach London in only two days.
Keep in mind, the Chinese are careful long-term planners. When they make a strategic decision of this magnitude, they totally commit.
Take their road system, for example. Between 1996 and 2016 China built 2.6 million miles of road, including 70,000 miles of highway. In just 20 years, it built far more highway than the US has in its entire existence.
In other words, the Chinese get things done. They have the political might—along with the financial, technological, and physical resources—to make the New Silk Road happen. With iron-willed President Xi at the helm, I have no doubt they’ll pull it off.
Not long from now, the New Silk Road will help China unseat the US as the world’s dominant global power and totally upend the geopolitical paradigm.
But before that happens—within the next couple of weeks, actually—China is introducing a way for anyone who buys or sells oil to opt out of the US-dominated global monetary system.
Why the Dollar Is Different Than the Peso
Most investors know that oil is the largest and most strategic commodity market in the world. As you can see in the chart below, it dwarfs all other major commodity markets combined.
Every country needs oil. And, for a short while longer, they need US dollars to buy it. That’s a very compelling reason to hold large dollar reserves.
This is the essence of the petrodollar system, which has underpinned the US dollar’s role as the world’s reserve currency since the early 1970s.
Right now, if Italy wants to buy oil from Kuwait, it has to purchase US dollars on the foreign exchange market to pay for the oil first.
This creates a huge artificial market for US dollars.
In part, this is what separates the US dollar from a purely local currency, like the Mexican peso.
The dollar is just a middleman. But it’s used in countless transactions amounting to trillions of dollars that have nothing to do with US products or services.
Since the oil market is so enormous, it acts as a benchmark for international trade. If foreign countries are already using dollars for oil, it’s just easier to use dollars for other international trade, too.
In addition to nearly all oil sales, the US dollar is used for about 80% of all international transactions.
This gives the US unmatched geopolitical leverage. The US can sanction or exclude virtually any country from the US dollar-based financial system at the flip of a switch. By extension, it can also cut off any country from the vast majority of international trade.
The petrodollar system is why people and businesses everywhere in the world take US dollars. Other countries have had little choice about it, until now…
China’s “Golden Alternative”
China does not want to depend on its main adversary like this. It’s the world’s largest oil importer. And it doesn’t want to buy all that oil with US dollars.
That’s why China is introducing a new way to buy oil. For the first time, it will allow for the large-scale exchange of oil for gold.
I’m calling this new mechanism China’s “Golden Alternative” to the petrodollar. It goes live on March 26.
Ultimately, I think people will look back and see the Golden Alternative as the catalyst that killed the petrodollar.
Here’s how it will work…
The Shanghai International Energy Exchange is introducing a crude oil futures contract denominated in Chinese yuan. It will allow oil producers to sell their oil for yuan.
China knows most oil producers don’t want a large reserve of yuan. So producers will be able to efficiently convert it into physical gold through gold exchanges in Shanghai and Hong Kong.
As of March 26, countries around the world will have a genuine, viable way to opt out of the petrodollar system. Now is the time to position yourself to profit.
Gold Will Soar
With China’s Golden Alternative, a lot of oil money will flow into yuan and gold instead of dollars and Treasuries.
I think the price of gold is going to soar.
China imports an average of around 8.5 million barrels of oil per day. This figure is expected to grow at least 10% per year.
Right now, oil is hovering around $60 per barrel. That means China is spending around $510 million per day to import oil.
Gold is currently priced around $1,300 an ounce. That means every day China is importing oil worth over 390,000 ounces of gold.
If we assume that just half of Chinese oil imports will be purchased in gold soon, it translates into increased demand of well over 60 million ounces per year—or more than 55% of gold’s annual production.
Of course, China won’t be the only country using the Golden Alternative. Anyone will be able to.
The increased demand for gold is going to shock the market. That’s why I think the price of gold will soar.
As the petrodollar dies, gold will be remonetized… and China will be another step closer to displacing the US.
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Editor’s Note: Owning physical gold’s not the only way to turn the coming chaos into huge profits. There are other practical steps you can take before the US-China conflict reaches its boiling point. Get the details in our guide to Surviving and Thriving During an Economic Collapse.