{"id":127050,"date":"2019-08-19T12:56:54","date_gmt":"2019-08-19T16:56:54","guid":{"rendered":"https:\/\/stateofthenation2012.com\/?p=127050"},"modified":"2019-08-19T13:00:27","modified_gmt":"2019-08-19T17:00:27","slug":"trump-has-gotten-demolished-by-his-quixotic-trade-war-with-china","status":"publish","type":"post","link":"https:\/\/stateofthenation2012.com\/?p=127050","title":{"rendered":"Trump gets demolished by his quixotic trade war with China"},"content":{"rendered":"<p><!--more--><a href=\"http:\/\/themillenniumreport.com\/wp-content\/uploads\/2019\/08\/Trade-War-Over-Trump.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-83823\" src=\"http:\/\/themillenniumreport.com\/wp-content\/uploads\/2019\/08\/Trade-War-Over-Trump.png\" alt=\"\" width=\"853\" height=\"550\" \/><\/a><\/p>\n<h1>The \u201cTrade War\u201d Is Over, Trump Just Doesn\u2019t Realize It Yet.<\/h1>\n<p>Written by Lance Roberts<br \/>\nReal Investment Advice<\/p>\n<p>On Tuesday, the markets bid higher following a statement from the U.S. Trade Representative\u2019s office that tariffs will commence on September 1st, but that some products will be delayed until December 15th. <a href=\"https:\/\/www.zerohedge.com\/news\/2019-08-13\/stocks-spike-china-comments-us-trade-talks\" target=\"_blank\" rel=\"noopener noreferrer\">To wit:<\/a><\/p>\n<blockquote><p><em>\u201c\u2026some tariffs will take effect on Sept. 1 as planned, \u2018certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent. Further, as part of USTR\u2019s public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles.\u201d<\/em><\/p><\/blockquote>\n<p>The only part the algos heard was <em>\u201ctariffs delayed,\u201d<\/em> which sent them into stock panic buying mode.<\/p>\n<p>However, stocks crashed again on Wednesday as the yield curve inverted, sending<em> \u201crecession fears\u201d<\/em>through the markets.<\/p>\n<p>Of course, since President Trump has pegged the success of his Presidency on the rise and fall of the markets, on Wednesday, as <em>\u201ctweets\u201d<\/em> about a <em>\u201ctrade talks continuing\u201d <\/em>failed to lift the markets, he resorted to more direct measures to manipulate the markets: <a href=\"https:\/\/www.cnbc.com\/2019\/08\/16\/trump-reportedly-held-call-with-major-bank-ceos-on-wednesday-as-the-stock-market-plunged.html\" target=\"_blank\" rel=\"noopener noreferrer\"><em>Via CNBC:<\/em><\/a><\/p>\n<blockquote><p><em>\u201cTrump held the call with J.P. Morgan Chase CEO Jamie Dimon, Bank of America\u2019s Brian Moynihan and Citigroup\u2019s Michael Corbat, according to people with knowledge of the situation.\u201d<\/em><\/p><\/blockquote>\n<p>This, of course, was reminiscent of the call made by Steve Mnuchin, U.S. Treasury Secretary, during the market rout last December. But most importantly, this is about the upcoming election:<\/p>\n<blockquote><p><em><strong>\u201cTrump has been reaching out to corporate leaders this week amid his concerns that a slowing U.S. economy could impact his reelection chances,<\/strong> according to a Thursday piece from the Washington Post.\u201d<\/em><\/p><\/blockquote>\n<p>Hopefully, he will listen to them.<\/p>\n<p>But even if the trade dispute was ended today, the damage is likely already done.<\/p>\n<ul>\n<li><em>Economic growth has weakened globally<\/em><\/li>\n<\/ul>\n<ul>\n<li><em>Corporate profit growth has turned negative.<\/em><\/li>\n<li><em>Tax cuts are fully absorbed into the economy<\/em><\/li>\n<li><em>Interest rates are signaling there is something \u201cbroken\u201d<\/em><\/li>\n<\/ul>\n<ul>\n<li><em>Yield curves are negative as \u201cdeflationary\u201d pressures are rising<\/em><\/li>\n<li><em>All of which is leading to rising recession risk.<\/em><\/li>\n<\/ul>\n<p>In other words, while investors have hung their portfolios hopes of a<em> \u201ctrade deal,\u201d<\/em> it may well be too little, too late.<\/p>\n<p><strong>Art Of The Deal Versus The Art Of War<\/strong><\/p>\n<p>This is all assuming Trump can actually succeed in a trade war with China.<\/p>\n<p>Let\u2019s step back to the G-20 meeting between President Trump and President Xi Jinping. As I <a href=\"https:\/\/realinvestmentadvice.com\/the-art-of-the-deal-vs-the-art-of-war-06-28-19\/\" target=\"_blank\" rel=\"noopener noreferrer\">wrote then:<\/a><\/p>\n<blockquote><p><em>\u201cThere is a tremendous amount of \u2018hope\u2019 currently built into the market for a \u2018trade war truce\u2019 this weekend. However, as we suggested previously, <strong>the most likely outcome was a truce\u2026but no deal. <\/strong>That is exactly what happened.<\/em><\/p>\n<p><strong>While the markets will likely react positively next week to the news that \u2018<em>talks will continue,\u2019<\/em> the impact of existing tariffs from both the U.S. and China continue to weigh on domestic firms and consumers.<\/strong><\/p>\n<p>More importantly, while the continued \u2018<em>jawboning\u2019<\/em> may keep \u2018<em>hope alive\u2019<\/em> for investors temporarily, these two countries have been \u2018<em>talking\u2019<\/em> for over a year with little real progress to show for it outside of superficial agreements.<\/p>\n<p><strong>Importantly, we have noted that Trump would eventually \u2018<em>cave\u2019<\/em> into the pressure from the impact of the \u2018<em>trade war\u2019<\/em> he started.<\/strong><\/p><\/blockquote>\n<p>Of course, Trump caving to China was evident in the agreement made during the G-20 summit.<\/p>\n<p><a href=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/06\/Trump-Agreement.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-420442\" src=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/06\/Trump-Agreement.png\" sizes=\"auto, (max-width: 515px) 100vw, 515px\" srcset=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/06\/Trump-Agreement.png 515w, https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/06\/Trump-Agreement-300x176.png 300w\" alt=\"\" width=\"515\" height=\"302\" \/><\/a><\/p>\n<p>By agreeing to continue talks without imposing more tariffs on China, China gained ample running room to continue to adjust for current tariffs to lessen their impact. More importantly, Trump gave up a major bargaining chip \u2013 Huawei.<\/p>\n<blockquote><p><em>\u201cOne of the things I will allow, however, is \u2014 <strong>a lot of people are surprised we send and we sell to Huawei a tremendous amount of product that goes into a lot of the various things that they make<\/strong>\u2014 and I said that that\u2019s OK, that we will keep selling that product.\u201d \u2013 President Trump<\/em><\/p><\/blockquote>\n<p><strong>Oh\u2026so all the spying, technology stealing, etc. doesn\u2019t matter now?<\/strong><\/p>\n<p>As I stated then, it was only Trump who was surprised. Not by the amount of product sold to Huawei, but rather by the pressure applied by U.S. technology firms to lift the ban. While Trump appeased his corporate campaign donors, he Trump gave up an important <em>\u201cpain point\u201d<\/em> on China\u2019s economy.<\/p>\n<p>Yes, China agreed to buy more agricultural products from U.S. farmers, which was crucially important as the <em>\u201crust belt\u201d<\/em> were big supporters of Trump during the 2016 campaign, but China had no intention of following through. As I wrote on <a href=\"https:\/\/realinvestmentadvice.com\/china-is-winning-the-trade-war-without-firing-a-shot\/\" target=\"_blank\" rel=\"noopener noreferrer\">May 24, 2018:<\/a><\/p>\n<blockquote><p><em>\u201c<strong>China has a long history of repeatedly reneging on promises it has made to past administrations.<\/strong><\/em><\/p>\n<p data-elm-loc=\"12\"><em>By agreeing to a reduction of the \u2018deficit\u2019 in exchange for \u2018no tariffs,\u2019 <strong>China removed the most important threat to their economy as it will take 18-24 months before the current administration realizes the problem.\u201d<\/strong><\/em><\/p>\n<\/blockquote>\n<p>What the current administration fails to realize is that China is not operating from short-term political-cycle driven game plan. Their goal is very different. <a href=\"https:\/\/realinvestmentadvice.com\/technically-speaking-trade-war-in-may-go-away\/\" target=\"_blank\" rel=\"noopener noreferrer\">To wit:<\/a><\/p>\n<ol>\n<li><em>China is playing a very long game. <strong>Short-term economic pain can be met with ever-increasing levels of government stimulus<\/strong>. The U.S. has no such mechanism currently, but explains why both Trump and Vice-President Pence have been suggesting the Fed restarts QE and cuts rates by 1%.<\/em><\/li>\n<li><em><strong>The pressure is on the Trump Administration to conclude a \u201cdeal,\u201d not on China.<\/strong> Trump needs a deal done before the 2020 election cycle AND he needs the markets and economy to be strong. If the markets and economy weaken because of tariffs, which are a tax on domestic consumers and corporate profits, as they did in 2018, the risk off electoral losses rise. China knows this and are willing to \u201cwait it out\u201d to get a better deal.<\/em><\/li>\n<li><em><strong>China is not going to jeopardize its 50 to 100-year economic growth plan on a current President who will be out of office within the next 5-years at most.<\/strong> It is unlikely as the next President will take the same hard-line approach on China that President Trump has, so agreeing to something that won\u2019t be supported in the future is doubtful.\u201d<\/em><\/li>\n<\/ol>\n<h2><strong>A War Trump Can\u2019t Win<\/strong><\/h2>\n<p>While President Trump thought <strong><em>\u201ctrade wars would be easy to win,\u201d <\/em><\/strong>they aren\u2019t, and the domestic economic pain will likely be more than he bargained for. Such is already evident as <a href=\"https:\/\/realinvestmentadvice.com\/technically-speaking-5-reasons-to-be-bullish-or-not-on-stocks\/\" target=\"_blank\" rel=\"noopener noreferrer\">corporate profits continue<\/a> to come under pressure.<\/p>\n<blockquote><p><em><strong>\u201cDespite a near 300% increase in the financial markets over the last decade, corporate profits haven\u2019t grown since 2011.\u201d<\/strong><\/em><\/p><\/blockquote>\n<p><a href=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Corporate-Profits-Less-FedBanks-081219.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-422261\" src=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Corporate-Profits-Less-FedBanks-081219.png\" sizes=\"auto, (max-width: 924px) 100vw, 924px\" srcset=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Corporate-Profits-Less-FedBanks-081219.png 924w, https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Corporate-Profits-Less-FedBanks-081219-300x176.png 300w, https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Corporate-Profits-Less-FedBanks-081219-768x451.png 768w\" alt=\"\" width=\"924\" height=\"543\" \/><\/a><\/p>\n<p>But, if you think China is going to acquiesce any time soon to Trump\u2019s demands, you haven\u2019t been paying attention. China previously launched a <a href=\"http:\/\/en.people.cn\/n3\/2019\/0624\/c90000-9590630.html\" target=\"_blank\" rel=\"noopener noreferrer\">national call in their press<\/a> to unify support behind China\u2019s refusal to give into Trump\u2019s demands. To wit:<\/p>\n<blockquote><p><em>\u201cLying behind the trade feud is America\u2019s intention to stifle China\u2019s development. The U.S. wants to be a permanent leader in the world, <strong>and there is no way for China to avoid the \u2018storm\u2019 through compromise.<\/strong><\/em><\/p>\n<p><em><strong>History proves that compromise only leads to further dilemmas.<\/strong> During previous trade tensions between the U.S. and Japan, Japan made concessions. As a result, its political stability and economic development were adversely affected, with structural reform being suspended and hi-tech companies being severely damaged.<\/em><\/p>\n<p><em><strong>The only way for a country to win a war is through development, not compromise.<\/strong> To achieve development, China will <strong>open its door wider to the world and fight to the end.\u201d<\/strong><\/em><\/p><\/blockquote>\n<p>These were Xi Jinping\u2019s mandates.<\/p>\n<p>While China agreed to purchase more agricultural products from the U.S., there was nothing committing China to do anything. Since buying agricultural products would have boosted support for Trump, it should be of no surprise that China failed to follow through.<\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">As usual, China said they were going to be buying \u201cbig\u201d from our great American Farmers. So far they have not done what they said. Maybe this will be different!<\/p>\n<p>&mdash; Donald J. Trump (@realDonaldTrump) <a href=\"https:\/\/twitter.com\/realDonaldTrump\/status\/1161278978201661440?ref_src=twsrc%5Etfw\">August 13, 2019<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p data-elm-loc=\"12\"><a href=\"https:\/\/realinvestmentadvice.com\/technically-speaking-the-drums-of-trade-war\/\" target=\"_blank\" rel=\"noopener noreferrer\">June 19, 2018:<\/a><\/p>\n<blockquote><p><em><strong>\u201cThe U.S.- China confrontation will be a war of attrition:<\/strong> while China has shown a willingness to make a deal on shrinking its trade surplus with the U.S., <strong>it has made clear it won\u2019t bow to demands to abandon its industrial policy aimed at dominating the technology of the future.\u201d<\/strong><\/em><\/p><\/blockquote>\n<p>China has no intention of giving in.<\/p>\n<p>They are not going to compromise as they know time is growing extremely short for President Trump as the election cycle heats up.<\/p>\n<p>The problem for Trump will be the mounting economic, and corporate, pressure the Administration will face. That pressure is what led to the latest mistake.<\/p>\n<hr \/>\n<h2>Trump\u2019s Latest Mistake<\/h2>\n<p>Trump\u2019s latest move to delay tariffs is another critical error with respect to dealing with China. As I wrote last time, Trump may well be following his <em><strong><a class=\"icon \" href=\"https:\/\/www.goodreads.com\/book\/show\/1032.Trump\" target=\"_new\" rel=\"noopener noreferrer\">\u201cArt<\/a><a class=\"icon \" href=\"https:\/\/www.goodreads.com\/book\/show\/1032.Trump\" target=\"_new\" rel=\"noopener noreferrer\"> Of The Deal\u201d<\/a><\/strong> <\/em>tactics, but Xi is clearly operating on the foundation of <strong>Sun Tzu\u2019s <a href=\"https:\/\/en.wikipedia.org\/wiki\/The_Art_of_War\" target=\"_blank\" rel=\"noopener noreferrer\"><em>\u201cThe Art Of War.\u201d<\/em><\/a><\/strong><\/p>\n<blockquote><p><em>\u201cIf your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. I<strong>f your opponent is temperamental, seek to irritate him.<\/strong> <strong>Pretend to be weak, that he may grow arrogant.<\/strong> If he is taking his ease, give him no rest. If his forces are united, separate them.<strong> If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.<\/strong>\u201c<\/em><\/p><\/blockquote>\n<p>As noted above, China has been attacking the <em>\u201crust-belt\u201d <\/em>states, which are crucial to Trump\u2019s 2020 reelection. As noted by <a href=\"https:\/\/www.marketwatch.com\/story\/trump-to-ease-huawei-ban-as-us-china-trade-negotiations-restart-2019-06-29?mod=mw_theo_homepage\" target=\"_blank\" rel=\"noopener noreferrer\">MarketWatch:<\/a><\/p>\n<blockquote><p><em>\u201cChina has lashed back with tariffs on $110 billion in American goods, focusing on agricultural products in a direct and painful shot at Trump supporters in the U.S. farm belt.\u201d<\/em><\/p><\/blockquote>\n<p><strong>Trump caved to corporate pressures over Huawei at the G-20 summit, and has now caved to pressures from retailers heading into the critical shopping season<\/strong>. <em>(The tariffs on electronics, apparel, shoes, and other items are specific goods which will impact consumers the most during the critical holiday shopping season. <\/em><\/p>\n<blockquote><p><strong><em>\u201cWe\u2019re doing this for the Christmas season. Just in case some of the tariffs would have an impact on U.S. customers.\u201d \u2013 President Trump<\/em><\/strong><\/p><\/blockquote>\n<p><strong>Not <em>\u201cjust in case.\u201d <\/em><\/strong><\/p>\n<p>As noted above, this was directly is response to his calls with corporate leaders early last week. <strong>Those tariffs would have further crushed sentiment and the profits of companies who are dependent on the holiday shopping season for a bulk of their annual revenue. <\/strong><\/p>\n<p><a href=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Trump-Delays-Tariffs-081419.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-422354\" src=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Trump-Delays-Tariffs-081419.png\" sizes=\"auto, (max-width: 907px) 100vw, 907px\" srcset=\"https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Trump-Delays-Tariffs-081419.png 907w, https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Trump-Delays-Tariffs-081419-300x107.png 300w, https:\/\/realinvestmentadvice.com\/wp-content\/uploads\/2019\/08\/Trump-Delays-Tariffs-081419-768x274.png 768w\" alt=\"\" width=\"907\" height=\"324\" \/><\/a><\/p>\n<p><strong>From China\u2019s perspective, this is another <em>\u201cnail in the coffin\u201d<\/em> of Trump\u2019s negotiating strength.<\/strong><\/p>\n<p>While the U.S. will now expect China to reciprocate by buying U.S. agricultural products in the coming weeks, China has no incentive to do so.<\/p>\n<blockquote><p><em><strong>Why does China have to agree to anything, given that Trump is now negotiating with himself to keep his corporate donors happy?<\/strong><\/em><\/p><\/blockquote>\n<p>For China, <em><a href=\"https:\/\/www.zerohedge.com\/news\/2019-08-13\/china-mocks-trump-tariff-delay-proof-he-losing-trade-war\" target=\"_blank\" rel=\"noopener noreferrer\">this is a big \u201cwin.\u201d<\/a><\/em><\/p>\n<blockquote><p><em>\u201c<strong>Chinese experts said the sudden postponing of impending tariffs showed that the maximum pressure tactics of the US are losing their bite when it comes to China. <\/strong>These measures are set to greatly reduce the weight of US tariffs, as electronics goods alone account for about $130 billion.<\/em><\/p>\n<p><em>\u2018<strong>The US has realized that its maximum pressure strategy to force China back to the negotiating table has not worked as expected<\/strong>. Washington knows that only through talks can the two sides reach a deal,\u2019 Wang Jun, chief economist at Zhongyuan Bank, told the Global Times on Tuesday.\u201d<\/em><\/p><\/blockquote>\n<p>With Trump\u2019s own economy working against him, China doesn\u2019t have to do much, but wait.<\/p>\n<p>Yes, China will gladly have meetings to talk about <em>\u201ctrade\u201d <\/em>as they now know that following each meeting they will walk away with more time.<\/p>\n<p><strong>Time is all they need.<\/strong><\/p>\n<p>When Trump is out of office, the next administration will abandon the<em> \u201ctrade war\u201d<\/em> as the first order of business.<\/p>\n<p>However, with the<em> \u201cyield curve\u201d<\/em> plummeting, there is a rising possibility, China may not have to wait that long.<\/p>\n<p>As I wrote last time:<\/p>\n<blockquote><p><em>\u201cWhile Trump is operating from a view that was a ghost-written, former best-seller, in the U.S. popular press,<strong> XI is operating from a centuries-old blueprint for victory in battle.\u201d<\/strong><\/em><\/p><\/blockquote>\n<p><strong>Trump has already lost the<em> \u201ctrade war,\u201d<\/em> he just doesn\u2019t realize it, yet.<\/strong><\/p>\n<p>___<br \/>\n<a href=\"https:\/\/realinvestmentadvice.com\/the-trade-war-is-over-trump-just-doesnt-realize-it-yet\/\">https:\/\/realinvestmentadvice.com\/the-trade-war-is-over-trump-just-doesnt-realize-it-yet\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-127050","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts\/127050","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=127050"}],"version-history":[{"count":0,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts\/127050\/revisions"}],"wp:attachment":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=127050"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=127050"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=127050"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}