Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17
The War On Cash Is Now Becoming The War On Cryptocurrency - 15th Jun 17
The US Dollar Bull Case - 15th Jun 17
The Pros and Cons of Bitcoin and Blockchain - 15th Jun 17
The Retail Sector Downfall We Saw Coming - 15th Jun 17
Charts That Explain Why The US Rule Oil Prices Not OPEC - 15th Jun 17
How to Find the Best Auto Loan - 15th Jun 17
Ultra-low Stock Market Volatility #ThisTimeIsDifferent - 14th Jun 17
DOLLAR has recently damaged GOLD and SILVER- viewed in MRI 3D charts - 14th Jun 17
US Dollar Acceleration Phase is Dead Ahead! - 14th Jun 17
Hit or Pass? An Overview of 2017’s Best Ranked Stocks - 14th Jun 17
Rise Gold to Recommence Work at Idaho Maryland Mine After 60 Years - 14th Jun 17
Stock Market Tech Shakeout! - 14th Jun 17
The #1 Gold Stock of 2017 - 14th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Looming Trade War - The China Syndrome

Economics / China Economy Jun 06, 2007 - 01:37 PM GMT

By: Dr_William_R_Swagell

Economics

“The issue on the table is not whether the US needs to take action to respond to the interventionist policies of China and Japan in this key area, but what form that action should take.” Sander Levin, Chairman trade subcommittee House Ways & Means Committee.

“The time for talk has passed; we must act now to end this unfair trade practice that cripples American industries.” Charles Rangel, Chairman House Ways & Means Committee.

“…by going after China, you in the Congress are playing with fire… (risking) a policy blunder of monumental proportions…if the China bashers get their way.”


“If Congress changes its mind and backs away, it fears it will lose all credibility on this key issue with American workers. With respect to China , I am afraid that means the US Congress has now gone past the point of no return. ” Stephen Roach, chief economist Morgan Stanley.

“ China's breakneck industrialization is placing it on a collision course with the entire world . Tomorrow's China Wars will be fought over everything from decent jobs, liveable wages and leading technologies to strategic resources such as oil, copper and steel…even food, water and air.”
Jim Puplava, www.financialsense.com .

The Looming Trade War with China.

China's ongoing massive trade surpluses with America (a record $233 billion last year) have incited demands in the U.S. Congress for the Chinese to revalue their currency by up to 40 per cent , amid claims that undervaluation of the Yuan is giving China's exporters an unfair advantage. Among some of the tough measures being mooted are a 44 per cent duty on polyester fibre imports, an across-the-board 27 per cent tariff on all Chinese goods, and a recently introduced tariff of 11 to 21 per cent on glossy paper

Reasons given as to why “strong action” is called for include China's “unfair currency manipulation” and that “China is illegally subsidizing some of its exports” .

So how did we get to this present situation?

The China miracle of the past decade has in large part been a result of globalization which has seen a nation of nearly 1.4 billion Chinese move rapidly from a poor, agricultural based economy to become the industrialized low-cost manufacturer to the world. The lowered manufacturing costs of most of the goods consumed in the world today has helped drive down inflationary forces, which in turn have allowed Central Banks to open the spigots further and flood the world with easy credit and liquidity in order to keep markets booming and to avoid any painful recession. The fact that this fiscal loosening also sent the U.S. dollar falling has continued the virtuous cycle as imports into America became even cheaper and more plentiful. 

With a torrent of U.S. dollars pouring into its coffers, China has recycled these dollars back into U.S.D. securities (as Japan has also been doing) so as to artificially keep the exchange rate in its favour as well as to receive a better return than their own very low interest rates. This in turn has neutralized the “Bond Vigilantes” (preventing them from trying to keep an ever more profligate Federal Reserve honest) by keeping downward pressure on inflation and interest rates. The virtuous cycle has continued.

But now it appears the rules of engagement are changing . The Democrat controlled U.S. Congress looks set to halt the loss of millions of jobs overseas by demanding that China dramatically revalue its currency upwards. Meanwhile, America's trading partners are acutely aware that with the housing bubble showing signs of deflating, the U.S. consumer may be just about tapped out and flagging from a spending binge that has squandered much of world savings. They are also becoming increasingly worried about the continued weakening of the US dollar.

Consequently China is now rapidly reinvesting a greater share of its trade surplus elsewhere into hedge and private equity funds, and actively acquiring assets and commodities (especially in Africa). Some accuse it of applying amoral foreign and economic policies in its quest to tie up access to the world's resources. This ranges from using it powers of veto in the United Nations to carry favour with resource rich countries, to providing economic or military aid to struggling countries (some being ruined by ruthless and callous leaders) in return for guaranteed resource supply. At the same time China is rapidly building massive military might that can no doubt also be used to gain access to resources by force if necessary.

In his latest book “The Coming China Wars: Where They Will Be Fought and How They Can Be Won” Peter Navarro PhD (Assoc. Professor Economics , University California) believes the Chinese have achieved a “crushing competitive advantage” that allows them to undercut competitors not solely through cheap labour. His research makes him believe the advantage is more due to unfair trading advantages that come from currency manipulation, complex export subsidies and tax breaks, the lack of environmental and safety standards, and counterfeiting and piracy that sidesteps Research & Development and Marketing costs. Navarro thinks it ironic that not only is China on track to soon take over the mantle of World's Worst Polluter, but is in danger of turning much of its nation into a dustbowl and vast regions into a toxic landscape. 

The Chinese counter these claims by stressing that 60 per cent of their exports come from foreign invested companies, and that sometimes the margins retained by China are laughable. For example, of the US$9.99 price of a Barbie Doll made in China only 35 cents stays in the country.

China has also been striving to stimulate domestic demand from its own emerging consumers as the country's new wealth trickles down through the population and to encourage its own brand of capitalism. It seems to have succeeded in unleashing a stock market bubble instead.

The WILD, WILD EAST

In his excellent article “Casino Royale, China and the Ghosts of 1929” Ty Andros ( www.traderview.com ) makes a worrying comparison between the world today and 1929;

“The history for the United States is repeating now in China…the”WILD,WILD EAST”…A mania is in full swing in the Shanghai and Shenzhen stock markets…The market is up over 300% in less than two years. The regular bank lobbies were mob scenes of people rushing to withdraw their savings. Every bank had long lines. They are selling their homes, hocking the jewelry, anything to get liquid…withdrawing their money and throwing it at the market…Chinese investors have been opening accounts at the rate of 1 million per week…The Chinese love to gamble…it makes Las Vegas look like a picnic… The reason Chinese citizens are at the banks withdrawing the cash is to tote it down the street to the brokerage…wires and checks are not a regular means of facilitating commerce…the Chinese financial and banking system…is fragmented and dysfunctional.” 

Andros asks what may be the fallout if trade wars damage China's economy and “the emerging Chinese consumer and the US consumer are knocked out at the same time?”

His answer? ... “The great depression of the US repeated in China, exacerbated by an antique banking system that is unable to properly transmit and provide liquidity”. 

When I read that piece it reminded me of the Academy Award winning Stanley Kramer 1958 movie “The Defiant Ones” starring Tony Cutis and Sidney Poitier (yes I'm that old). In the movie a white convict (Tony Curtis) and a black convict (Sidney Poitier) escape from a southern chain gang. The men, chained together by 29 inch long shackles, and seething with racial animosity, must overcome their hatred of each other as they battle bloodhounds, pursuing law officers, hostile townsfolk and a lynch mob. They quickly realize that their fates are inter-twined and to survive they must somehow cooperate and work together. If one of them stumbles or collapses, then the other gets dragged down as well.

Needless to say, if these two Titans decide to battle it out, the other world economies will undoubtedly be hit hard by the fallout…an economic fallout that will lead to recession/depression, a global environmental fallout, and possibly even (God forbid) a nuclear fallout (China has just added a further 5 nuclear subs to its fleet). 

 

The Risk Takers Motto

“Unless you feel like physically vomiting twice during a risk-arbitrage transaction, you haven't earned your money”.

A major global hedge fund manager to a hedge fund broker.

All the best, Joe.
www.lifetoday.com.au

Copyright © 2007 Dr William R Swagell
Disclaimer
: This newsletter is written for educational purposes only. It should not be construed as advice to buy, hold or sell any financial instrument whatsoever. The author is merely expressing his own personal opinion and will not assume any responsibility whatsoever for the actions of the reader. Always consult a licensed investment professional before making any investment decision.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments


15 Apr 08, 02:26
History Repeats

why can`t people as a whole just take their haeds out of their rears and understand that history repeats itself and learn to adapt to a new way of thinking on how to exixst on this planet for the short time that we are all here and be nice to one another! I was not born into debt but due to others misgivings i probably will do


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife