China Wins Battle in Trade War
Weekly Investment Update | By Brian Schreiner
The US and China have come to terms on a trade agreement. The US has agreed to slash its tariffs on China from 145% down to 30% while China has agreed to cut its tariffs on American goods from 125% to 10%.
The first battle in the US-China trade war is over and China won. Xi Jinping and the CPC stood strong and didn’t blink as Trump tried to bully them into yielding to his demands.
As we highlighted last week, domestic pressure in the US, most significantly from the bond market, forced Trump and Bessant to roll back their absurdly high tariffs.
From the Chinese perspective, they are getting rid of the stench of a century of humiliation at the hands of Western imperial powers for trying to keep China down and have proven to the world that China can be a major global superpower. Not only did Trump fold his cards, he actually prostrated himself in front of the Chinese by yielding tariffs for 90 days.
Pressure from American companies like Amazon, Walmart and Apple as well as American farmers and other industries, combined with a negative response in the financial markets, have forced the Trump Administration to back down.
American foreign economic policy has lost a great deal of respect and Trump, at least at this point, is seen as a paper tiger by much of the world. And in the process American imports to China may never be the same.
China has stopped buying American beef; they're now buying beef from Australia. China stopped buying American oil; they're buying oil from Canada. And China has stopped buying soybeans from America; they're now buying them from Brazil. Most everything, except for ethane and semiconductors, the Chinese are able to buy elsewhere.
America needs China more than China needs America. The miscalculation by the Trump administration was not looking at China from a pragmatic standpoint. They see China as a country in collapse (which it is, but not imminently) and that their communist system is inherently weak (which it will eventually prove to be). They felt as though they could somehow expose those weaknesses at their will. Communist China will fail, but it’s not going to happen at the will of American politicians; it will fail due to demographic and market forces in due course.
Major US stock indexes rallied sharply yesterday, with the S&P 500 hitting its highest levels since early March, as the temporary agreement has brought some hopes for a potential end to the global trade war.
Hopefully, this will give the Trump Administration some time to come to its senses on trade policy and realize that free trade benefits everyone. America has a long list of economic battles to fight and China is far from the biggest threat to US economic superiority, which has been weakened considerably since Trump has taken office. α
Alpha Rock Sourcebook
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Interesting things I came across this week…
U.S., China Reach Agreement To Lower Tariffs In 90-Day Cool-Off Period (Zerohedge)
Crypto fund inflows: $6.3 billion in four weeks (Cointelegraph)
Black Money: The World of International Bribery (Frontline PBS)
Did Shakespeare Really Write Shakespeare? (Tom Regnier)
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