Ordinarily, news that the Donald had fired John Bolton over “differing approaches on Iran, North Korea and Afghanistan,” as The New York Times “Breaking News” alert phrased it, would have us celebrating a blow against American Empire.
Is the Great Disruptor rolling back the Warfare State? We’ll see. Dispatching from his administration the neocon’s neocon is a good sign.
Elsewhere, however, it’s more of the same. As in, markets are encouraged – again – by reports of renewed talks between President Trump’s and President Xi’s negotiating teams…
Chris Scott, in his regular Tuesday dispatch, is here to tell us to be wary of this nonsense.
By Chris Scott
“Trade War Optimism” has again soothed investors who have no better place to put their money than the stock market.
But the reaction last week to the U.S. and China wading cautiously back into trade negotiations is shortsighted for two simple reasons:
- First, talks between vice ministers paving the way for high-level negotiations in October may not lead anywhere
- And, second, in order just to get to the high-level discussions next month, China will likely demand that the U.S. back down both on further tariffs and the blacklisting of Chinese tech giant Huawei.
Trade Talks are Not Back on Track
Let’s explain why this reality makes it nearly impossible even just to get the Donald’s dynamic duo of Trade Czar Robert Lighthizer and Treasury Secretary Steven Mnuchin back to the negotiating table in Beijing…
Make no mistake, despite the headlines and tweets last week, talks are not back on track. We’re now in a stage where both sides are merely negotiating about the potential of negotiating. Beijing has made clear through various channels that, if Trump wants the hungry masses on the other side of the globe to start buying what we grow again, he must capitulate first.
This level of “goodwill” is necessary just to get China’s top trade emissary, Vice Premier Liu He, back on a plane to Imperial Washington. He’s been left out to dry when he thought he had a deal too many times already not to need a concession or two ahead of time.
Before I go into further detail about this unfortunate situation, a word about China’s flagging economy…
Yes, businesses and consumers are feeling pain in the Middle Kingdom. That’s abundantly clear. But, as I’ve noted, the misjudgment so common in Imperial Washington these days is not about China’s economy. It’s about the politics in Beijing.
The leader at the helm of an awakened dragon, Xi Jinping, was born and raised behind the curtain, inside the smoke-filled back rooms where elite Machiavellian Communist Party politics played out. Consolidating power and crushing political opponents is all he knows, and he’s managed to succeed at it in a few short years.
Xi doesn’t want the economy to see a hard landing. But he’s not up for reelection. And standing up to the U.S. might benefit him more in the long term than shoring up the economy for this year and the next.
Remember, Mao Zedong sent China into the Middle Ages and still managed to keep his enemies at bay.
Huawei is Another Issue
The really sticky part is Trump doesn’t just have to surrender on his planned tariffs (a particularly painful round is set to go into effect in December). He also has to pull America’s boot off the neck of China’s most precious national champion, Huawei.
The telecommunications powerhouse that’s swept across the globe is at the center of this century’s battle for supremacy. Clipping Huawei’s wings is perhaps the single most bipartisan goal that exists in Washington.
Even the rural United States still relies on the Chinese company to build its mobile networks, and Huawei is now building fifth-generation wireless networks in every corner of the globe. This includes those that will be used by our closest allies – nearly all of whom ignored America’s warnings not to do so.
U.S. intelligence agencies fear that the Chinese Communist Party will use this network equipment, along with Huawei smartphones, to spy on the world.
Despite the fact that none of your friends uses a Huawei handset (they’ve been effectively blocked out of the US market for years), sales of the phones around the globe were growing so fast up until this year that they were poised to become the most sold within a year or two. They’ve already overtaken Apple (Nasdaq: AAPL) in terms of units sold.
That came to a halt this year when the Trump administration placed Huawei on a blacklist that prevented China’s biggest commercial success from buying components it depends on from the United States.
Huawei is too big to be killed by such a move. But the prospect that its consumer products division would leapfrog Samsung to become the global smartphone leader was shattered.
Is Trump going to let China take over the future of essential technology in exchange for some sales of soybeans? When that happens, investors will be right to breathe a sigh of relief. Until then, we can ignore the headlines.
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…
Correction: This story was edited to clarify that the US and China have in fact already confirmed plans for high-level negotiations in October. That is an important clarification but does not change the premise that key sticking points remain for deputy-level discussions to lay the groundwork for the potential talks.