Mike Pence Goes To APEC, Shows Xi His Mean Face, While China’s U.S. Treasury Holdings Drop For Fourth Month

Mike Pence isn’t good for much and according to The New York Times, he might not even be all that loyal to Trump, but one thing you can count on the Vice President to do is show up in Asia and put on his mean face.

Last year, while visiting South Korea, Pence was told he probably shouldn’t go outside the Freedom House on the Southern side of the demilitarized zone, but not only did Mike go outside, he proceeded to try and stare down the North Koreans. Here’s the indelible image for anyone who needs a reminder (or for anyone in search of comic relief):



“I thought it was important that we went outside,” he said. “I thought it was important that people on the other side of the DMZ see our resolve in my face.”

Well, on Saturday, Mike was in Papua New Guinea, filling in for Trump who decided not to attend the Asia-Pacific Economic Cooperation summit, presumably because anytime someone mentions the word “cooperate” in the same sentence as “Asia”, the President automatically declines the invite.

Here’s what Pence said about the prospect of more U.S. tariffs on China:

We have taken decisive action to address our imbalance with China. We put tariffs on $250 billion in Chinese goods, and we could more than double that number. The United States will not change course until China changes its ways. China has taken advantage of the United States for many years. Those days are over.

Not to put too fine a point on it, but that is markedly different from the tone struck by Trump on Friday while speaking to reporters in the Oval Office, when the President said the U.S. “may not have to do more tariffs.”

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Pence did suggest that “progress” could be made at the G20, but his tone was the opposite of conciliatory. To top it off, he decided to mock Xi Jinping’s Belt and Road initiative as follows:

We don’t offer constricting belts or a one-way road.

Amusingly, Xi struck the opposite tone. “Attempts to form exclusive blocs or impose one’s will on others should be rejected,” he said, adding that “history has shown that confrontation, whether in the form of a cold war, a hot war or a trade war, will produce no winners.”

Tariffs and efforts to force companies to rework their supply chains are “short-sighted and doomed to failure”, he went on to warn.

Meanwhile, the latest data from Treasury shows China’s holdings of U.S. debt fell for a fourth consecutive month in September to $1.15 trillion, a more than one-year low.



That’s bad news for the U.S. at a time when Steve Mnuchin is being forced to sell more and more debt to finance Trump’s stimulus.

The decline in China’s Treasury holdings is perhaps further evidence that Beijing is taking steps to stabilize the yuan as a decelerating domestic economy, the threat of more tariffs and a growing policy divergence between the Fed and the PBoC continue to put pressure on the currency.

Earlier this month, the yuan staged its largest two-day rally in a decade following reports that Trump instructed aides to draft a truce to present to Xi. That rumor was subsequently played down by Larry Kudlow and the yuan has since retraced those gains. Earlier this week, the PBoC dropped key language from its monetary policy report indicating authorities are perhaps becoming less tolerant of depreciation which, if true, suggests capital outflows are becoming a concern.

“FX reserves declined in September and October even after factoring in valuation adjustments [and] in September FX assets at the PBoC, net FX settled by banks on behalf of clients, cross-border flows via yuan payments, and yuan deposits in Hong Kong all indicate modest outflows”, SocGen’s Jason Daw wrote in a note out last week. On the bright side, Daw also observed that “household foreign exchange deposits shows no capital outflow pressure.”

All eyes now turn to the G20 later this month.

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