This article was published by The McAlvany Intelligence Advisor on Monday, October 1, 2018:
As noted here [at The McAlvany Intelligence Advisor] two weeks ago, Trump holds the winning hand in the trade war with China. But he can still lose the hand if he doesn’t play it. Based on China’s slowing economy that is accelerating downward thanks for his tariffs, now would be a good time – perhaps the very best time – for him to up the ante. . As Robert Carnell, Chief Asia-Pacific economist at investment banking firm ING, put it: “This is probably the best time for the U.S. to go back to the table … [this time] with a ‘take it or leave it’ type of trade demand.”
The numbers are in: China’s economy is at a tipping point. Its manufacturing sector is laying off workers, its export orders are declining, its domestic demand is shrinking, the central bank is reversing its policy of trying to rein in its massive debt that is approaching three times the country’s total economic output, and business and personal sentiment is declining.
Two previous attempts to negotiate over President Trump’s biggest concerns – China’s theft of intellectual property, its subsidizing of critical industries in order to weaken American manufacturers of steel and aluminum, and its blackmailing of American companies into revealing their secret technologies in order to do business there – have gone nowhere. And when Trump applied tariffs last Monday to another $200 billion of Chinese goods entering the U.S., a third meeting was canceled by Chinese officials.
The communists think they can buy some time and maybe even have some influence on the midterms. If they’re right, Trump may be forced to play nice with the communists after the loss of some of his key support in the House. It was reported that as part of that attempt to influence the American electorate, an organ of the Chinese Communist Party, called ChinaWatch, placed a four-page insert into the Sunday edition of the Des Moines Register, a compliant left wing paper in Iowa that supported Hillary in 2016. The insert was cleverly crafted to look like a news item but was promptly outed as being nothing more than an attempt to manipulate Iowans, especially the farmers and ranchers producing soybeans and sorghum.
But this was just one example. ChinaWatch has regularly placed similar propaganda sheets in the New York Times and the Washington Post.
Changing the analogy, Trump has a bigger gun than China in the tariff wars. President Trump is, according to one top Chinese official, “in the driver’s seat” and the communist government running the country knows it. China exports more than $500 billion of goods to the U.S. every year while it imports just $130 billion from the U.S. Simply put, Trump has a gun that’s four times larger than China’s in the tariff wars.
So far he has delayed in firing all of his bullets. In fact the last round of tariffs starts at just 10 percent, giving the Chinese every opportunity to come to the table before the end of the year when they are scheduled to jump to 25 percent. And he has made the Chinese aware that he still has the option of putting tariffs on the remaining $250 billion-plus of Chinese goods entering the U.S.
Those tariffs that are in place are already beginning to bite. Weakening foreign demand for Chinese goods, along with softening domestic demand thanks to the country’s central bank’s efforts to rein in its horrendous national debt, have shown up in both “official” and unofficial reports: for example, privately-owned makers of cars and machinery stopped expanding in September, reflecting a drop in export demand that’s the lowest in more than two years. There is similar weakness being reported by state-owned manufacturing enterprises as well.
This is now being reflected in various economic indexes that attempt to track the performance of China’s economy, such as the Caixin China manufacturing purchasing managers’ index, which fell in September following a decline the month before. The data from Caixin “show that Chinese factories produced far fewer goods to foreign markets last month,” wrote The Wall Street Journal, and “new export orders slipped to the lowest point since February 2016.” Its key export index – an indicator of external demand for Chinese goods – dropped significantly in September from August.
The slowing of the Chinese economy was summarized by Rajiv Biswas, a chief economist at HIS Markit in Singapore: “The further slowdown in China’s official manufacturing PMI [Purchasing Managers’ Index] in September reflects the intensifying impact of the U.S.-China trade war on China’s manufacturing export sector. The near-term outlook for the Chinese manufacturing export sector remains weak.”
Additional data from Bloomberg Economics showed that business sentiment in China deteriorated in September following a slowdown in industrial profit growth. The official PMI report also indicates rising unemployment in that sector.
Contrast that with what’s happening on both Wall Street and Main Street, where records are being set on almost a daily basis. As the American economy gets stronger (despite China’s nearly imperceptible attempt at retaliations on American exports into the country), China’s is getting weaker.
But the window of opportunity may close or at least narrow considerably if the midterms go the Democrats’ (and the communists’) way. Now is the time, Mr. President! Pull the trigger! Play your hand! Don’t delay! The opportunity won’t last forever! Now is the time! Carpe Diem!
The McAlvany Intelligence Advisor: Trump Holds the Winning Hand in the Trade War with China
The Wall Street Journal: China’s Economy Losing Steam as Trade Conflict With U.S. Intensifies