Trade

The Donald Pokes the Red Ponzi

By David Stockman  |  May 6, 2019

Sooner or later every war of trade becomes a war of blood.

– Eugene V. Debs, “Speech of Sedition,”
June 16, 1918(1794)

After the Federal Reserve totally capitulated to Wall Street, Bubblevision, and the Tweeter-in-Chief, the next catalyst was supposed to be the China Trade Deal. That accounts for much of the “hopium” that fueled the market’s run to a new Trump Peak.

But, yesterday, it all came undone in a two-tweet thread…

For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars….

….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

That’s why equity futures plunged in the overnight trade leading to Monday’s open. It really doesn’t even matter that the president has no idea how tariffs work. The fact is that U.S. consumers will bear the burden of those new tariffs in the form of higher prices at Walmart and on Amazon.com.

So, if you are…

  1. buying
  2. selling
  3. not buying
  4. not selling

…because a China Trade Deal is on or because a China Trade Deal is off, you’re playing their game. And their game isn’t going to end well.

Whatever comes of talks between President Xi and President Trump, the Trade War is just the beginning of a prolonged slugfest that will end the party inside the Acela Corridor.

As a primary matter, a China Trade Deal will not rejuvenate Main Street.

That’s because Team Trump’s tactics aim at the Donald’s base. His chief negotiator, Bob Lighthizer, is a K Street racketeer of the first order. He’s spent his entire career in service of expanding the reach, power, and pelf of the Leviathan on the Potomac.

Lightizer bamboozled the Donald into imposing those tariffs on Chinese imports. The goal is to pressure the Red Ponzi making it easier for U.S. corporations to invest in China.

The proof is in the report of an investigation conducted based on Section 301 of the Trade Act of 1974. That document launched the Donald’s Trade War in the spring of 2018.

China’s “unfair acts, policies and practices” are documented across 215 pages of “findings.” But this report is all about what happens to American companies when they try to operate on the Mainland or when they try to sell assets to Chinese acquirers.

There’s little to do with bilateral merchandise trade between the U.S. and China. Nor does it examine the freakish fact that China exported $563 billion of goods to the U.S. in 2018 but bought only $120 billion of goods from U.S.-based suppliers.

The resulting $443 billion deficit is what had the Donald’s orange mop standing on end. To a substantial degree, it measures the offshoring of U.S. jobs and production that’s left Main Street high and dry.

But the Section 301 report doesn’t’ even bother to document how China subsidizes its exports and discriminates against U.S. imports.

Bringing production and jobs back to Flyover America – the Donald’s decades-old obsession – is an afterthought… at best.

He’s attempting to erect – on the backs of American consumers, farmers, and exporters – an industrial policy of Imperial Washington’s own. It’s to “counter” the Communist Party of China’s centrally planned economy.

A Chinese agreement to ease or even eliminate pressure on American companies operating in the Middle Kingdom will please the Business Roundtable.

What good will it do for jobs and production in Wisconsin?

“Cogency” Counts

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR