On August 5, 2019, Susan Heavey, Yawen Chen and David Stanway write on Reuters:
U.S. President Donald Trump dismissed fears of a protracted trade war with China on Tuesday despite a warning from Beijing that labeling it a currency manipulator would have severe consequences for the global financial order.
Trump, who announced last week he would slap a 10% tariff on a further $300 billion in Chinese imports starting on Sept. 1, tweeted that “massive amounts of money from China and other parts of the world” were pouring into the U.S. economy.
He also pledged to stand with American farmers in the face of Chinese retaliation. China has halted U.S. agricultural purchases and raised the possibility of additional tariffs on U.S. farm products.
U.S. farmers, a key political constituency for Trump, have been among the hardest hit in the trade war. Shipments of soybeans, the most valuable U.S. farm export, to top buyer China sank to a 16-year low in 2018.
While Trump played down the prospect that the trade dispute could be drawn out, St. Louis Federal Reserve Bank President James Bullard said the U.S. central bank may be stuck with a volatile global trade environment for years.
“I think of trade regime uncertainty as simply being high in the current environment,” Bullard said at a National Economists Club luncheon. “I do not expect this uncertainty to dissipate in the quarters and years ahead.”
The U.S. Treasury Department said on Monday it had determined for the first time since 1994 that Beijing was manipulating its currency.
It acted after China decided to let the yuan fall below the key seven-per-dollar level for the first time in more than a decade, rattling financial markets and dimming hopes for an end to a trade war that has dragged into a second year.
U.S. stocks strengthened on Tuesday afternoon, with the S&P ending up 1.3% a day after dropping 3%. The Nasdaq surged 1.4%.
The yuan strengthened on Tuesday as China’s central bank took steps to contain its slide.
London’s FTSE 100 closed sharply lower, bringing its losses to more than 5% since Trump announced the additional import tariffs on Chinese goods.
BEIJING WARNING
China’s central bank said on Tuesday that Washington’s currency move would “severely damage international financial order and cause chaos in financial markets,” while preventing a global economic recovery.
China “has not used and will not use the exchange rate as a tool to deal with trade disputes,” the People’s Bank of China (PBOC) said.
“China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path,” it said.
The Trump administration wants to continue trade talks with China and is still planning to host a Chinese delegation for talks in September, Larry Kudlow, director of the White House National Economic Council, told CNBC on Tuesday.
Kudlow said movement toward an agreement could change the outlook for U.S. tariffs, adding, “It takes two to tango.”
He added that the U.S. economy was still in good shape and said he saw no signs of a global recession on the horizon despite growing concerns the U.S.-China standoff is slowing manufacturing activity around the world.
“The economic burden is falling vastly more on them (China) than us,” Kudlow said.
Kudlow said Washington was forced to make the currency designation given a 10% drop in China’s currency since April 2018, and said other members of the Group of Seven (G7) industrialized countries supported the action.
“At some point in time, if they are violating our laws, WTO (World Trade Organization) laws and, frankly, G20 laws of currency stability … we have to take the action,” he said. “They brought it on themselves.”
Roger Altman, a former Treasury Department official and founder and CEO of Evercore investment firm, told CNBC he was skeptical that Trump would allow prolonged instability in financial markets since his reputation was staked so closely to economic growth and the success of the U.S. stock market.
However, he said, China showed no signs of reforming its approach to technology transfer, intellectual property theft and cyber attacks.
“Unless that changes, we’re headed for a form of Cold War with China,” Altman said.
He said a currency war would be even more destabilizing for markets than the trade war, one reason China had acted swiftly on Tuesday to shore up the yuan’s level.
VENTING ANGER
The U.S.-China dispute had already spread beyond tit-for-tat import tariffs to other areas such as technology, and analysts caution retaliation could widen in scope and severity, weighing further on business confidence and global economic growth.
Global Times, a Chinese tabloid published by the ruling Communist Party’s People’s Daily, said the United States had taken the action purely out of a political motive to “vent its anger.”
China “no longer expects goodwill from the United States”, Hu Xijin, the newspaper’s editor-in-chief, tweeted on Tuesday.
The United States sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.FILE PHOTO: A U.S. dollar banknote featuring American founding father Benjamin Franklin and a China’s yuan banknote featuring late Chinese chairman Mao Zedong are seen among U.S. and Chinese flags in this illustration picture taken May 20, 2019. Picture taken May 20, 2019. REUTERS/Jason Lee/Illustration/File Photo
Less than three weeks ago, the International Monetary Fund (IMF) said the yuan’s value was in line with China’s economic fundamentals.
Chinese monetary authorities let the yuan fall past the closely watched 7 level on Monday so that markets could factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday.
The yuan has tumbled as much as 2.7% against the dollar over the past three days to 11-year lows in the wake of Trump’s announcement of the new tariffs.
NEXT FRONT
Chinese state media had warned that Beijing could use its dominant position as a rare earths exporter to the United States as leverage in the trade dispute. The materials are used in everything from iPhones to military equipment.
Shares in some of China’s rare earth-related firms surged on Tuesday amid speculation the sector could be the next front in the trade war.
Beijing could also step up pressure on U.S. companies operating in China, analysts say.
In June, China issued a travel advisory warning Chinese tourists about the risks of traveling to the United States, citing concerns about gun violence, robberies and thefts.
Air China said on Tuesday it was suspending its flights on the Beijing-Honolulu route starting on Aug. 27, following a review of its network.
China’s commerce ministry also announced that its companies had stopped buying U.S. agricultural products in retaliation against Washington’s latest tariff threat.
The Trump administration already has rolled out up to $28 billion in federal aid for U.S. farmers since the trade war began last year, and the Agriculture Department to date has made $8.6 billion of direct aid payments to U.S. farmers.
Gary Reber Comments:
President Trump has announced that he will impose an additional 10 percent tariff on the remaining $300 billion of goods and products imported from Communist China as of the start of September, with a warning that it could go much higher. Previously, tariffs were escalated in May from 10 percent to 25 percent on $250 billion worth of imported Chinese manufactured goods. The new tariff is in addition to this 25 percent tariff already in place, and will include a wide range of consumer products and supply chain parts not previously subject to levies. The decision means that essentially all Chinese imports into the United States will be subject to a tariff.
The decision brought an immediate reaction on Wall Street as markets took a dive. But remember Wall Street is a gambling casino comprised of speculators buying and selling previously owned stock –– the rich, and those who can afford to speculate on the ups and downs of Wall Street market value. Wall Street is a zero-sum game; for every gainer, there’s a loser. Wall Street doesn’t fly any airplanes or raise any soybeans, wheat or corn, or do anything else in the way of producing products and services. It just plays games with peoples dough.
Due to the financial instability speculators are experiencing, Wall Street wants the Federal Reserve to further cut rates to boost the markets. In his presentation of the decision by the Federal Reserve to cut rates on Wednesday, July 31st, Jerome Powell cited “trade tensions” on multiple occasions as one of the key reasons for the modest rate-cut from 2.5 percent to 2.25 percent, and to avoid undermining an otherwise exaggerated “strong” United States economy with a 2.1 percent GDP growth rate. So far, as a result of this administration’s actions, Communist China’s economic growth has slowed to a 27-year low of 6.2 percent, which still far outperforms our own growth. We should be growing responsibility at double digit rates to achieve creating an economy that can support general affluence for EVERY citizen. No wonder our growth rate is so poor, given we have decimated American manufactories by moving production to Communist China and other slave-wage labor countries with no or little environmental protections and authoritarian governments.
According to data from the Federal Reserve, industrial production was down by 1.9 percent annually in the first quarter of the year and dropped by 1.2 percent annually on the second. The fall in manufacturing was down even further, falling by 1.9 percent and 2.2 percent in the two quarters, respectively. The Institute for Supply Management has said that manufacturing in the United States was at its lowest level since August 2016 (already low) and had declined since June. Of course, this downward trend should be expected as American corporations continue to seek out slave-wage labor countries and with no environmental regulations to move their manufacturing to or contract with foreign manufactures for production outside the United States.
If we want to boost business confidence, particularly in manufacturing, then we need to engage in financing new productive and viable capital asset project formation and simultaneously create new owners who become strong “customers with money” to create demand. A robust growth rate means more upward pressure on wages and salaries, more consumer spending, and more positive public sentiment about the economy.
The latest tariff brought an adverse reaction from United States business circles. Of course, that is to be expected as those speaking against further tariffs are those who favor folding in and resuming the trade relations that have been in place for decades that have incentivized American corporations to move their manufacturing and contract for supply chain parts and finished products manufactured in Communist China and other slave-wage labor countries who disregard environmental consequences. They argue that tariffs will harm American consumers and corporations. The impact of the tariffs will in fact fall either on American consumers or the corporations importing Chinese-manufactured goods, who will have to decide whether to pass on the levy or try to absorb it. The critics, however. fail to point to the destructive damage to our prospects for re-engineering our manufacturing capabilities using the most technologically advanced automation and “machine” tools to make us economically independent and strong in international trade. While these same critics see protecting intellectual property as critically important to global commerce, they do not believe that tariffs are the solution to the problem, but offer no concrete alternative solution.
Our past governmental administrations and the controlling owners of American corporations have empowered Communist China to serves a crucial manufacturing role for many American corporations, enabling the wealthy capital asset ownership class to get richer and richer, while our manufacturing capabilities at home are gutted and American workers deprived of opportunities to be employed and to gain ownership stakes in the American corporations that employ them..
During trade negotiations and prior to the announcement of new tariffs, Communist China had agreed to buy agricultural products from the United States in large quantities, but did not do so. Following the new tariff announcement, the Chinese announced that they would no longer buy agricultural products from our corporate farmers. In the past, the Chinese have bought large tonnages of soybeans, sorghum, wheat, pork and cotton from the United States. Instead of continuing to be dependent on Communist China for growth in the agricultural sector, this sector should be focused on producing food for Americans and countries that trade fairly.
If we want to restore and vitalize our manufacturing capabilities across numerous sectors, the tariffs will need to go well beyond 25 percent in the future, including imposing them on ALL slave-wage labor countries that enable American corporations to produce their supply chain and finished product needs well below what it would cost to produce in the United Sates.
If Communist China can disengage from dependence on exports and increase its efforts to supply its domestic markets itself, why cannot we do the same? Communist China and other slave-wage labor countries should be regions for future growth of the productive output of American corporations, but only if those countries make major structural reforms and engage in truly fair trade dealings. We should have an enforceable fair trade policy throughout the world.
In recent days, Communist China has retaliated with an export-boosting currency devaluation –– lowing the value of the yuan to the dollar, making it even cheaper to produce in Communist China and import those goods and products into the United States. As a result, the Trump administration on Monday, August 5 labeled Communist China a Currency Manipulator.
Reportedly, Steven Mnuchin, the Treasury Secretary, “will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.” The Treasury Department said in a statement after the Wall Street markets closed on Monday, that it will work with the International Monetary Fund (IMF) “to eliminate the unfair competitive advantage created by China’s latest actions.
In addition to already imposing tariffs on $250 billion worth of Chinese goods and products, the United States has placed tougher restrictions on Chinese investment in the United States, banned some Chinese companies from doing business with American companies and begun restricting visas for Chinese graduate students in sensitive research fields like robotics artificial intelligence (AI), and aviation.
“China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!” the President wrote. “It should have been stopped many years ago!”
Yes, it should have been stopped, but wasn’t.
If we are to de-incentivize the controlling owners of American corporations who have and are moving their production to Communist China and other slave-wage labor countries, the solution is to raise the current 10 percent tariffs to 25 percent or increase some tariffs beyond 25 percent to counter the devaluation of Communist China’s yuan currency. Certainly Communist China’s trading practices have, over decades, embodied currency manipulation, State subsidies, advantageous policy treatment to attract American business investment, which effectively have enticed the controlling owners of American corporations to move their manufacturing to Communist China, shuttering our manufactories, destroying American jobs, and depressing our workers’s wages. If we do not address the “other” countries and impose tariffs to create a fair trading field, then corporations from America and elsewhere will look outside Communist China as they expand their sourcing, production, and distribution activities to other slave-wage labor countries, instead of investing in the re-vitalization of America’s manufacturing capabilities.
We need to stay tough and ratchet up tariffs even further on Chinese and ALL other slave-wage labor countries as measures to decouple from dependency on these countries. Simultaneously, we need to embark on an interest-free capital credit plan that equally empowers EVERY citizen to become a productive capital asset owner and build wealth and earn full-earnings dividend incomes as we build a future technologically advanced automation and “machines” economic engine with the goal of creating general affluence for EVERY citizen. The interest-free credit should ONLY be extended to finance new productive capital asset formation, that is viable and expected to generate earnings to pay off the loans.
Some people, namely the 1 percent, which defines the wealthy capital asset ownership class, worry that the trade war will further erode business sentiment and undermine the nation’s record-long economic expansion (although at a low growth rate). But this should not be the case as long as we enact legislation to empower EVERY citizen to acquire personal ownership stakes in the formation of new, viable and productive capital assets that create economic growth and build general affluence for EVERY child, woman, and man.
The one strategic advantage Communist China has, that can make a substantial difference, is it can wait out Trump’s presidency.
If the Trump administration’s approach to trade represented a bipartisan consensus, the United States could keep up the pressure over the long term and successfully de-incentivize American corporations from abandoning our homeland, de-coupling manufacturing dependence on Communist China and other slave-wage labor countries, and return to investing in the development of a future American economy that can support general affluence for EVERY child, woman, and man.
If a Democrat wins in 2020, will he or she maintain the same hard policies on Communist China, expanding them to ALL other slave-wage labor, non-environmental compliant countries OR will he or she and his or her administrations return to the “free trade” of the past decades and ditch the further development and deployment of our own manufacturing capabilities to build a future economy that can support general affluence for EVERY citizen?
We must stay the course, with the support of the American people for building an environmentally protective and enhanced future economy, engaging in truly fair and honorable trade with all countries.
