“There’s no difference between China and any other country except they are much larger.”
That’s a quote from — you guessed it — Donald Trump, and unfortunately I’m not sure it makes a lot of sense in the context of trade, where size matters quite a bit.
Beijing reportedly instructed domestic carriers to stop taking delivery of Boeing jets and also equipment and parts from US companies, the latest escalation in a trade spat which ventured into cartoon territory last week, when the US and China slapped each other with triple-digit duties.
The Boeing news isn’t a huge deal in the near-term, but it’d be difficult to stomach for the company — which scarcely needs more problems — if sustained. Looking out to 2050 or so, China’s seen buying one out of every five new planes made.
Trump wasn’t amused, accusing Beijing of “reneging” on a “big Boeing deal” towards the end of a disjointed screed about China abusing America’s farmers posted to TruthSocial.
I wish this would stop, really I do, because nothing’s going to come of it. Contrary to Trump’s claims, nothing came of it during his first term either. There was no China “deal.” There was a signing ceremony for “phase one” of something he called a deal, but within weeks the pandemic effectively nullified it.
Last week, in the course of ratcheting duties on US goods higher, China’s State Council called triple-digit tariffs “a joke,” and they’re right. Everyone knows this isn’t sustainable without collapsing the global economy, including fund managers who now harbor the worst growth outlook in at least 30 years, according to the latest installment of BofA’s monthly poll.
In the same poll, “trade war triggers a global recession” was identified as the biggest tail risk, capturing 80% of the vote, making it the most consensus tail risk in the history of the bank’s polling.
As the figure shows — and as I emphasized on Tuesday morning — nothing else really matters right now.
Do note that BofA asked about the prospect of a “dollar crash” tied to the burgeoning buyers’ strike for US assets. It’s remarkable that we’re discussing that, but here we are.
In the same quasi-statement mentioned here at the outset, Trump said China “needs” to make a deal whereas he doesn’t. That’s the same sort of balderdash he trafficked in frequently during the the first trade war. It wasn’t true then and it’s not true now.
Saying America has a better hand isn’t the same as saying the US can decouple from China completely. And make no mistake: 125% tariffs — or whatever the rate is today — may as well constitute a complete decoupling.
Americans aren’t very self-sufficient anymore, and I dare say we’ve lost a lot of our industriousness over the decades. Not so with the Chinese. Waiting these people out — “What do you mean, ‘These people?!'” — is a fool’s errand.
“Trump misunderstood that while in each individual bilateral negotiation he has the upper hand, in the totality of integrative multilateral negotiations against the whole world, he is cornered and bound to lose,” Marko Kolanovic remarked on Tuesday.
It’s worth noting that doubts are starting to creep in about the prospects for tax cuts to cushion the blow for the US economy. Now, Republicans are talking about raising taxes on the richest Americans to help clear the way for the rest of the bill to pass.
In the BofA poll, 63% said tax cuts won’t boost US growth in the back half of this year. The same 63% (not literally the same fund managers, but the same split) said stimulus will boost the Chinese economy in H2. That’s consistent with the message from flows, as illustrated below.
The figures, from Nomura, tally EPFR data to show the asset allocation shift over the past four weeks: Towards Europe and China, where fiscal outlays are seen rising and policymakers are in stimulus mode, and away from the US.
For now, The White House is adamant that Beijing has to make the first call — that Xi has to reach out. But China takes the concept of “mutual respect” deadly serious. They don’t like to be belittled, and Xi can’t be made to look weak domestically.
Further, it’s not obvious — at all — that Trump’s expectations are realistic, and as Bloomberg noted on Tuesday, Beijing’s not even clear what his demands actually are. Trump didn’t elaborate on what he wants Tuesday, but did say what he thinks China wants: The American consumer. “To put it another way, they need our money,” he added.
To Kolanovic’s point, Xi may need the American consumer a lot less after Liberation Day than before it. I’m sure Europe could find some Chinese crap they want to buy in exchange for a long-term Airbus deal.
“For now, The White House is adamant that Beijing has to make the first call — that Xi has to reach out. But China takes the concept of “mutual respect” deadly serious. They don’t like to be belittled, and Xi can’t be made to look weak domestically.”
Gosh … we’ve come down to a battle over who, as you put it, flinches first! Or through an Asian prism, who is willing to lose face. Xie is not in a position to lose face with the populace, especially to a white foreigner. Schools still remind students of the sign in the park in the western quarter of Shanghai back in the 1920s: No Dogs or Chinese Allowed.
Lest we ridicule the idea of anyone bearing a century-old gridge, take a trip down to the deep south in the US where resentment against “the war of northern aggression” still holds sway.
The “No-dogs” sign is poignant reminder of the submissive and sometimes catastrophic history of China’s relationship with the West. It runs much deeper than the sign. The Opium Wars, the Taiping Rebellion, the Boxer Rebellion, and a long series of threats and interventions shape the collective Chinese psyche. When we speak of losing face it’s worth remembering there was a century of face lost in a way that is not quickly forgotten. I suspect that Xi and the entire Chinese population believe there is much more at stake for them than lost trade. It is inherited humiliation and the associated latent anger that is lost on many of the rest of us.
This comment is in no way an endorsement of the CCP, the PRC, or any of their history or current policies. It is instead a suspicion that President Trump has no idea of the breadth and depth of the issues he is confronting.
Perhaps a neutral party can broker talks? The Saudis? Trump has proven to be amenable to similar arrangements.
H-Man, I thought Marko K had retired. Is he just publishing a newsletter or working for a firm?
Marko still very active voicing opinions on X, him and a handful of fintweet accounts are the main reason I have not deleted the damned right wing propaganda app from my phone.
Wish they’d move to Bluesky. Some have.
X is acting weirdly. After I hid a Musk tweet that appeared on my timeline, all my fintwit follows disappeared, but my sports and general news follows remained – but this change was only on my iOS app, not on desktop. Very weird. Rather than try to rebuild my follow list, I’ll probably just remove the app from my phone.
Americans can’t out work or out last the Chinese. Americans have consistently misunderstood a good portion of the world for at least 70 years. Most here don’t know how good we’ve had it and it’s made us blind to how the rest of the world feels and thinks, perfectly modeling Trump. There’s a lot of resentment out there about our imperiousness and China is more than happy to take us on and now they’ve got a growing number of collaborators who wouldn’t mind this country being taken down a peg or three.
I don’t think anybody can talk Donny down from the ledge.
When will people understand that China has been producing art for 5000 years. The US has no real cultural history beyond a couple of minor contributions to the world in that last couple hundred years. The Chinese are a people that know how to wait. Americans are not among those who wait. They run all the stop signs they see. They break all the laws they want to. They cut you off on the road if you go less than10 mph over the limit. We want instant answers to everything, and we rarely get them. That’s OK. We will be gone soon. That’s Trump’s strategy, after all. Damage us all and keep the spoils for himself, personally.