Trump’s Economy

August 5, 2019
Trump’s trade war with China is starting to get out of hand

New York (CNN Business)The US-China trade war has always been serious. Now it’s starting to get scary.

China allowed its currency to drop sharply on Monday to the weakest level in more than a decade. And China announced its companies have halted purchases of American agricultural goods.
The Trump administration escalated tensions even further late Monday by taking the historic step of labeling China a currency manipulator. This comes after US President Donald Trump vowed last week to impose tariffs for the first time on a wide swath of US consumer goods from China.
The trade conflict has reached a new level of seriousness that will be difficult to reverse. The risk is that the trade war is approaching the point at which it causes a severe economic slowdown or even a recession.
By digging into their positions, both the United States and China increase the risk of breaking an economy that is already starting to crack. Each round of escalation gets them closer to a recession — and to a point of no return.
“We have a trade situation that is going off the rails,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients on Monday. “The policy of using tariffs as a tool to address our legitimate beefs with the Chinese has failed miserably.”
David Kotok, co-founder and chief investment officer of investment firm Cumberland Advisors, told CNN Business that “this stupid tariff war we’re having” is raising the risk of a recession.
“Things are escalating and the escalation is not over,” Kotok said.
The sense that the trade war has entered a new and more dangerous phase was confirmed when the US Treasury Department officially designated China as a currency manipulator. The news prompted further selling in global financial markets and raised speculation that China could take even more aggressive steps to devalue its currency.
“It makes things worse,” said Ian Winer, advisory board member at Drexel Hamilton. “If people thought they kept the yuan from weakening to avoid being labeled a currency manipulator, that just went out the window.”

Trade war fatigue

Investors around the world are spooked.
The Dow plunged 767 points, or 2.9%, on Monday. The Nasdaq tumbled 3.5%, suffering its longest daily losing streak since just before Trump’s 2016 election. The VIX (VIX) volatility index spiked 40% to a seven-month high.
Investors piled into government bonds, driving the 10-year Treasury yield to 1.75%, the lowest level in nearly three years.
“The escalating US-China trade war will certainly be bad for the US economy. How bad is almost impossible to calculate,” said Art Hogan, chief market strategist at National Securities Corporation.
Hogan said that the worse the trade war gets, the faster a recession could arrive in the United States.
“Historically, recessions occur in reaction to a monetary policy mistake. This is the first time we may have to deal with a trade policy miscalculation,” he said.
Many investors and business executives broadly agree with the Trump administration’s desire to get China to play fair on trade. Beijing’s non-tariff trade barriers, including forced technology transfers, have long hurt American businesses.
However, there is growing concern about Trump’s use of tariffs as a way of getting concessions.

Next round of tariffs will hit consumers

Trump blindsided Wall Street last week by announcing plans to impose a 10% tariff on $300 billion of US imports from China.
The new tariffs, which are scheduled to go into effect on September 1, would target everything from apparel and footwear to electronics such as smartphones. More than previous rounds of tariffs that shielded finished goods, these levies would hit US households, the strength of the American economy.
“If you inject uncertainty during back-to-school and holiday shopping, that will have a drag on the economy,” Hogan said.
Retail and tech stocks have been hit especially hard by the latest tariff threat. Best Buy (BBY)alone has plunged nearly 15% since Wednesday’s close.
The Chamber of Commerce warned last week that these new tariffs “will only inflict greater pain on American businesses, farmers, workers and consumers, and undermine an otherwise strong US economy.”
America’s farmers won’t get relief any time soon. China’s Commerce Ministry confirmed that Chinese companies have halted purchases of US agricultural products.
The trade war has forced Washington to come to the rescue of farmers with billions of dollars in aid. Delinquencies on agriculture loans have tripled since mid-2015 to eight-year highs, according to the St. Louis Federal Reserve Bank.
FDIC Chairman Jelena McWilliams told CNN Business last week that the agency is “monitoring very closely” how banks in farm states are being impacted by the trade war.
“We may experience more delinquencies, which then become very difficult for those communities and our ag sector,” McWilliams said.

Currency war fears

China retaliated on Monday by allowing the yuan to move above the psychologically important ratio of 7 to 1 against the US dollar. The People’s Bank of China blamed the weakness on “trade protectionism and new tariffs on China.”
“China retaliates: on a scale of 1-10, it’s an 11,” Chris Krueger, senior policy analyst at the Cowen Washington Research Group, wrote in a note to clients.
Hours later, Trump responded on Twitter, calling the move “currency manipulation” and a “major violation which will greatly weaken China over time.”
The fact that China decided not to defend its currency further suggests Beijing is digging in for a longer trade war. Officials are no longer trying to avoid Trump’s currency wrath.
“China is taking a darker and more cynical view of Trump’s objectives with China,” said Michael Hirson, Eurasia Group’s practice head of China and Northeast Asia. “They’re becoming increasingly pessimistic about their ability to steer Trump away from further escalation.”
China’s currency move raised the specter of a currency war, where major countries race to devalue their respective currencies.
“It’s the currency risk that is the most volatile, hardest to see and the fastest reacting,” said Kotok. “That’s the left hook that can knock out the boxer.”
Nervous investors flocked to gold, driving the precious metal above $1,460 an ounce for the first time since May 2013.
However, Hirson said China is “not weaponizing its currency.” Rather, he argued officials in Beijing are trying to take ownership for a decision they would have needed to make eventually.
And there are powerful incentives preventing China from allowing its currency to sharply devalue. Such a move would panic investors, destabilize financial markets and trigger a wave of foreign capital that Beijing has been desperately trying to attract.

Can the Fed offset the trade war?

The problem is that this trade war escalation is occurring against a backdrop of cracks in the global economy. China’s growth has already slowed. Manufacturing surveys around the world have tumbled.
US factory activity in July decelerated to the weakest level in nearly three years. A closely watched gauge of US service sector activity declined on Monday to a level unseen since August 2016.
And global central banks don’t have much room to offset economic turmoil. Borrowing costs are already extremely cheap. Lowering them further won’t directly offset trade uncertainty.
Europe and Japan’s central banks still have negative interest rates. The Federal Reserve has already done a sudden reversal from hawkish to dovish. Last week, the Fed cut interest rates for the first time in nearly 11 years.
“Central banks are running out of bullets,” said Kotok.

Morgan Stanley warns of 10% retreat

That’s why Morgan Stanley on Monday said it has “high conviction” US stocks will experience a 10% correction before the end of September. The S&P 500 is already about halfway there.
The trade war and Fed developments have opened markets up to a “meaningful downside based on the deteriorating fundamentals that can no longer be ignored,” Michael Wilson, Morgan Stanley’s chief US equity strategist, wrote in a note to clients.
Of course, the market pain could force Washington and Beijing to reverse course.
But Hirson suggested China and the United States remain stuck in an escalatory feedback loop.
“The more Trump increases pressure on China,” he said, “the more difficult it becomes for the leadership there to back down because that makes it look like they are negotiating at gunpoint.”
In other words, the trade war looks likely to get worse before it gets better.  Source

July 26, 2019
China approves wheat, soy imports from Russia

BEIJING (Reuters) – China has approved wheat imports from the Russian region of Kurgan, the Chinese customs office said on Friday, bringing Russia a step closer to its goal of dramatically increasing grain exports.

It also approved soybean imports from all parts of Russia, the General Administration of Customs said in a separate statement on its website, having all but halted U.S. soy imports as the trade dispute between Beijing and Washington deepened.

China was the top buyer of U.S. soybeans until Beijing slapped a 25% tariff on shipments last year in response to U.S. tariffs on a range of Chinese products.

Russia, already the world’s top wheat exporter, plans to invest billions of dollars in grain infrastructure and logistics with the aim of raising its exports of the commodity to at least 55.9 million tonnes by 2035.

The figure, outlined in a 2035 strategy published by Russia’s agriculture ministry earlier this month, could be as high as 63.6 million tonnes, its “optimistic scenario” forecasts showed.

This year, Russia is expected to export 41.9 million tonnes of grain, including 31.4 million tonnes of wheat, according to SovEcon, one of Russia’s leading agriculture consultancies.

Russian grain supplies could play a key role in President Vladimir Putin’s plan, announced a year ago, to increase the country’s exports of agricultural products to $45 billion by 2024. The agriculture ministry is in charge of that initiative.

China is already importing wheat from six other Russian regions.  Source

March 4, 2019
So good, so easy to win.

Here are some things Donald Trump has said about his trade war with China since first hitting Beijing with tariffs last March, a move supported exclusively by his craziest advisersthat caused National Economic Council director Gary Cohn to sprint across the South Lawn of the White House and hail the next cab back to New York:

  • “Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people.” (August 2018);
  • “Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China” (November 2018);
  • “The United States Treasury has taken in MANY billions of dollars from the Tariffs we are charging China and other countries that have not treated us fairly” (January 2019);
  • “Trade negotiators have just returned from China where the meetings on Trade were very productive. Now at meetings with me at Mar-a-Lago giving the details. In the meantime, Billions of Dollars are being paid to the United States by China in the form of Trade Tariffs!” (February 2019)

He says these things because he doesn’t actually have any idea how tariffs work, despite having it explained to him numerous times—which in itself is a great reason to follow the directions on the box of Just for Men, and wash it out before it seeps into your brain. If he did, he’d tweet something like, “Billions of Dollars are being paid to the United States by Americans in the form of Trade Tariffs!,” because in reality, U.S. companies and consumers are the ones who’ve paid for his little trade war. And according to two studies published over the weekend, they’ve paid a lot!

In a study published on Saturday, economists from the Federal Reserve Bank of New York, Princeton University, and Columbia University found that tariffs imposed last year by Trump on products ranging from washing machines and steel to some $250 billion in Chinese imports were costing U.S. companies and consumers $3 billion a month in additional tax costs and companies a further $1.4 billion in deadweight losses. They also were causing the diversion of $165 billion a year in trade leading to significant costs for companies having to reorganize supply chains.

In a separate paper published on Sunday, four economists including Pinelopi Goldberg, the World Bank’s chief economist and a former editor in chief of the prestigious American Economic Review, put the annual losses from the higher cost of imports alone for the U.S. economy at $68.8 billion.

“This is kind of the worst-case scenario in terms of consumers,” Columbia University professor David Weinstein told Bloomberg. “It’s pretty unclear that this trade war is a net win for the economy at this point.” Moreover, as Paul Krugman points out, the fact that consumers are paying for the trade war is just one of several reasons why this whole thing ranks somewhere around Trump Airlines on a list of the president’s worst ideas:

By the way, in practice any manufacturing jobs added by the Trump tariffs are probably offset by losses of other manufacturing jobs. Partly that’s because most of the tariffs are on intermediate goods—inputs into production, so that job gains in, say, steel are offset by losses in autos and other downstream sectors. Beyond that, the tariffs have probably contributed to a rising dollar, which makes U.S. exports less competitive.

Meanwhile, Wall Street appears to be sick of the White House’s frequent pronouncements that a deal is just around the corner, which have so far proven empty. “After a while it feels like the boy who cried wolf,” R.J. Grant, director of equity trading at KBW Inc., told The Wall Street Journal. “The market can only rally so much on hope. We actually need tangible results. The rally has gotten a little bit long in the tooth, given the fact that we’re really not seeing much global growth.” On the bright side, reports suggestthat a deal may be imminent. On the less-bright side, it’s not totally clear whether the results would justify the last year of pain:

Strategists have said the biggest market pop would come from a deal that peeled away tariffs but also included serious structural reforms on intellectual property and technology transfers. As per current discussions, China could possibly include language about state-owned enterprise subsidies and forced technology transfers, in to a new foreign investment law changing equity ownership rules. But sources tell CNBC, they are skeptical about how strong that language would be.

According to news reports, Beijing would also increase purchases of U.S. goods, a move that responds to Trump’s concern that it’s the trade deficit between the U.S. and China that needs to be fixed. The purchases would include $18 billion in natural gas from Cheniere Energy. But some worry that any deal will not have enough teeth for enforcement and the rules on technology would ring hollow. It also seems likely that any deal would still be followed by rounds of negotiations on some of the knottier issues.

Meanwhile, U.S. officials are reportedly worried that Trump’s failed summit with Kim Jong Un has resulted in sheer desperation. “His failure to get a deal in Vietnam increases the pressure on him to get a deal with the Chinese,” Fred Bergsten, founder of the Institute for International Economics in Washington, told the Journal. And if those singular negotiating skills we’ve heard so much about don’tmagically appear in the next several weeks, just remember: it’s all Michael Cohen’s fault.

Report: Gary Cohn ignored Trump’s demands to use the D.O.J. to exact revenge on his media foes

In the midst of today’s bombshell New Yorker story detailing the various ways Fox News has functioned as Donald Trump’s “servile propaganda operation” comes this fun tidbit re: the president’s attempts to block the AT&T-Time Warner merger, a move that would have had the dual benefit of both hurting Fox’s competition and screwing Time Warner subsidiary CNN:

. . . in the late summer of 2017, a few months before the Justice Department filed suit, Trump ordered Gary Cohn, then the director of the National Economic Council, to pressure the Justice Department to intervene. According to a well-informed source, Trump called Cohn into the Oval Office along with John Kelly, who had just become the chief of staff, and said in exasperation to Kelly, “I’ve been telling Cohn to get this lawsuit filed and nothing’s happened! I’ve mentioned it 50 times. And nothing’s happened. I want to make sure it’s filed. I want that deal blocked!”

Cohn, a former president of Goldman Sachs, evidently understood that it would be highly improper for a President to use the Justice Department to undermine two of the most powerful companies in the country as punishment for unfavorable news coverage, and as a reward for a competing news organization that boosted him. According to the source, as Cohn walked out of the meeting he told Kelly, “Don’t you fucking dare call the Justice Department. We are not going to do business that way.”

Cohn declined to comment to The New Yorker and Kelly did not respond to inquiries. While the Justice Department has repeatedly claimed that Trump did not involve himself in the suit, a former White House official told reporter Jane Mayer, “The president…wanted to bring down the hammer,” an observation seemingly confirmed by his many online meltdowns on the matter. And according to Kellyanne Conway’s husband, if it turns out that Trump did indeed force the lawsuit (which the D.O.J. lost, appealed, and lost for a second time last week), that would be a very bad thing for a president whose party no longer controls both chambers of Congress:

February 15, 2019
Lawmakers work to scale back the president’s trade authority as auto tariffs loom

As the Trump administration considers slapping tariffs on auto imports, Republican and Democratic lawmakers are trying to gain more control of trade policy.

Last year, President Trump instructed the Commerce Department to investigate whether imported vehicles and auto parts pose a threat to national security. The department is due to report its findings by February 17.

Now, bipartisan groups of lawmakers are trying to weaken the president’s ability to use national security as a reason to enact tariffs.


Republican Senator Pat Toomey and Democratic Senator Mark Warner have introduced a bill called the Bicameral Congressional Trade Authority Act. A bipartisan companion bill has been introduced in the House.

The bill puts the Department of Defense in charge of 232 investigations to see if a national security threat exists, instead of the Commerce Department. It would also require approval from Congress before the President can take trade action under Section 232 of the Trade Expansion Act of 1962.

“President Trump has strained our relationships with key allies and partners by abusing the authority that Congress granted him and stretching the concept of ‘national security’ beyond credulity,” said Senator Warner in a statement.

The bill is retroactive, meaning Congress would have to approve any Section 232 actions over the last four years — including President Trump’s tariffs on steel and aluminum.

“Tariffs on steel and aluminum imported into the United States are taxes paid by American consumers. The imposition of these taxes, under the false pretense of national security (Section 232), is weakening our economy, threatening American jobs, and eroding our credibility with other nations. I’ve seen, first-hand, the damage these taxes are causing across Pennsylvania,” said Senator Toomey in a statement.


Republican Senator Rob Portman, who served as the United States Trade Representative from 2005-2006, has introduced a bill that takes a more moderate approach.

Portman’s bill, the Trade Security Act, would also require the Department of Defense to determine national security threats under Section 232. It would give Congress the ability to disapprove tariffs, rather than requiring Congressional approval. Unlike Toomey’s bill, Portman’s legislation is not retroactive.

Speaking to reporters, Portman said his approach will give the president the ability to act quickly if there is a true national emergency, while still increasing Congressional oversight.

“This is not about automobiles or about the Trump administration, this is broader reform I think is consistent with the original intent [of Section 232],” said Portman.

Portman told reporters he’s concerned the United States could lose its ability to use Section 232 if it misuses the statute. Plus, he says misuse leads to retaliatory tariffs that hurt American farmers, manufacturers and consumers.

“My broader view of trade is that if it’s not based on fairness, it comes back to haunt us,” said Portman.


If the Commerce Department finds automotive imports present a threat, the President will have ninety days to decide what to do next. President Trump has already floated the idea of a 25% tariff on auto imports.

Senate Finance Committee Chairman Chuck Grassley, a Republican from Iowa, spoke against auto tariffs on the senate floor this week.

“I hope the President will heed my call to forego the auto tariffs and focus on opening new markets. The U.S. auto industry is a major driver of our economy, supporting nearly 10 million American jobs and accounting for 3 percent of our GDP. Without question, any tariffs that are imposed will have a negative effect on the U.S. auto industry and our economy,” said Grassley.

Portman has also expressed concern about auto tariffs.

“I don’t know what they’re [the Commerce Department] going to report, but I do know that this [the Trade Security Act] is timely,” said Portman.

The senator told reporters if the Trade Security Act is signed before the President enacts tariffs, there would have to be a new report involving the Department of Defense.

Portman insists the bill is not a direct response to the Trump administration or potential auto tariffs, but says he wants to move quickly to give Congress the ability to push back.

“We are strengthening Congress’ hand and the role of Congress — which again I think is appropriate,” said Portman. “It’s kind of hard to argue that minivans from Canada pose a national security threat.”

A bipartisan group of lawmakers including Senator Dianne Feinstein, Senator Doug Jones, Senator Joni Ernst and others have signed on to Portman’s bill. A bipartisan companion bill has been introduced in the House.   Source

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