China trade Trump

The Benign, The Bad And The ‘Severely’ Ugly: Your Complete Guide To The Burgeoning Global Trade War

On the off chance everyone decides to "punch back"...

Well, the trade news just keeps getting more ominous by the hour.

As the global equity selloff accelerated on Monday morning, WSJ was out with some comments attributed to Xi that sound like the Chinese strongman has indeed heard just about enough bluster from Trump.

“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek [but] in our culture, we punch back,” Xi is quoted as saying.

That would appear to underscore my humorous take on all of this bullshit from “The Real Estate Developer, The Chinese Strongman And Cheshire Cat’s Smile“:

I don’t know where Donald Trump got the idea that Xi Jinping is a man with whom one wants to fuck, but somewhere along the way, he (Trump) seems to have gotten the impression that he was going to be able to strong-arm the second most powerful man on the planet (the first being Putin and well, that’s another story).

What makes this so bizarre is that given Trump’s admiration for autocrats, you’d think he would have some vague conception of the extent to which “the King of China” is both a dictator and a strongman and thereby not amenable to being bullied by hapless real estate developers with delusions of grandeur. I mean, just think about what Trump has said about Kim Jong-Un lately (e.g., Kim being a “tough guy” whose people “stand at attention” when he speaks). That’s Kim Jong-Un. This is Xi-fucking-Jinping.

Whatever the case, things have gone demonstrably off the rails over the past several weeks when it comes to trade and Trump is starting to find out that generally speaking, there is nothing “good” about starting a fight with Xi and there is no world in which that fight is “easy to win”.

That’s even more true now than it was a week ago when I wrote it. The idea of Trump restricting Chinese investment in U.S. industries as a way to hit Xi on his “Made in China 2025” plan is a non-starter for Beijing – that’s a sore spot for China and more than a few folks have variously suggested it will be a bridge too far.

It’s no longer possible to trot out the old “markets are taking this in stride” meme, because they’re not – taking it in stride that is. European equities plunged on Monday and Chinese stocks are teetering on the edge of a bear market. Trump has also ratcheted up the rhetoric when it comes to U.S. tariffs on European autos.

In light of Monday’s market action it’s probably useful to take a step back and look at where we actually are in terms of what’s been implemented and what might be coming. It’s also helpful to document how exactly it is we got here.

Taking the latter point first, below a fun (and breathless) summary from a Dealbreaker piece out a couple of Fridays ago. This takes you up to June 15 or, more simply, it tells the story of where things stood headed into last week:

First Donald Trump told flyover America that China was largely to blame for the decline of American manufacturing. Then, flyover America elected Donald Trump. Then, Donald Trump made Peter Navarro trade czar. Gary Cohn was supposed to counterbalance Navarro and that worked reasonably well right up until January when Trump took the first baby steps towards what has since morphed into an all-out trade war by slapping tariffs on residential washing machines. Steve Mnuchin made things worse by jawboning the dollar lower in Davos less than 48 hours later. About a month after that, Navarro and Wilbur Ross saw an opportunity to parlay Trump’s consternation at the exit of Hope Hicks into the announcement of steel and aluminum tariffs. That announcement prompted Cohn’s resignation. Then Wilbur Ross showed up on CNBC with a can of Campbell’s soup he said he bought at a local gas station in Florida. Larry Kudlow replaced Cohn, reviving hopes that Trump would call off the trade war. Three weeks later, the USTR published a list of Chinese productsTrump intended to subject to tariffs in connection with the 301 probe. China retaliated immediately. Trump lost his shit and suggested he would slap tariffson another $100 billion worth of Chinese imports which meant that the total amount of goods subject to tariffs would exceed the total amount of goods America imports from China in a given year. A month after that, Navarro was sidelined from trade negotiations with China after reportedly getting into a profanity-laced shouting match with Mnuchin in Beijing. With Navarro out of the picture, a comparatively rational Mnuchin struck a truce with China and told Fox that the trade war was “on hold”. Navarro and Steve Bannon (who started running his mouth to Bloomberg about Mnuchin selling out America) were furious and the backlash from the isolationist contingent caused Trump to change his mind. Fast forward two weeks from that abrupt about-face and you land on June 14, when the White House confirmed that Trump would indeed be slapping $50 billion in Chinese goods with tariffs. In the wee hours of June 15, reports suggested that should China retaliate, Trump would go ahead and publish another list and subsequently make good on the promise mentioned above to take things all the way to $150 billion in total goods taxed. Rounding out the absurdity, Trump, in the official announcement that morning, maintained that he and Xi still have a “great friendship.”

If you’re a visual learner, here’s an actual roadmap from BNP:


And here’s a summary of the actions and proposed actions, also from BNP:


Meanwhile, Goldman is out with an update that essentially takes their previous work and brings it current. Here’s where things stand:

Exhibit 1 provides an overview of the US tariffs that have so far been implemented, announced, and threatened. Duties on $55.7bn of imports have already been implemented, including tariffs on washing machines and solar panels, steel and aluminum. A first round of tariffs on $34 billion of imports from China – a subset of the tariffs on $50 billion in imports first proposed in March – is set to take effect on July 6 unless an agreement is reached with China in the interim. President Trump has threatened three further steps: a 25% tariff on an additional $100bn from China, 20% on $275bn of auto imports and 10% on an additional $300bn from China. If implemented, this would raise the total amount of tariffs the Trump administration has proposed to nearly $800bn.


Next, the bank illustrates “the potential increase in foreign tariff rates if trading partners pursue a full ‘dollar-value’ retaliation strategy to the US tariffs”:


Goldman goes on to update their projections for the real GDP effects of multiple scenarios across economies. This exercise starts with the following chart which shows that overall, the effects are manageable even under adverse scenarios:


But, things get more complicated when China starts to hit back with UST sales and currency depreciation. To wit, from Goldman:

We therefore consider the effects of a reduction in Chinese Treasury holdings (which we assume pushes up 10-year Treasury yields by 25bp) and a weaker currency (which we assume to depreciate by 5%). It has been argued that China can’t simultaneously sell US Treasuries and depreciate the currency, but in our view this underestimates the power of signaling intentions on the currency (as opposed to actual intervention). Exhibit 6 shows how the global output effects change from the all-in tariff scenario in Exhibit 5.


Goldman then extrapolates further, assuming a 10% decline in global equities and an across-the-board 5% tariff levied by everyone on everyone else. They then “layer the two adverse scenarios on top of the all-in scenario in Exhibit 5” to come up with this:


Needless to say, that exercise comes with all manner of caveats and incorporates all kinds of projections and assumptions that may or may not apply in the real world, but the bottom line is that a “total severe trade war” scenario poses a considerable risk to the global economy.

And hell, while we’re extrapolating, allow me to note that it doesn’t take much in the way of imagination to posit a situation where the ongoing escalations that would lead to Goldman’s “total severe trade war” scenario end up “severely” affecting sentiment and creating all manner of second-order effects for markets.

But hey, you can trust Trump to avoid all of this, right? After all, surely to God he understands that this is just meant to be a game designed to bolster the GOP ahead of the midterms.




12 comments on “The Benign, The Bad And The ‘Severely’ Ugly: Your Complete Guide To The Burgeoning Global Trade War

  1. There’s a reason a named the psychopath Mr. Destrcuto. It’s because any casual observer of his history and the road he’s left behind will quickly observe that he destroys everything he puts his mind to. I’m not saying that he while on the road he cannot be successful in winning certain things for himself. As a conman, thief, cheat, huckster, salesman, liar, etc., he has successfully gotten over countless people in his life. We witnessed him just do that in 2016 and continues to do till this day. In doing so, in the short, mid or long term, he destroys or devalues or degrades everything or everyone he touches or impacts.

    On the road to enrich himself and his family, it’s a fact that he doesn’t give a crap about a single American not in his family.

    He spends every waking hour of his life seeking to enrich himself and his family. I gaurantee you that his intention with this so-called trade war is to personally profit. It may not be readily apparent to us. It may be as cynical as his sons shoritng the market with every announcement of a new tarrif. And if you doubt that he and his family are that corrupt and slovenly, then I invite you to read this unbelievable “verified petiiton,” filed on June 14, 2018, against Donald J. Trump, Donald J. Trump Jr., Ivanka Trump, Eric F. Trump and the Donald J. Trump Foundation, by the Attorney General of the State of New York:

  2. Oh Boy! Hi Marty!
    I’ll read yours if you read this one:

    You may have read it right after it was published but now there are 24 comments added. I’m hoping you have one to add to it too!

    I already noticed the one you offered on his income tax was published the same year he had the affair that he still denies (LOL) with Stormy but the photo on that story was of Melania before they married. I bet she wishes she had her life back now!

  3. David J Warren

    Can you imagine the brain power being accessed right now by the Chinese with the intent of totally fucking up DJT? Lets just hope that they only go for him and not the rest of us.

  4. This web site sounds like a Chinese propaganda machine. The trade deficit problem has to be fixed, or the US will be be nothing more than a subsidiary of China Communist Inc. in 20 years. Trump is the only person in Washington seemingly not owned by an international lobbyist group. He is taking a lot of verbal heat from arm chair slanderers like yourself who have very little understanding of the financial situation. You claim that the stock market is just being propped up by stock buy-backs in one article, and then when it goes down, you claim it is being caused by the growing likelihood of a trade war. My view is you are just fishing for a reason to say the market is going up or down – whatever fits your political narrative.

    Most investors know this market is overvalued because of the past 8 years of Fed, BOJ, ECB and PBoC insane monetary policies. The slow reversal of the tide is just beginning to hurt those exposed to over valued assets, and the pain is just beginning (thnk you Obama and Clinton). And it will get worse before it gets better. Therein lies the real investment threat currently. Your view of the trade situation is that it will cause the market to fall, but in reality, it has only a negligibly correlation to the traded value of stocks and bonds – unless you believe that the Chinese central bank (and Japan and the ECB) are going to drastically change their monetary policies for the sole purpose of crashing the stock markets just to get their way. And, logically, if this is what can happen, then it is the so called “free trade” international market (which is a joke) that actually has created this possible predicament.

    If you are a cheerleader for this outcome, and your continuous diatribes show this to be the case, then I propose you actually go and live in a country like China and opening attack Xi through your website; and let me know just how long such a stream of hate narratives launched against Xi will leave you among the living. You have more freedom in American than anywhere else in the world; don’t piss it away by succumbing to the idea being proposed by the “free trade political elitist” that China Inc is the wave of the future, and the US has no choice but to continue down a path to a lower and lower standard of living and piling up more and more debt to buy goods produced in China that could easily be produce in the US instead, such as almost every electronic good available on the planet, the biggest part of the US trade deficit with China. Can you say Apple I-Phone? .

    • Spunky McGregor

      “You have more freedom in American than anywhere else in the world;…”

      This is the dumbest fucking thing I have read in a long, looooong time. Good on you, mate.


    • Kitsunegari

      Well Daniel, let’s get a dose of reality shall we. In Africa (especially the french speaking bits) they call all chinese products “shintoc’, meaning: piece of crap products that we need to buy because everything else is too expensive. Well, my non-friend, pretty soon your best mate Trump’s urge to start a trade war will cause the Chinese to start selling their US treasuries. And the rest of the world will come to see those as shintoc as well.

      What I’m trying to say here is that basically you have been a part of China Inc. since the time the Chinese started buying up all your lovely bonds and notes.

      And as to why the Chinese bought so many shiny US trinkets, well, you need to just look at your overpriced house, and your overpriced car with which you go and buy overpriced food and overpriced medications etc… for which you needed to borrow more and more and more ….

      And the reason for those high prices are to be found with your billionaire overlord friends who only care for the money in their pockets.

      So yeah, go lick ballz Moore.

  5. Error404

    What the comment from Mr. Moore below rather ignores is that trade deficits are not only beneficial to the US, they help underpin its imperial hegemony. Think about it: the US prints digital crap called the dollar, then exchanges it for real stuff produced by other countries. There’s so much of that digital crap out in the wild that, with the help of close to a dozen carrier battle groups to protect the country’s commodity-producing mates, the dollar is the world’s reserve currency. Lose that my friends, and you will have to pay for your own entitlements and weapons with the fruits of your own labour.

    As an aside, the comment from Mr. Moore also highlights an interesting conundrum. Apparently, to criticise Trump is to be a Xi propagandist. By the same token, to support him is presumably to be a ‘useful idiot’ acting for the Russian deep state. Not very edifying.

    • […] an interesting conundrum. OK, let’s just get rid of him now (prison?) and let the dust settle on Pence for a short period of time — less likely he can destroy our Democracy with so little time left in office. And then we can have a “do over” by some new competent respectful human.

  6. I re-read H’s post. Not a word in support of China. Lots of words in support of the proposition that Trump has no earthly idea what he’s doing, is a danger to himself and the world around him.

    Supporters of Trump habitually place a “name,” and give “proper form,” to the actions and things Trump does and says in effort to begin the process of making what is otherwise totally unacceptable “appear” to be most acceptable or the only thing that can be done to solve a given intractable problem.

    So, by way of example only, we have Mr. Moore sharing his view:

    “Trump is the only person in Washington seemingly not owned by an international lobbyist group.”

    Of course, this is supposed to make Trump considerably appear duly equipped to get us involved in far out trade wars. That and I suppose his experience with casinos and his international clientele.

    So, let’s look at this slice of Trump:

    “As a businessman, Mr. Trump made money by licensing the use of his name on an array of products around the world.

    “He now has at least 123 registered and provisionally approved trademarks in China. Of those, four are registered under DTTM Operations — a holding company — while the rest are registered under his name, according to Chinese data. The Trump Organization, the family company now run by Mr. Trump’s two adult sons, said the trademarks registered under his name had been transferred to DTTM.”

    Or, this footnote, for his little baby daughter:

    Quite interesting, ey. I wonder whether Trump and Ivanka use international law firms and lobbying firms in various countries to insure their marks are placed on an array of products around the world and especially in China.

    Or, how about this? As I wrote above, is Donald his own lobbying firm, using his trade war as leverage to make the deals he wants in China?

    Trump’s trade wars are all about Trump’s personal treasury wars. It’s about self-enrichement. Nothing else.

  7. Oh Daniel, we can make any damn thing we want but at what wage or at what cost to consumers. This predicament falls at the feet of American business and its enablers, “free market” republicans (everyone of them) and corporate democrats. Didn’t you hear? We’ve moved from a manufacturing to a financial based economy a long time ago. What could possibly go wrong?

  8. Pingback: Trade Off: Thoughts On Monday's Global Turmoil | Growth Investing Research

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