China Holds the Cards in Trump’s Trade War

The Trump administration continues to play hardball games with China on trade.  The latest news has China angry over Trump going forward with 25% tariffs on an array of Chinese goods after having reached a deal earlier over phone-maker ZTE.

As Bloomberg notes, the announcement by Trump, which seemed to tear up an agreement reached only 10 days ago in Washington, is the latest twist in a trade dispute between the U.S. and China that has rattled financial markets for months and could threaten the broadest global upswing in years, according to the International Monetary Fund.

That said, if Bloomberg is upset about this policy from Trump I’m inclined to be sympathetic.  But, that’s just me being churlish.  Reality is that this kind of behavior only adds fuel to the building devaluation fire building in Beijing.

I discuss why China can and should aggressively devalue the Yuan over the next few months to assist its central Asian partners, namely Iran and Turkey, resist aggressive U.S. sanctions policy over at Strategic Culture Foundation:

Secondly, China devalues the Yuan alongside these struggling emerging market countries’ currencies, not to the same degree but enough to still encourage capital inflow into China, to soften the blow and make the Yuan more attractive to procure needed goods in international markets.

And, since Trump doesn’t dare sanction Chinese banks without destroying the U.S. economy, this is just one of the paths available for countries like Turkey, Iran and the EU-27 to circumvent Trump’s aggressive trade war.

China’s moves are bigger than simply the petroyuan.

As I pointed out last week, China is preparing a broad swath of new metals futures contracts through the London Metals Exchange.  This is in addition to the gold futures contract launched last year.

The more alternatives that countries like Turkey, Venezuela and Iran have to keep their supply chains full  the better they can resist the obvious push towards regime change which is what the sanctions are trying to achieve.

These moves are subtle.  They operate below the headlines in the practical world of actual markets, not the avaricious dreams of Certified Crazy People like John Bolton, Mike Pompeo and Nikki Haley.

China’s central bank and its finance ministry are staffed with people who cut their teeth in Western bond and commmodity pits not M.B.A. programs at Ivy League schools.

It’s one of Trump’s real advantages as a President, his real world experience.  But, it’s also one of his failings as well.  He’s never really run a successful deal on people like the Russians and the Persians.  The former see through his nonsense and the latter he hasn’t been allowed to negotiate with because of U.S. policy.

It’s a weakness in that he doesn’t get the cultural imperatives and their sense of history.  They are looking at remaking the world for the next century.  Trump is trying to get through the next election.


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43 thoughts on “China Holds the Cards in Trump’s Trade War

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