In addition to Eric Peters earlier take on why the “long season of central bankers has ended”, here is some additional free-form stream of consciousness from the One River CIO on the current state of the global trade war, and what may happen next.
A Game of Cards
“From now on, we expect trading relationships to be fair and to be reciprocal,” announced President Trump, smiling, a slight blush. In his hand, a Royal Flush, his life history a gambler’s bluff.
“These tariffs are an affront to the longstanding security partnership between Canada and the US and to the thousands of Canadians who fought and died alongside their American brothers,” said young Justin Trudeau, announcing reciprocal tariffs, three Queens in his hand. And Trump reflected on his early property developments, bluffing his way into the big game. “That was hard. This is not,” whispered The Donald.
“Mexico’s position regarding cooperation with the US on trade, migration or security will not vary because of offensive rhetoric or unilateral and unjustified measures of this kind,” said Foreign Minister Videgaray, a pair of Jacks.
“The US now leaves us with no choice but to proceed with a WTO dispute settlement case and the imposition of additional duties on a number of imports,” said EU Commission President Juncker, a Full House. But of course, the Europeans are hopeless at poker; 28 people cannot play a single hand, each attempt sparks endless argument.
“No leader on earth could play their way out of a hand with four bankruptcies. Stormy. Hollywood Access. The Paris Accord. North Korea. Or Iran’s nuclear deal,” thought Trump, enjoying the high roller table immensely.
“When it comes to the problems in Chinese-US trade and business both sides should take a sincere attitude in the spirit of equality and mutual respect to use dialogue and consultations to seek a mutually beneficial win-win solution,” said China’s foreign minister, in his hand a Full House, strong but a loser.
You see, America has the world’s biggest trade deficit, debt, central bank, economy, reserve currency, global payment system (SWIFT), military. “I got all the cards. I win, they all lose.”
* * *
He browsed the White House website, bored. And found a May 29th factsheet titled: President Trump is Confronting China’s Unfair Trade Policies. He read these headlines: (1) YEARS OF UNFAIR TRADE PRACTICES: China has consistently taken advantage of the American economy with practices that undermine fair and reciprocal trade. (2) UNDERMINING AMERICAN INNOVATION AND JOBS: China has aggressively sought to obtain technology from American companies and undermine American innovation and creativity.
The headlines continued. (3) STANDING UP TO CHINA’S UNFAIR TRADE PRACTICES: President Trump has taken long overdue action to finally address the source of the problem, China’s unfair trade practices that hurt America’s workers and our innovative industries. (4) PROTECTING AMERICAN INNOVATION AND CREATIVITY: President Trump has worked to defend America’s intellectual property and proprietary technology from theft and other threats.
White House factsheets are so boring compared to tweets. But he took a few minutes to read the details. Things like: China’s industrial policies, such as its “Made in China 2025” plan, harm companies in the US and around the world. The cost of China’s intellectual property theft costs US innovators billions of dollars a year, and China accounts for 87 percent of counterfeit goods seized coming into the US. China’s aggressive technology policies put 44 million American technology jobs at risk. And by the end, he was no longer bored.
* * *
“Total has 60 days to negotiate with the US administration while the French government can also use these 60 days to negotiate with the US so that Total can stay in Iran,” said Iran’s oil minister Zanganeh. “If the US does not agree with Total staying in Iran, China will replace this company or China’s state-owned CNPC will take over the project,” continued Zanganeh. You see, Total signed the first major post-sanctions oil exploration deal with Iran. But the renewal of US sanctions means that America will devastate Total if they carry on.
“Considering the latest developments, I guess it’s too early to say what our plans about Iran will be. For the moment, basically, we have everything on hold,” announced Lukoil, Russia’s 2nd largest oil company.
America’s April 9th sanctions on Russia’s aluminum giant Rusal had halved that company’s market cap in one day. And with the US now eyeing the isolation of Iran via cutting its banks off from the global SWIFT payment system, the Russians are steering clear. But what will the US do to Chinese companies/banks if they defy our policies?
* * *
“Despite China’s claims to the contrary, the placement of anti-ship missiles, surface-to-air missiles and electronic jammers across the South China Sea is tied directly to military use for the purposes of intimidation and coercion,” said Defense Secretary, General “Mad Dog” Mattis, our greatest military strategist, quietly running America’s entire foreign policy.
China’s Gen He Lei responded, “Any irresponsible comments from other countries cannot be accepted. As long as it is on your own territory you can deploy the army and you can deploy weapons.”
“There are consequences that will continue to come home to roost if China does not act more transparently and cooperatively in the region,” continued Defense Secretary Mattis. And then pivoting to Beijing’s strategic Belt and Road initiative, Mad Dog warned of “much larger consequences in the future when nations lose the rapport of their neighbors, when they believe that piling mountainous debts on their neighbors and somehow removing the freedom of political action is the way to engage with them.”