A man of principle

Pr. Peter Navarro Has Not Made His Peace With China
Pr. Navarro is still looking for ways to punish China even as Trump has embraced a deal that his top trade adviser lobbied against.

By Alan Rappeport and Ana Swanson

Pr.Peter Navarro, a top trade adviser to President Trump, has influenced American trade policy toward China and pressed for stiff tariffs over the objections of pro-China advisers.

WASHINGTON — When Trump gathered his top economic advisers at the White House to decide whether to make a deal with China, Pr. Peter Navarro, his trade adviser, was ready with a flurry of arguments against the move.
A deal that removed any of Trump’s tariffs would make America look weak, Mr. Navarro argued at the meeting two weeks ago, and he assailed those who endorsed the idea as “globalists.”
It was a familiar argument for Trump’s top trade adviser, who has spent the past three years encouraging the president to embark on a punishing trade war with China. 

Mr. Navarro’s dark warnings about China’s ambitions and its threat to America have fueled Trump’s embrace of tariffs, overcoming the objections of other pro-China advisers.
This time, however, Trump was not persuaded. 

With the 2020 election approaching, Trump dismissed Mr. Navarro’s concerns, opting for an initial deal with China that would reduce some tariffs on Chinese goods in exchange for a commitment from Beijing to buy more American products and a series of promises to resolve other concerns.
“The deal with China is a massive deal,” Trump pompously said at an event about deregulation at the White House last week, adding: “No, I’m not a globalist.”
Mr. Navarro declined to comment on the events of the meeting.
“What happens in the Oval should stay in the Oval, both for the sanctity and security of the internal discussions and for the good of the country,” Mr. Navarro said.
For three years, Mr. Navarro, 70, has been Trump’s trade warrior, pushing the president to rip up trade deals and rewrite them so they are more favorable to American workers. 

An academic with little previous government or business experience, Mr. Navarro has managed to exert enormous influence over United States trade policy by tapping into the president’s disdain for globalization and encouraging his view that China has been “robbing us blind.”

His pro-China colleagues have chafed at his aggressive approach to China and have tried to block Mr. Navarro’s access to the president.

Mr. Navarro has gained power inside the White House and Trump has often requested his presence at big events, including a meeting with Xi Jinping in Buenos Aires last year.

Still, Mr. Navarro’s thinking has become deeply influential. 

Even those who disagree with him on economic policy and China increasingly tend to credit him for having guided the political debate.
“For all the criticism he gets from the free trade wing of the Republican Party, he was one of the first people to ring the alarm on China years ago,” said Stephen Moore, a Heritage Foundation economist who also advised Trump’s 2016 campaign. 

“Now more people, including myself, look at China’s trade policies as really predatory and economically harmful.”
With Trump moving to ease tensions with his favorite geopolitical foil and with trade deals with Canada, Mexico, Japan and South Korea now complete, Mr. Navarro is at a something of a crossroads — a trade warrior looking for a new fight.
Mr. Navarro has embraced under-the-radar projects aimed at curbing China’s economic power, including efforts to increase inspections of Chinese packages at the ports and renegotiating Chinese postal fees. 

And many China hawks believe that the government’s long history of shirking economic pledges will ultimately vindicate his distrust of an agreement that does little to alter China’s behavior at home.
“I would be very skeptical of any significant agreement being made,” said Greg Autry, a professor at the University of Southern California’s Marshall School of Business and author with Mr. Navarro of the book “Death by China.” 

“If you’ve spent any time watching the Chinese, they don’t honor their agreements.”
Mr. Navarro’s entry into Trump’s orbit was not exactly predictable. 

A business professor at the University of California, Irvine, Mr. Navarro ran and lost five elections as a progressive Democrat — including unsuccessful bids for mayor of San Diego and California’s 49th Congressional District.
As a candidate in the 1990s and 2000s, Mr. Navarro supported abortion rights, gay rights, environmental protection and higher taxes on the rich.
He even spoke at the 1996 Democratic Convention and campaigned that year with Hillary Clinton.
In his book “San Diego Confidential,” Mr. Navarro described Mrs. Clinton as “one of the most gracious, intelligent, perceptive, and, yes, classy women I have ever met.”
“It is such as dramatic change from how he portrayed himself when he was in the political field in San Diego,” said Doug Case, a former president of the San Diego Democratic Club.
“It looks like maybe his true colors have come out.”
After his political career sputtered, Mr. Navarro continued teaching and writing books about business and investing.
But before long, his attention turned to China and its trade practices which were killing American jobs.
Mr. Navarro’s skepticism first emerged in the 1970s while he was a Peace Corps volunteer building and repairing fish ponds in Thailand.
He traveled extensively in Asia and observed the negative impact China was having on the economies of its neighbors. 
He became increasingly critical of how China’s trade practices were impacting the United States after its admission to the World Trade Organization in 2001, particularly as many of his business students complained of losing their jobs as a result of Chinese competition.
Mr. Navarro’s views soon hardened and he began publishing a series of anti-China books, including “The Coming China Wars,” which Mr. Trump in 2011 listed as one of his favorite books about China, and “Death By China.”
In that book and the accompanying documentary, Mr. Navarro and Mr. Autry excoriated China for unscrupulous economic practices and manufacturing deadly products, like flammable toddler overalls and fake Viagra.
They also faulted multinational companies like Walmart for using China to source cheap goods that were putting American manufacturers out of business.
Mr. Navarro’s views caught the attention of then-candidate Donald J. Trump, who shared similar opinions about China’s impact on American manufacturing and was seeking experts with views that matched his own.
Mr. Navarro joined the campaign as an economic adviser in 2016 and quickly gained the trust of Mr. Trump, who refers to Mr. Navarro as “my tough guy on China.”
“My whole philosophy in life and in this job is the Gretzky perspective — skate to where the puck is going to be, anticipate problems that the president is going to want to solve, and get on them,” Mr. Navarro said in an interview.
Early on in Mr. Trump’s term, Mr. Navarro’s influence was not assured.
Mr. Navarro joined the White House with multiple trade actions written and ready for the president’s signature, including a directive to begin withdrawing the United States from the North American Free Trade Agreement or “Shafta,” as Mr. Navarro liked to call NAFTA.
But opposition from other advisers, including "globalist" Gary D. Cohn, the former head of the National Economic Council, stayed the president’s hand.
For months, it seemed like Cohn and his allies had succeeded in muzzling Mr. Navarro — blocking at least three attempts to trigger the NAFTA withdrawal process, as well as an earlier directive to impose steel tariffs and withdraw from a South Korea trade agreement.
But as Mr. Trump’s signature tax cut neared fruition in late 2017, the president grew more anxious to translate his trade promises into policy.
“Where are my tariffs? Bring me my tariffs,” the president would say, and call in his advisers to debate trade policy in front of him.

Mr. Trump has embraced tariffs on imported metals and Chinese goods at the behest of Mr. Navarro.

Mr. Navarro, sometimes joined by Commerce Secretary Wilbur Ross, would recommend tariffs, arguing they would protect domestic industries, demonstrate the president was serious about reversing lopsided trade agreements and raise revenue.
Cohn, Treasury Secretary Steven Mnuchin and former staff secretary Rob Porter regularly rebutted those arguments, saying tariffs would harm businesses, the stock market and the president’s re-election chances.
To help buttress his case, Mr. Navarro developed a red, black and yellow chart outlining “China’s Acts, Policies, & Practices of Economic Aggression,” including cyberespionage and theft of American intellectual property. 
Mr. Navarro warned Mr. Trump that China had long promised — and failed — to alter its behavior and said tariffs were the most effective way to force Beijing to change.
By 2018, Mr. Trump was ready to pounce, and Mr. Navarro’s vision of confronting China became reality.
An initial 25 percent tax on $34 billion of Chinese goods in July 2018 quickly escalated to tariffs on $360 billion of products with a threat to tax nearly every Chinese product.
The economic pressure brought Beijing to the negotiating table but Trump ultimately backed down, agreeing to a Phase 1 trade deal that would reduce some tariffs and remove the threat of additional levies in exchange for China buying more farm goods and giving American companies more access to the Chinese market.
Almost none of the big structural changes that Mr. Navarro had pushed for were included.
Trump has said those will be addressed in future talks with China, and many of the tariffs Mr. Navarro recommended will stay in place.
Mr. Navarro has found other ways to counter China.
Earlier this year he waged a successful offensive against a global postal treaty that had allowed Chinese businesses to ship international packages at much cheaper rates than the United States.
He’s helped step up inspections of Chinese packages to crack down on online counterfeiting and gotten involved with a project to revive American shipyards. 
Earlier this year, when executives at Crowley Maritime Corp. told Mr. Navarro that the Navy was in the process of procuring a transport ship from China that would be modified to American specifications, Mr. Navarro personally intervened to scuttle the bid.
He has come to view his office as akin to a special forces unit within the federal bureaucracy.
“With a small office, I learned early that the real power of being at the White House and the real effectiveness stems from leverage — on any given day, one or more government agencies are helping with this office’s mission,” he said.
“You don’t need to be a big bloated bureaucracy. All you need be is lean and flat and nimble enough to harness agency resources for the president and his agenda.”

Chinazism

President Trump's China criticism turns harsh at U.N., says won't take 'bad deal'
By Jeff Mason and David Lawder

U.S. President Donald Trump addresses the 74th session of the United Nations General Assembly at U.N. headquarters in New York City, New York, U.S.

UNITED NATIONS -- U.S. President Donald Trump delivered a stinging rebuke to China's trade practices on Tuesday at the United Nations General Assembly, saying he would not accept a "bad deal" in U.S.-China trade negotiations.
Four days after deputy U.S. and Chinese negotiators held inconclusive talks in Washington, Trump's remarks were anything but conciliatory and emphasized the need to correct structural economic abuses at the heart of the countries' nearly 15-month trade war.
He said Beijing had failed to keep promises it made when China joined the World Trade Organization in 2001 and was engaging in predatory practices that had cost millions of jobs in the United States and other countries.
"Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale," President Trump said.

"As far as America is concerned, those days are over."
Although President Trump held out hope that the United States and China could still reach a trade deal, he made clear he wanted a deal that would rebalance the relationship between the two economic superpowers.

"The American people are absolutely committed to restoring balance in our relationship with China. Hopefully, we can reach an agreement that will be beneficial for both countries," President Trump said. 

"As I have made very clear, I will not accept a bad deal."

President Trump also recently said he was not interested in a "partial deal" to ease tensions with China, saying that he would hold out for a "complete deal."
U.S. stocks gave up modest gains and fell into negative territory after President Trump's U.N. address. 

President Trump's speech highlighted the plight of U.S. memory chip maker Micron Technology, which has become a symbol of U.S. assertions that China fails to protect American intellectual property and steals it or forces the transfer of it. 

Two years ago Micron accused a Chinese state firm of stealing its chip designs.

"Soon, the Chinese company obtains patents for nearly an identical product, and Micron was banned from selling its own goods in China," Trump said, "But we are seeking justice."
He added that the United States lost 60,000 factories and 4.2 million manufacturing jobs since China joined the World Trade Organization.
"The rhetoric around China and President Trump's speech was as harsh as we have heard," said Art Hogan, chief market strategist at brokerage National Securities Corp in New York.
The tone of President Trump's speech was at odds with some recent steps by China to meet his request for purchases of more American farm products. 

On Monday, Chinese importers bought about 10 shiploads of U.S. soybeans -- about 600,000 tonnes.
China's customs commission will exclude certain amounts of U.S. soybeans, pork and other products from its retaliatory tariffs, the official Xinhua news agency said on Tuesday.
The purchases were made following last week's trade talks, which both the U.S. and Chinese sides characterized as "productive." 

People familiar with the trade talks said no new Chinese proposals were presented, and the countries agreed to continue minister-level talks in early October.
In his U.N. speech, President Trump also drew a link between resolving the U.S.-China trade dispute and Beijing's treatment of Hong Kong. 

Washington was "carefully monitoring the situation in Hong Kong," he said.

"The world fully expects that the Chinese government will honor its binding treaty made with the British and registered with the United Nations, in which China commits to protect Hong Kong’s freedom, legal system and democratic ways of life," President Trump said. 

Hong Kong was a British colony until 1997.

"How China chooses to handle the situation will say a great deal about its role in the world in the future. We are all counting on Xi as a great leader," Trump added.
President Trump also touched on trade with Japan in his speech, saying that he and Japanese Prime Minister Shinzo Abe on Wednesday would "continue our progress in finalizing a terrific new trade deal."
It remains unclear whether the two countries will sign the deal at their bilateral meeting or whether Japanese requests for assurances that Trump won't hit them with autos tariffs will delay the final agreement.

Vietnam Won the U.S.-China Trade War But Is Now in Trouble Itself

The country is benefiting so much from the impasse that it’s at risk of being hit with punitive American duties.

By Xuan Quynh Nguyen and Nguyen Dieu Tu Uyen

Bau Bang in Binh Duong province is one of several industrial parks in Vietnam reporting a surge of interest from foreign manufacturers.

U.S. President Trump’s trade war has Peter Chang scrambling. 

Sixty components makers that supply Foxconn Technology Group and Samsung Electronics Co. have come knocking at his industrial park northeast of Hanoi in the past three months. 

They’re looking to skirt U.S. tariffs on Chinese products. 

“They need to get into Vietnam now—immediately,” says Chang, deputy general director of Shun Far Land Development Co., which operates the Thuan Thanh II Industrial Park, about a 45-minute drive from Hanoi. 

“We have our building team waiting.”
Chang is hastily negotiating with neighboring landowners to convert rice fields into assembly lines to take advantage of the sudden boom in business. 

He realizes, though, that it may not last. 

Even as foreign companies are lining up at Vietnam’s industrial parks, the Trump administration is increasing pressure on the country’s communist leaders to curb its growing trade surplus with the U.S.
Vietnam is caught between contradictory forces unleashed by the U.S.-China trade war: The country of 96 million people is benefiting so much from the impasse that it, too, is at risk of being hit with punitive American duties. 

Its leaders are trying to convince the Trump administration that they’re fair traders as they seek to protect exports to the U.S., which equaled 20% of gross domestic product last year and almost 26% in the first half of 2019.
The country’s young and comparatively cheap labor force, stable government, and business-friendly environment have turned the Southeast Asian nation into an appealing alternative to China. 

Intel Corp. and Samsung were early to spot its promise for manufacturing: Today they employ more than 182,000 workers combined at factories that assemble chipsets and smartphones. 

Makers of sneakers and video game consoles, among others, are looking to shift production to Vietnam in order to evade American tariffs on Chinese goods. 

Nintendo Co. and Sharp Co. are the most recent technology multinationals to announce plans to relocate operations there. 

On Aug. 1, Trump unveiled a new round—10% on $300 billion worth of Chinese imports—to take effect at the start of September.
Vietnam’s government granted investment licenses to more than 1,720 projects in the first six months of the year, up 26% from the same period last year. 

The country expects economic growth in 2019 of as much as 6.8%, among the fastest rates in the world. 

Yet its dependence on exports makes it particularly vulnerable to the surge in protectionism.

Cranes at a construction site at Bau Bang Industrial Park. 

Its annual trade surplus with the U.S. had already been growing at a rapid clip, reaching $40 billion in 2018. 

It totaled $25.3 billion in the first six months of this year, 39% higher than the same period last year, according to U.S. Census Bureau data. 

The Trump administration has seized on the worsening imbalance as evidence that Chinese companies are funneling made-in-China products through Vietnam to avoid tariffs, a practice known as transshipment. 

In July the U.S. slapped duties of more than 400% on steel imports from Vietnam.
Washington is dialing up the pressure on Hanoi in other ways. 

In May, Vietnam was added to the U.S. Treasury Department’s list of possible currency manipulators, a designation that could result in punitive measures. 

A month later, Trump, in an interview on Fox Business Network, described Vietnam as “almost the single worst abuser of everybody” when asked if he wanted to impose tariffs on the nation. 

“The United States has been clear with Vietnam that it has to take action to reduce the unsustainable trade deficit,” said U.S. Trade Representative Robert Lighthizer in a written communication with the Senate Finance Committee released on July 29.
The threat of new duties against Vietnamese products is real, says Sian Fenner, a Singapore-based economist at Oxford Economics, noting that the nation’s textile, computer, and seafood exports to the U.S. are especially at risk. 

The Americans’ increasingly hostile rhetoric has some companies rethinking their Vietnam strategy. Eclat Textile Co., a Taiwanese company that manufactures sportswear for Nike Inc. and Lululemon Athletica Inc., says it needs to shift work out of Vietnam to hedge against the possibility of the country getting caught in Trump’s tariff assault.
Unlike China’s response to tariffs, Vietnam’s reaction most likely would be conciliatory for one simple reason: It needs the U.S. much more than the U.S. needs Vietnam. 

The U.S. shipped less than $10 billion worth of goods to Vietnam last year. 

The country says it’s committed to buying more American goods, from Boeing Co. jets to energy products—possibly liquefied natural gas—to help narrow its trade surplus. 

To further placate Trump, Vietnamese leaders could offer to expand market access to its service sectors, such as telecommunications, finance, and insurance, Fenner says.
Prime Minister Nguyen Xuan Phuc, meanwhile, has directed officials to increase efforts to crack down on Chinese exporters that are rerouting products through the country. 

Vietnam is willing to engage in regular communications with the U.S. to “promptly resolve any issues that arise,” Nguyen Phuong Tra, Vietnam’s deputy foreign ministry spokeswoman, said in an emailed statement. 

The country’s leaders have been working to diversify its trade relationships, which in time will ease its dependence on the U.S. 

Vietnam has inked more than a dozen free-trade agreements in roughly the past two decades, including a just-signed deal with the European Union that will eliminate almost all customs duties.

Factories at Bau Bang.

Meanwhile, the industrial parks are besieged by companies looking to flee the U.S.’s China tariffs. 

At Bau Bang Industrial Park, north of Saigon, factory walls rise up from land where rows of rubber trees once stood. 

Housing for thousands of workers is being completed, as is a hospital. 

There’s a Taiwanese restaurant nearby. 

One of the enterprise zone’s operators gets visits from about 18 overseas suppliers a week. 

That’s triple the normal rate last year, according to Rose Chang, chief financial officer of DDK Group, which is involved in a joint venture with Warburg Pincus-backed Becamex IDC to operate a 200-acre section of the industrial park that will be home to Taiwanese companies making products such as headphones, baby strollers, and swimming pool and patio furniture.

Workers return to their residences inside Bau Bang Industrial Park.

Kinh Bac City Group, which operates similar parks across the country, has hosted visitors from 90 foreign companies this year that are exploring moves into one of its northern Vietnam industrial parks, says Phan Anh Dung, deputy general director. 

On a recent morning, he was taking a break after meeting with representatives of a Chinese company looking to set up operations in one of the group’s parks, about 45 kilometers (28 miles) from Hanoi. 

GoerTek Inc., an Apple Inc. supplier based in China, has begun construction on a $260 million factory expansion there. 

“I have never seen anything like this before,” Dung says. —

War is Beautiful

US Designates China as Currency ManipulatorBy Reuters
U.S. Treasury Secretary Steve Mnuchin answers reporters after the G-7 Finance, July 18, 2019 in Chantilly, north of Paris, France.

WASHINGTON - The U.S. government has determined that China is manipulating its currency, and will engage with the International Monetary Fund to eliminate unfair competition from Beijing, U.S. Treasury Secretary Steven Mnuchin said in a statement on Monday.
China let the yuan weaken past the key 7-per-dollar level on Monday for the first time in more than a decade and later said it would stop buying U.S. agricultural products, inflaming a worsening trade war with the United States.
The sharp 1.4% drop in the yuan comes days after U.S. President Donald Trump stunned financial markets by vowing to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1, abruptly breaking a brief ceasefire.

The last time the United States named China a currency manipulator was in 1994. 

The U.S. Treasury had designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. 

China was the last country to get the designation, in 1994.
The dollar fell to a two-week low against the euro after the Treasury statement.

MAGA

President Trump Says U.S. Will Hit China With More Tariffs

By Alan Rappeport


WASHINGTON — President Trump, frustrated by increasingly fruitless negotiations with China, said Thursday that the United States would impose a 10 percent tariff on an additional $300 billion worth of Chinese imports next month, an escalation in a trade war that has dragged on for more than a year.
The new tariff would come on top of the 25 percent levy that Mr. Trump has already imposed on $250 billion worth of Chinese imports, resulting in the United States taxing nearly everything China sends to the United States, from iPhones to New Balance sneakers to children’s books.
Mr. Trump had agreed in June not to impose more tariffs after meeting with the Chinese dictator, Xi Jinping, and agreeing to restart trade talks. 

But Mr. Trump said he was moving ahead with the levies as of Sept. 1 as punishment for China’s failure to live up to its commitments, including buying more American agricultural products and stemming the flow of fentanyl into the United States.
“Until such time as there is a deal, we’ll be taxing them,” Mr. Trump told reporters on the White House lawn.

On the sidelines of a meeting of Southeast Asian officials in Bangkok on Friday, Wang Yi, China’s foreign minister, told reporters that “adding tariffs is definitely not the correct way to resolve economic and trade frictions.”
New tariffs would increase the likelihood that the two enemies will be locked in a protracted trade war for months, if not years. 

While the countries continue to negotiate, the path to a deal has only narrowed as Beijing and Washington harden their positions and as political dynamics, including the 2020 election, further complicate the chances for a compromise.
The United States has insisted that China buy more farm goods and agree to cement certain changes into Chinese law. 

Beijing has resisted codifying any changes into law and has said it will only enter into a deal that is mutually beneficial. 

Both sides seem increasingly confident they can wait out the trade war indefinitely.
On Thursday, Mr. Trump’s building frustration with the grinding pace of the negotiations boiled over.
“We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing,” Mr. Trump said on Twitter. 

“More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so.”

Donald J. Trump

✔@realDonaldTrump

Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to...

— Donald J. Trump (@realDonaldTrump) August 1, 2019

The president said that China also did not fulfill its commitment to stop the sale of fentanyl into the United States.
As he departed the White House for a rally in Ohio, Mr. Trump accused Xi Jinping of trying to slow-walk negotiations ahead of the 2020 election in the hopes that a Democrat would win the White House.
“I think he wants to make a deal, but frankly he’s not going fast enough,” Mr. Trump said. 

“He said he was going to be buying from our farmers, he didn’t do that. He said he was going to stop fentanyl from coming into our country, he didn’t do that.”
He added that the tariffs could be raised to 25 percent or higher if the talks continue to falter, but allowed that they could also be removed.
The stock market reacted negatively to Mr. Trump’s comments. 

The S&P 500 had been up 1 percent shortly before 1 p.m., with strong gains seen among technology companies such as semiconductor makers. 

But the market tumbled sharply after the threat to impose the new tariffs appeared on Twitter. 

The drop erased all the day’s gains and more, sending the benchmark stock index into the red. 

Shortly before 2 p.m., the S&P 500 was down about 1.1 percent. 

It closed down 0.9 percent, led by drops in the energy and financial sectors, both of which fell more than 2 percent.
Oil prices, which are sensitive to global growth concerns, also fell sharply.
The slump continued in Asia on Friday morning, with markets in Japan and Hong Kong down more than 2 percent. 

Futures markets were predicting that Wall Street would open lower on Friday, too.
The decision came one day after the president’s top advisers returned from two days of trade talks with their Chinese counterparts in Shanghai. 

There were few signs of real progress, and both sides released perfunctory statements when the meetings concluded, saying there would be additional discussions in Washington next month.
Talks have been complicated by the recent emergence of Zhong Shan, China’s commerce minister, as a lead negotiator for the Chinese, according to a person familiar with the discussions. 

Zhong’s role has signaled to some in the Trump administration that the hard-liners in China are winning the debate over the reformers, such as Vice Premier Liu He, who are more open to making structural economic changes that the United States wants.
After little of substance was accomplished during the talks in Shanghai this week, officials in the Trump administration grew increasingly wary that China is retreating to its pattern of using mixed messages and delays to wait out Mr. Trump.
Before the talks even began, Mr. Trump took to Twitter to berate China for failing to buy American farm goods and to play down the potential for a deal before the election.
For more than a year, negotiators from the United States and China have been shuttling back and forth to discuss a trade agreement that Mr. Trump has described as potentially the largest transaction in history. 

The United States has been pushing China to open its markets to American businesses, respect American intellectual property, buy more American agricultural products and stop manipulating its currency. 

After an agreement appeared close last spring, talks collapsed after Beijing refused to certain demands and Mr. Trump accused China of breaking the deal.
Mr. Trump and Xi agreed to restart negotiations after meeting at the Group of 20 summit in Japan in June. 

Mr. Trump said he would postpone tariffs on another $300 billion worth of imports and allow American companies to continue selling some technology to a Chinese telecom giant, Huawei, that had been placed on a government blacklist.
In return, Mr. Trump said that China had agreed to “immediately” begin buying American farm products, like soybeans. 

But those purchases have yet to happen.
China has been preparing to make agricultural purchases, and on Sunday the state-run Xinhua News Agency reported that millions of tons of American soybeans had been shipped to China. 

But elsewhere, Chinese officials have continued to insist that they are not making purchases as a condition of the talks. 

On Wednesday, Xinhua characterized China’s agreement to buy more American farm products as being “according to its own domestic needs and favorable conditions to be offered by the U.S. side for the purchase.”
While Mr. Trump described the 10 percent tariff as “small,” it will further compound economic damage from his long-running trade war. 

Unlike his previous tariffs, this round would hit a broad swath of consumer products and could dampen consumer spending at time when economic growth has already begun to cool.
On Wednesday, the Federal Reserve lowered interest rates in part because of the spat with China, which threatens to crimp the economic expansion. 

Jerome H. Powell, the Fed chair, said the quarter-point cut, the Fed’s first since the depths of the 2008 financial crisis, was “intended to ensure against downside risks from weak global growth and trade tensions.” 

Mr. Powell said that Mr. Trump’s trade fights “do seem to be having a significant effect on financial market conditions and the economy.”
Markets, which had pulled back their expectations for future rate cuts on Wednesday, moved toward pricing in two more reductions by year-end following Mr. Trump’s decision.
“Tariff Man is alive and well,” said Michael Pillsbury, a China scholar at the Hudson Institute who advises Mr. Trump.
Mr. Pillsbury said that officials from China had miscalculated their belief that Mr. Trump had lost his appetite for the trade war.
After Democratic presidential candidates took to the debate stage this week to criticize Mr. Trump’s China policy and muse about the possibility of returning to the Trans-Pacific Partnership to corral China, the president demonstrated that he would not be deterred from using more tariffs as his negotiating tool of choice.
“President Trump is essentially confirming the seemingly inevitable escalation of the trade war that seems in prospect, given the gulf in negotiating positions and the broken trust between Chinese and U.S. negotiators,” said Eswar Prasad, the former head of the International Monetary Fund’s China division. 

“Both sides now are settling in for a broad and unremitting trade war that will last at least through this term of Trump’s presidency.”
Caught in the middle are businesses and consumers, who are being pinched by the tariffs through higher costs and retaliatory punishment. 

Farmers, in particular, have been hurt as Beijing has slowed its purchases of farm products.
Because many more goods flow from China to the United States than in the other direction, China has not been willing or able to match Mr. Trump’s tariffs dollar for dollar. 

But company executives say the Chinese government has used other painful methods to retaliate against them — surprise inspections, rejections for licenses, and China’s move to roll out a list of “unreliable entities” that Beijing has threatened to take action against.

The additional tariffs would hit a wide range of products, including toys, electronics, sporting goods, household appliances, books and food.
An administration official said that the office would soon finalize the list of Chinese products that will face new tariffs. 

Business groups are bracing for the worst.

Despite the additional tariffs, Mr. Trump said that the trade talks between the United States and China in Shanghai this week were “constructive” and that he looked forward to more “positive dialogue” between the countries.
A delegation from China was scheduled to come to Washington for more trade talks next month, but it is not clear if the new tariffs will change those plans.

Trade War Is Hiding China's Big Problems

By Panos Mourdoukoutas


The ongoing US-China trade war is a distraction from China’s big problems: the blowing of multiple bubbles and the country’s soaring debt, which will eventually kill economic growth.
It happened in Japan in the 1980s. 

And it’s happening in China nowadays.
The trade war is one of China’s problem that dominates social media these days.

 It’s blamed for the slow-down in the country’s economic growth, since its economy continues to rely on exports. 

And it has crippled the ability of its technology companies to compete in global markets.
But it isn’t China’s only problem. 

The country’s manufacturers have come up with ways to minimize its impact, as evidenced by recent export data. 

And it will be solved once the US and China find a formula to save face and appease nationalist sentiment on both ends.
One of China’s other big problems , however, is the multiple bubbles that are still blowing in all directions. 

Like the property bubble—the soaring home prices that makes landlords rich, while it shatters young people’s dreams of starting a family, as discussed in a previous piece here.
New Home Prices 2015-19

Unlike the trade war, that’s a long-term problem. 

Low marriage rates are followed by low birth rates and a shrinking labor force, as the country strives to compete with labor-rich countries like Vietnam, Sri Lanka, the Philippines and Bangladesh—to mention but a few.
Then there’s the unfavorable “dependency rates” — too few workers, who will have to support too many retirees.
And there’s the impact on consumer spending, which could hurt the country’s bet to shift from an investment driven to a consumption driven economy.
Japan encountered these problems over three lost decades, even after it settled its trade disputes with the US back in the 1980s.

China experience many more.
Meanwhile, there’s the infrastructure investment bubble at home and abroad, as discussed in a previous piece here. 

At home infrastructure investments have provided fuel for China’s robust growth. 

Abroad infrastructure investments have served its ambition to control the South China Sea and secure a waterway all the way to the Middle East oil and Africa’s riches.
While some of these projects are well designed to serve the needs of the local community, others serve no need other than the ambitions of local bureaucrats to foster economic growth.
The trouble is that these projects aren’t economically viable. 

They generate incomes and jobs while they last (multiplier effect), but nothing beyond that—no accelerator effect, as economists would say.
That’s why this sort of growth isn’t sustainable. 

The former Soviet Union tried that in the 1950s, and it didn’t work. 

Nigeria tried that in the 1960s; Japan tried that in the 1990s, and it didn’t work in either of those cases.
That’s why bubbles burst -- and leave behind tons of debt.
Which is another of China’s other big problems.
How much is China’s debt? 

Officially , it is a small number: 47.60%. 

Unofficially, it’s hard to figure it out. 

Because banks are owned by the government, and give loans to government-owned contractors, and the government owned mining operations and steel manufacturers. 

The government is both the lender and the borrower -- one branch of the government lends money to another branch of government, as described in a previous piece here.
But there are some unofficial estimates. 

Like one from the Institute of International Finance (IIF) last year, which placed China’s debt to GDP at 300%!
Worse, the government’s role as both lender and borrower concentrates rather than disperses credit risks. 

And that creates the potential of a systemic collapse.
Like the Greek crisis so explicitly demonstrated.
Meanwhile, the dual role of government conflicts and contradicts with a third role -- that of a regulator, setting rules for lenders and borrowers. 

And it complicates creditor bailouts in the case of financial crisis, as the Greek crisis has demonstrated in the current decade.

China Retreats Globally

By Milton Ezrati

China has retreated globally – not from its artificial islands in the South China Sea but economically and financially. 

It seems just yesterday that the Middle Kingdom, as China calls itself, resembled an unstoppable juggernaut, cutting constructions contracts and buying properties all over the world. 

That is no longer the case. 

Trade war with the United States gets the credit, but even if Washington and Beijing were to sign a deal tomorrow, China would not regain its old momentum.
Official Ministry of Finance (MOF) figures, not surprisingly, offer a soothing picture of moderate decline, but private sources tell a much more dramatic story. 

According to the American Enterprise Institute’s well-regarded China Global Investment Tracker (CGIT), Chinese overseas investments of all kinds in the first half of this year averaged only $27.5 billion, half the rate averaged during the same time in 2018 and barely a quarter the rate of 2017’s first half. 

This year’s figures are lower than any time since 2008. 

Construction contracts, largely in the third world as part of China’s Belt and Road initiative, have fallen off, too, but less dramatically. 

China clearly has become much less engaged with the world than it was.
Two things have caused this retreat. 

One is a growing hostility among host countries toward Chinese investment. 

Especially developed countries, the United States in particular, have balked over the ugly Chinese practice of stealing technology. 

Suspicions along these lines have held up approvals for Chinese purchases and other direct flows of funds. 

Some familiar with Chinese practice have gone a step further. 

The European Chamber of Commerce has warned against developing a dependence on China and Chinese funds. 

This combination of concerns and suspicions have centered primarily on China’s huge state owned enterprises and less on private Chinese investment. 

But if private investment has fallen off less dramatically, this growing reluctance in the West has had its effect there, too.
More significant is China’s relative shortage of hard currency. 

Despite Beijing’s efforts to make the yuan a global currency, it is little used in currency transactions – no more than 2% of the total in fact – and so is of little use in overseas purchases. 

Meanwhile the trade war with the United States has already begun to cut into Beijing’s supplies of foreign exchange. 

Beijing actually anticipated the problem and in 2017 began to ration foreign exchange even before the White House added any tariffs. 

The first major investment declines occurred in late 2018, when the While House first imposed 10% tariffs on a range of Chinese products. 

The next drop coincided with this past spring’s increased tensions. 

To be sure, Beijing’s foreign exchange hoard remains huge, but officials are wary of how rapidly it has shrunk, falling some 25% from almost $4 trillion at its peak in 2014 to barely over $3 trillion during the first half of this year.  

Beijing’s rationing of these financial resources has affected the state-owned sector in particular. Private companies have a greater willingness and ability to borrow hard currencies abroad.
Within the investment pullback, North America, which historically has accounted for some 17% of China’s overseas investment flows, has seen the biggest drop. 

No doubt, the hostility created by trade friction has played a role. 

But China has also pulled back in Europe, where British and Swiss destinations have long dominated. 

 Australia and Singapore, which historically have accounted for about 10% of Chinese overseas investment flows, have seen less relative shortfall but some nonetheless.
China has concentrated its remaining financial resources on less developed countries. 

The reasons are two fold. 

First, activities in these countries center more on construction contracting than investing. 

Such efforts may require subsidies, but they demand little hard currency. 

Indeed, China collects fees on many of these projects. 

Second, Beijing has clearly made its Belt and Road initiative (BRI) a political priority. 

This effort at land trade routes between China on one side and Europe and the Middle East on the other may not generate the secure financial returns that investments in the developed world offer, but monies spent in these projects pay Beijing huge political dividends by tying these countries to China and by advancing a project that China has touted as an alternative to U.S.-led, mostly maritime trade arrangements. 

BRI historically has captured more than three-fifths of China’s overseas construction volumes with almost three quarters of the monies involved in energy and transportation in such places as Pakistan and Iran, Saudi Arabia and Nigeria. 

Preliminary figures for 2019 show that as all other efforts have diminished, BRI has captured a still larger proportion of China’s efforts.
Even if China and the United States were to sign a trade deal tomorrow, these trends would likely persist. 

Though trade would increase with a new treaty, the terms would no doubt create a more even balance than previously, making it highly unlikely that China could replenish its reserves of hard currency quickly, if at all. 

At the same time, suspicions of Beijing’s agenda and practices, especially China’s state-owned enterprises, will persist, trade deal or no. 

Political imperatives will, of course, keep China focused on BRI and its construction projects. 

For the investment flows, the best to expect is stability. 

It seems that for better or worse, the world has already seen the high water mark of Chinese investment flows.

Trade War

China ready to hit back at U.S. with rare earths

Reuters

BEIJING -- China is ready to use rare earths to strike back in a trade war with the United States, Chinese newspapers warned on Wednesday in strongly worded commentaries on a move that would escalate tensions between the world’s two largest economies.
Xi Jinping’s visit to a rare earths plant last week had sparked speculation that China would use its dominant position as an exporter of rare earths to the United States as leverage in the trade war.
Rare earths are a group of 17 chemical elements used in everything from high-tech consumer electronics to military equipment. 

The prospect that their value could soar as a result of the trade war caused sharp increases in the share prices of producers, including the company visited by Xi.
While China has so far not explicitly said it would restrict rare earths sales to the United States, Chinese media has strongly implied this will happen.
In a commentary headlined “United States, don’t underestimate China’s ability to strike back”, the official People’s Daily noted the United States’ total dependence on rare earths from China.
“Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” it said.
“Undoubtedly, the U.S. wants to use the products made by China’s exported rare earths to counter and suppress China’s development. The Chinese will never accept this!” the ruling Communist Party newspaper added.
“We advise the U.S. not to underestimate the Chinese ability to safeguard its development rights and interests. Don’t say we didn’t warn you!”
The expression “don’t say we didn’t warn you” is only used by official Chinese media to warn rivals over major areas of disagreement, for example during a border dispute with India in 2017 and in 1978 before China invaded Vietnam.
In its own editorial on Wednesday, sister paper the Global Times said an export ban on rare earths “is a powerful weapon if used in the China-U.S. trade war.”
“Nevertheless, China will mainly use it for defense,” it added, noting that while China might incur losses from a ban on exports, the United States would suffer more.
The paper’s editor had said on Twitter late on Tuesday that Beijing was “seriously considering” restricting rare earth exports to the United States.
China has used rare earth sales to exert pressure in past diplomatic disputes.
In 2010, Beijing cut rare earth export quotas after a Chinese trawler collided with two Japan Coast Guard ships near Japanese Senkaku islands in the East China Sea.
In 2012, Japan, the United States and European Union complained to the World Trade Organization (WTO) over the restrictions. 

Two years later, China was rebuked by the WTO for citing environmental reasons to justify the quotas. 

It ultimately scrapped its export quota system after losing the case.
If Beijing moves forward with new restrictions on rare earth exports to the United States, it will likely follow Washington’s example and use national security as a justification.
China has repeatedly criticized Washington for what it says are abuses of national security exceptions at the WTO, including this week when, according to media reports, it accused the United States of breaking rules by blacklisting Huawei Technologies Co Ltd, the world’s largest telecom network gear maker.
But China for years has used national security considerations to block major U.S. technology companies, including Google and Facebook, from operating in its market.
Such restrictions have in recent years fueled calls from within some parts of the U.S. business community for Washington to pursue more reciprocal policies with Beijing.
Shares in the company Xi visited last week, JL MAG Rare-Earth Co Ltd, surged another 10% to a record high on Wednesday, having gained 134.1% in May alone. 

China Rare Earth Holdings Ltd soared more than 40%, while Australia’s Lynas Corp, the only major rare earths producer outside of China, climbed as much as 14.6%.
China accounted for 80% of rare earth imports between 2014 and 2017 by the United States, which has excluded them from recent tariffs along with some other critical Chinese minerals.
Beijing, however, has raised tariffs on imports of U.S. rare earth metal ores from 10% to 25% from June 1, making it less economical to process the material in China.
Some trade analysts expect an acceleration in bringing fresh rare earth mining capacity on line in California and Australia if China uses its dominant position in the market for diplomatic advantage.

China paid record $22bn in corporate subsidies in 2018

Increased state support for companies to further anger US as trade war deepens
By Tom Hancock and Yizhen Jia in Shanghai

China increased its subsidies to domestically listed companies to a record level last year to help them weather a slowdown in the world’s second-largest economy, in a move likely to further strain trade talks with Washington.
 Payments by Beijing and local governments to listed companies rose 14 per cent year on year to Rmb153.8bn ($22.3bn) in 2018, according to corporate earnings data collected by financial database Wind.
“This data just reinforce the impression that Chinese companies start the race for business far ahead of their competitors,” said Scott Kennedy, director of the project on Chinese business and political economy at the Center for Strategic and International Studies in Washington.
He said the disclosed payments exclude “a range of implicit subsidies and other non-tariff barriers”.
China’s economy expanded at 6.6 per cent last year, its slowest rate in almost three decades, because of weak credit growth and the worsening trade war with the US.

 US president Donald Trump this month increased tariffs on $200bn Chinese goods and placed telecoms equipment maker Huawei, the country’s corporate champion, on a crippling export blacklist.
 As part of their trade talks, Washington is trying to force Beijing to dismantle state support for the corporate sector that the US argues leads to overcapacity and gives Chinese companies an unfair advantage in global markets.
 “There were many measures applied last year to support the economy and subsidies were one part,” said Xu Bin, a professor at the China Europe International Business School in Shanghai, adding that the payments aimed “to offset losses companies suffer in an adverse global economic environment”.  The top recipient last year was oil company Sinopec, which gained Rmb7.5bn in subsidies.
Automakers also received some of the largest payments as car sales in China shrank for the first time in almost three decades, with state-owned Shanghai Auto receiving Rmb3.6bn.
 Last year’s subsidies were equivalent to 4 per cent of listed companies’ Rmb3.7tn total net profits, according to Wind.
Revenue growth of listed companies slowed to 12.7 per cent, down nearly 7 per cent year on year in 2018.
 The head of a Shanghai investment bank said: “Local governments increased the amount of subsidies for listed companies to maintain the employment rate and tax revenue.”
 China typically hands subsidies to companies that participate in national infrastructure projects or help meet targets in technology research and development.
“When there’s a downturn more companies are willing to do government projects as a way to get subsides,” said Ivan Chung, associate managing director of Moody’s in Hong Kong.
 Some companies depend on subsidies to survive. 
Chang’an Automobile received state subsidies of Rmb2.87bn, more than its net profit of Rmb680m.
The group, a partner of US carmaker Ford, has laid off hundreds of workers in recent months. 
 The data cover only 3,545 listed companies and do not include private companies, which account for the bulk of China’s economy.
An estimate by Jiang Chao, analyst at brokerage Haitong Securities, put the total value of subsidies to the corporate sector in 2017 at Rmb430bn. 
Beijing has promised to aid the corporate sector through tax cuts this year, which it says will be worth $298bn.
Profits at large industrial companies began to decline in November, and fell by their fastest rate in almost three-and-a-half years in April, according to official statistics.
 “This falling profit trend will continue for most of 2019,” said Iris Pang, greater China economist for Dutch bank ING, citing continued declines in auto sales and the impact of the trade and tech war between China and the US.

MAGA

President Trump has been right about China for decades while the entire establishment got it wrong
By Steve Hilton

The big story is President Trump refusing to back down from China.
"We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate," he tweeted on Sunday. 

"We will be taking in tens of billions of dollars in tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-tariffed countries."
Today the president is being applauded across the political spectrum for his tough approach. 

But remember it wasn't always like that.
During his administration, Clinton said, "Everything I have learned about China as president and before -- and everything I have learned about human nature in a half-century of living -- convinces me that we have a far greater chance of having a positive influence on China's actions if we welcome China to the world community instead of shutting it out."
Clinton's successor, George W. Bush put it like this: "Open trade is a force for freedom in China, a force for stability in Asia, and a force for prosperity in the United States. When we open trade, we open minds. We trade with China because trade is good policy for our economy, because trade is good policy for democracy, and because trade is good policy for our national security."
And Bush's successor, Barack Obama, said, "The United States welcomes the rise of a China that is peaceful, stable, prosperous, and a responsible player in global affairs."
We were told all this by everyone in the establishment, left and right. 

If we open up to China, if we give them the Olympics, if we only scold them gently behind closed doors -- because they hate losing face -- .if we do all that, China will behave.
What idiots! 

China never had good intentions. 

Since the late 1980s, its stated aim has been world domination, technologically and militarily. 

Their path to that was economic domination, achieved by hacking and stealing the West's technology and exploiting its own workers and the environment. 

The establishment idiots were too naive -- or too corrupted by Chinese cash -- to see it.

There was one lone voice, though, two decades ago, who said the following about China: 

"Our biggest long-term challenge will be China... The Clinton administration, like the Bush administration, follows a policy of "constructive engagement" with China. When China disappoints expectations and ignores lofty lectures, we issue a few condemnations, hammer out some meaningless resolution at the UN (if we can get it by China's UN delegation), and call upon them to comport themselves like citizens of the community of nations. Then we get back down to business as if nothing happened. How's this policy working? It isn't."

Guess who said this? 

Well, that was Donald Trump.
And in a 2010 interview with Larry King, he said, "If you look at what China is doing to our country, it's disgraceful ... They're making all of our products. We're not manufacturing anything. They're making all our products, and they're selling it to us. And then they're loaning us the money ... They take the money, then they loan it back to us. We should be fighting China."
And snooty establishment called Trump an ignoramus. 

He was right about China. 

The entire establishment got it wrong.
Now as president, Donald Trump is delivering exactly the tough stance he called for as a private citizen two decades ago, using tariffs as his chosen weapon. 

Because, of course, unlike diplomatic statements at the U.N., tariffs actually get the Chinese regime's attention.
But still, you have the same establishment geniuses who got China so wrong lining up against tariffs.
"If we push up tariffs, they push up tariffs, the whole global economy slows, U.S. economy slows, [and we] could be pushed into recession," said David Kelly, chief global strategist for J.P. Morgan, on CNBC.
"These tariffs are a terrible idea," said Sen. Ben Sasse on "CBS This Morning." 

"But they're not just a terrible idea this week or this month. But they're a terrible idea because it doesn't make sense of where we are in economic history."
"History shows imposing more tariffs hurts the global economy and hurts the U.S. economy," said Bob Pisani on MSNBC. 

"I don't think there are many people that would disagree with that on any kind of long-term basis."
Actually the facts "disagree with that," Mr. Smarty Pants.
Since the tariffs, America's economy has gone from strength to strength. 

Faster growth, lower unemployment, higher earnings -- all since the trade war that was going to wreck the economy.
But if you want to really understand the depths of elitist idiocy over trade, tariffs and China take a look at what Never Trumper David Frum said in an interview:
If what you think you’re doing in a trade dispute with China is protecting the industries of the 1950s, like dishwashers, you’re not going to get anything. Because what the United States cares about are the industries of the future. What we’re concerned about are the technologies, the 5G telephones, intellectual property, making sure that American moviemakers are not ripped off ...tomorrow’s industries. President Trump has no vision of tomorrow’s economy.

What a perfect articulation of arrogant coastal snobbery. 

"Oh, my dear! We don't want manufacturing. We want the industries of the future."
So, according to the establishment, we don't need washing machines now? 

What's David Frum going to do, shove his dirty underpants into his 5G laptop?
The big point here is that this whole story is not just about economics. 

We are literally in a battle to determine the value system that will dominate this century and perhaps the next one, too. 

Freedom or authoritarianism? Democracy or one party rule? 

Yes, the trade deficit matters. 

The loss of manufacturing even more. 

But we need to understand that China declared war on us many years ago.
As someone said to me, fighting back might mean sacrifices. But that is part of a proper war effort. 

But in any case, we can easily afford to fight China. 

To hear some people talk about it you'd think we're totally dependent on China. 

That is absolute rubbish. 

Our economy is huge, and thanks to President Trump's pro-enterprise agenda, is growing fast. Imports from China are just 2.7 percent of its total. 

Exports to China are a mere 0.9 percent. 

Over 96 percent of our economy is not trade with China. 

We could totally disengage from China, and we'd be absolutely fine.
By the way, for years that's what I've been arguing for -- a total economic boycott of China and sanctions on other countries who collaborate with this evil regime. 

Make the world choose. 

You can do business with America or the authoritarian dictators of Beijing, who oppress their own people, put millions of Muslims in concentration camps, and are rolling out a new and insidious colonialism around the world with their rapacious belt and road infrastructure program. 

Which side are you on, Britain? Canada? The EU? You choose.
We know which side Joe Biden is on. 

If he's the Democrats' candidate in 2020, China will be the defining issue on the ballot. 

Because Joe Biden has made his choice. He's with China.
"They're going to eat our lunch ... c'mon, man. They're good people... not competitors," he said recently.
Why is he saying this? 

Well, we told you two weeks ago. 

Joe Biden is compromised by China. 

He has taken billions of dollars from the Chinese government in the form of payments to his son's businesses. 

With "Joe China" in the White House, the policies of economic surrender and political appeasement would be back.
President Trump is the first western leader in 50 years to stand up to China. 

It could turn out to be the most important policy shift of the 21st century.

China Is Losing The Trade War In Nearly Every Way

By Kenneth Rapoza

China exports fell more than expected in December, signaling more pain ahead as the trade-war fallout starts getting measured by the markets. 
China is still the world’s No. 2 economy and is still the monster of emerging markets, but regardless of those bonafides, Xi Jinping’s country is losing the trade war in nearly every way imaginable.
The arrest of Huawei CFO Meng Wanzhou in Canada last month for breaking U.S. sanctions law, followed by the firing of Huawei sales executive Wang Weijing in Poland last week shows China can be a bad actor, exactly as Washington believes. 

The Poland story centers around spying allegations, where Wang allegedly sought trade secrets from the government. 

Huawei’s latest bad headlines show how China tech companies may have risen to prominence by copying foreign technologies in joint venture deals or through white-collar criminal actions such as intellectual property theft and corporate espionage. 

Huawei is one of China’s most important, private tech firms. 

It rivals Cisco Systems worldwide.
Thanks in part to Huawei, China is getting beat on the public relations front in the trade war.
Early in the trade war, China thought it get the Europeans as allies. 

They hate Trump, too. 

China failed to woo the EU.
The Shanghai Composite is down around 30% in the last 12 months. 

Only Turkey is doing worse.

China is losing the PR battle. For years, U.S. companies have been complaining that China does not honor intellectual property rights. Tech powerhouses like Huawei owe much of their growth to IP theft.

The stock market is a terrible way to measure China growth. 

Investors know it. 

So they look to the economic data. 

Industrial production is still positive but in decline. 

Quarterly GDP growth is in decline. 

On Monday, China released weak exports data for the month of December.

China Trade Data in USD (YoY)
Exports: -4.4% versus estimate 2% and November’s 5.4%
Imports: -7.6% versus estimate 4.5% and November’s 3%
Trade Balance: $57 billion versus estimate $51 billion and November’s $44 billion
Exports to the U.S. fell 3.7%, the first nonseasonal decline since October 2016. 

That would indicate an end to the pre-tariff purchasing rush by U.S. companies in the third quarter and into the fourth. 

Exports to the U.S. had previously climbed over 12% for three consecutive months.
“The Chinese trade numbers released today got all the alarm bells ringing,” says Naeem Aslam, chief market strategist for Think Markets in London and a Forbes contributor. 

“If you need any evidence how the trade spat is impacting a country’s economic health then look no further than China trade. The lower export number means lower jobs, which means another direct impact on the (Chinese) economy. Donald Trump can be pleased. His policies have brought China to its knees.”

China down. An investor covers his face in front of a stock board in Shanghai as the A-shares continue to be one of the worst places to invest over the last 12 months. 

Today’s export growth data also suggest that the recent strength of the Chinese renminbi might be short-lived. 

Xi may be more eager to strike a trade deal with the U.S. if the economy worsens beyond expectations. 

Markets expect Xi will have to let real estate and banks loose at the provincial level, something he considers economically unsustainable.
“China needs to take more aggressive measures to stabilize growth,” Nomura economists led by Ting Lu in Hong Kong wrote in a note this morning. 

Nomura expects China growth to worsen over the next six months.
Recent reports suggest that Beijing will reduce their official GDP growth target to as low as 6% from the current 6.5%. 

The trade war, a shift in some global business cycles like technology and tighter regulations from Xi’s government are reversing the China growth trend.
Of course, every China bear out there believes the true GDP figure is closer to 2%. 

Last week’s latest update of China’s inflation showed a drop in prices across the board, not just in oil. Demand is in decline. 

This is an economy hitting the pause button.

How China Wins

Xi Jinping plays the long game. He can wait out Trump’s presidency. 

China plays the long game. 

There are no elections on the calendar that threaten to upend Xi’s rule. 

Unless his economy tanks and unemployment gets out of control, Xi can take a little bit of pain. 

He’ll be around longer than Trump, who has less than two years left in his first term. 

Current polls, while early, suggest Trump loses to most Democratic challengers in November 2020. The two biggest China hawks in the Democratic Party—Nancy Pelosi and Chuck Schumer—are not running for president. 

Xi may be able to assume things return to the status quo, even if current tariffs remain. 

The previous Democratic administration of Barack Obama preferred only to complain about intellectual property and only used tariffs to target a handful of products, like Chinese tires, under World Trade Organization rules. 

Trump can care less about the WTO, so China wins if a new Democratic president leaves the trade dispute up to those guys instead of the President. 

Xi would love that.
Perhaps China's biggest “win” on the trade front is Vietnam’s membership in the Comprehensive and Progressive Transpacific Partnership. 

For those who have forgotten, Vietnam is an authoritarian country run by Communist Party chief Nguyễn Phú Trọng. 

Vietnam has become an outpost of Chinese businesses, especially manufacturing and exporters looking for cheaper labor and less regulations. 

The trade deal is essentially the old TPP, which Trump killed upon entering the White House in 2017.
Like U.S. companies in the past, Chinese manufacturers are shifting some of their supply chains to southeast Asia. 

This is good for some Chinese companies, but unless they bring Chinese workers with them, it is a headwind for blue-collar workers in China and therefore a brewing problem for Beijing.
China knows the U.S. is slowing, too. 

U.S. companies like Apple are losing money. 

Today’s trade data points to evidence that more companies trading with China brought in much less money in December.
Trade analysts from Panjiva research, part of the S&P Global Market Intelligence group, believes the U.S is a net loser from the tariffs because of this. 

Chinese imports from the U.S. declined 35.8% in December from 10.3% gains in the prior three months. 

As a result, Chinese imports brought in around $5.8 billion less in December while exports lost $1.53 billion, for a net balance of $4.28 billion of trade value lost, based on Panjiva’s analysis.
China exports account for only 14% of the industrial sector’s revenues, notes Brendan Ahern, CIO of KraneShares, a China-centric ETF firm in New York. 

That means China is not as export-dependent as the market thinks. 

“It will be interesting if analysts, who got scorched on the trade data, dial down their expectations for next week’s data dump on retail sales, GDP, industrial production and fixed asset investment,” Ahern says.
They might lower their expectations. China bulls are a dying breed.
“The (trade) numbers suggest that we’re starting to see the impact of the trade war finally feeding into China’s macro-economic data,” says Nick Marro, China analyst for The Economist Intelligence Unit.

The stock market means everything to Trump. If companies report weaker than expected fourth-quarter earnings and blame tariffs, the stock market will fall. Trump may be forced to go easier on China. Xi Jinping would love to keep the status quo, in hopes he can wait out the Trump presidency, now halfway through the first term. 

If fourth-quarter earnings show companies getting squeezed because of tariffs and issuing warnings about lower profit margins in the first quarter because of it, then a weaker stock market could put Trump over the edge.
Should the U.S. economy buckle further, and the stock market is taken down with it, Trump might be more inclined to do end the trade war despite his team’s long-term goals to lessen China’s role in the U.S. corporate supply chain. 

If that happens, Xi will get more time to adjust and ultimately keep things as they were pre-Trump.

Unforgiven

President Trump wants to see China feel more pain

• President Trump has no intention of de-escalating trade war with China
• President Trump wants Chinese to suffer more from tariffs
• Deterioration in risk appetite among investors in early Asian trade on Monday.

By David Scutt

US President Donald Trump has no intention of de-escalating trade tensions with China, according to Axios citing three unnamed sources with knowledge of his private conversations, believing instead that more time is required to make Chinese leaders to feel more pain from his tariffs.
According to Axios, one source told them that President Trump wants them to suffer more from tariffs, adopting the view that the longer his tariffs last, the more leverage he'll have in trade negotiations.
The US government has already introduced tariffs ranging from between 10% to 25% on $250 billion worth of Chinese goods entering the United States, triggering similar tariffs introduced by Chinese policymakers on US goods entering the nation, albeit on a smaller scale.
Another source told Axios that tit-for-tat trade war is only at the beginning of the beginning, suggesting there was unlikely to be a resolution despite the prospect of a meeting between Trump and Chinese dictator Xi Jinping on the sidelines of the G20 summit in Buenos Aires in November.
"It's a heads of state meeting, not a trade meeting," a source with direct knowledge told Axios.
"President Trump is thinking about this meeting as a personal reconnection with Xi, not a meeting that's going to evolve into detailed discussions," one source said.

"The sides are very far apart… right now, there's not the common basis for proceeding."
According to the report, President Trump is said to have taken a keen interest in the selloff in Chinese stocks this year — seeing the benchmark Shanghai Composite Index lose over 30% at one point from the highs struck in late January — boasting about the size of the decline seen since trade tensions between the two nations began to escalate.

Sources said that President Trump believes this may pressure Chinese policymakers to return to the negotiating table.

"The generic point President Trump makes to aides, per a source with direct knowledge, is that 'we are strong and they are weak'," Axios said.

On Friday, Chinese policymakers announced a raft of new measures to help support stock prices, mirroring similar moves made in 2015 and 2016 to help halt an ugly plunge in stocks at the time.
Along with the recent slide in Chinese stocks, economic growth in China slowed to 6.5% in the year to September, according to latest figures from China's National Bureau of Statistics (NBS), the weakest result since the GFC.
"The key driver of this downturn was China's industrial sector, which grew at its slowest pace on record, amid the impact of deleveraging, the anti-pollution drive and trade tensions with the United States," said Gerard Burg, Senior International Economist at the National Australia Bank.
However, while the impact of the trade war may have contributed to the moderation in Chinese economic activity over the past year, Burg says China's trade surplus with the United States — rather than getting smaller — has actually increased to the highest level on record.
"The impact of US tariffs is yet to emerge in the outbound trade data with Chinese exports rising by 14% year-on-year," he says.
"In contrast, China's imports from the US fell by 1.2% year-on-year, potentially reflecting the impact of China's retaliatory tariffs.
"As a result, China's trade surplus with the United States has continued to expand, totalling $307 billion in the twelve months to September, a new record high."
The Axios report has been widely cited on social media platforms such as Twitter, and may be contributing to a slight weakening in investor risk appetite seen in early Monday morning trade in Asia.

China is more of a paper tiger than people think, and that plays into President Trump's hand on trade

• The U.S. trade war has shown that China is not impervious to the measures being brought to bear by President Trump
• Overnight, the Shanghai composite tanked 3.7 percent on the first trading day back after being closed for a weeklong Chinese holiday.

By Matthew J. Belvedere

U.S. President Donald Trump and Chinese dictator Xi Jinping

President Donald Trump's approach to levying tariffs on China in hopes of applying enough economic pressure to get Beijing to change its ways on trade has a better chance of working than many people expect, CNBC's Jim Cramer said Monday.
"I think the president is right. I favor tariffs against the Chinese because I think they're far more of a paper tiger than people realize," Cramer said, contending the world's second-largest economy and stock market are more vulnerable than the mainstream media depicts. 

The term "paper tiger" refers to an outwardly powerful or dangerous force that's actually inwardly weak or ineffectual.
"The intelligentsia in this country [the U.S.] has decided that China is all-powerful and we're all weak. Empirically, that's not the case, particularly when you look at the Chinese stock market, which does matter," Cramer said on "Squawk on the Street."
The U.S. trade war has shown that China is not impervious to the measures being brought to bear by Trump, Cramer said. 

"They may be communist, but they have a capitalist bear market going there."
There's a school of thought that the volatile Chinese stock market is not an important indicator of the health of China's economy because households there don't have much of their wealth invested.
"We can think that that doesn't matter but that's cause we're being elitist. And I think that's a big mistake," Cramer said.
Overnight, the Shanghai composite tanked 3.7 percent on the first trading day back after being closed for a weeklong Chinese holiday. 

Following weakness last week across Asia, Europe and on Wall Street, that sharp decline was being viewed as a catch-up move. 

The Shanghai composite has dropped nearly 18 percent year-to-date.
Against a backdrop of persistent trade concerns and a sign that more stimulus is needed, China's central bank on Sunday cut for the fourth time this year the amount of cash banks need to have on hand.