Why An Economic War With The US Blows China Up


Submitted by Michael Every of Rabobank

So say we all

“By putting more barriers in China’s path to US markets and, in the process, risking some short-term damage to the domestic and global economies, President Donald Trump could exact a heavy long-term cost on the world’s second-largest economy. Indeed, he may even threaten China’s chances of eventually entering the ranks of high-income countries. Chinese leaders have long known that they need to change their development model if they are to make this difficult transition, powering through the dreaded “middle-income trap” that’s tripped up so many other developing countries…

With external tailwinds turning into headwinds, China will need to rely far more on domestic demand to generate prosperity. To do so without building up risks in the financial system, Beijing would need to promote far greater household consumption and private investment, rather than relying on the debt-fuelled government investment and inefficient state owned enterprises that have helped drive domestic engines of growth for most of the last several decades.”

So says Mohamed El-Erian, writing for Bloomberg, after the US shut Huawei out of its markets, legislation to apply the same export restrictions to ALL firms listed under ‘Made in China 2025’ progresses through Congress, and suggestions fly the US might even go as far as placing Iran-style sanctions on any third party that IS prepared to sell crucial inputs to Huawei. Given Chinese households are swimming in debt and its housing bubble is the world’s largest, and that boosting lending to private firms is out of line with local banks resources, I say “Checkmate, Mr Trampoline.”

“China’s economic growth could tumble, debt surge and foreign companies flee in a deepening trade war, economists warn as a week of escalating tensions forces them to ponder worst-case scenarios…Analysts are assessing the damage to China’s role as the world’s supply hub as tariffs drive manufacturers overseas.”

So says Bloomberg in ‘China’s Trade Worst Case: Growth Slows, Debt Rises, Companies Exit’.

“Altogether, an economic war with the US blows China up. China would be cut off from Western markets, ideas, technology, and US dollar-flow long, long before it’s ready to replace the US for real.”

So say I in the aforementioned article, echoing something I have been pointing out to a then-sceptical audience since late 2017.

“President Donald Trump’s new tariffs are helping to erode China’s appeal as a place where stuff gets made…a chorus of executives…are citing the trade war as the final straw in their shift out of China, with margins already squeezed by rising labour costs, tougher environmental standards and domestic competition. Last week Trump hiked tariffs on USD200 billion of Chinese imports and the US is readying the expansion of that treatment to the remainder. Even Chinese firms are moving to dodge the tariffs….”

So says Bloomberg again in ‘Trump Tariffs Seal the Deal for Companies Looking to Quit China’.

“Western companies, including brand name apparel makers and food companies, have become entangled in China’s campaign to forcibly assimilate its Muslim population….at the end of long, often opaque supply chains that travel through China’s northwest region of Xinjiang. Residents there are routinely forced into training programs that feed workers to area factories, according to locals, official notices and state media.”

So says the Wall Street Journal in ‘Western Companies Get Tangled in China’s Muslim Clampdown’. So let’s add a serious reputational risk to those huge economic problems, US tariffs forcing, and a technology squeeze.

China should ‘stop selling rare earths to the US; sell off its US Treasuries; and shut US firms out its lucrative concentration camps markets’.

So says China’s Global Times in an op-ed, ‘China has three trump cards to win trade war with US’. Well, the second threat is nonsense, as we keep explaining, and doesn’t boost the credibility of the Global Times, to put it mildly; the last will accelerate the flood of firms out of China; and the first means the US will just buy rare earths from Mexico, Vietnam–notice how these two keep winning?–or Australia and in the future Japan, as well as developing its own resources. The economic divorce will simply accelerate.

“I’m going to go for it. Of course I’m going to go for it.”

So says Trump regarding tariffs Boris Johnson in regards to the Tory leadership now that PM May is likely to be out the door by the end of June: May-xit? She first has to fail in her last attempt to get her Withdrawal Agreement through Parliament, after which a short timetable for her departure will be imposed. And won’t the EU be pleased with a sweeping victory for The Brexit Party in the EU polls next week and then new hard-line PM Johnson?

Prepare for proxy war

So says the EU regarding Boris a top Iranian military leader, according to the Guardian, suggesting it isn’t just John ‘Gulf of Tonkin’ Bolton looking for a scrap in the region.

“It’s always time to buy stocks.”

So say brokers in the US–for a change–where the Dow closed up 0.8% regardless, while Shanghai dared to see some slight selling (I want names!) after a large rally yesterday that was in no way intended by the authorities to display to the world that China-will-be-just-fine-regardless-of-the-trade-war, thank-you-very-much. CNH touched 6.9464 on Friday, which is perhaps of more interest, as is AUD breaking below 69c and staying there at the time of writing. That doesn’t match its January low of 0.6740. But we will get there soon enough, trust me.

Original source: http://feedproxy.google.com/~r/zerohedge/feed/~3/fUAwMaICcDk/why-economic-war-us-blows-china

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