Shanghai Plunges 3.2%, below 3,000 for 1st Time in 2 Years, After Trump Threatens to Massively Escalate Trade War and China Threatens to Massively Retaliate

Apparently, the trade talks have collapsed.

On May 20, Treasury Secretary Mnuchin declared that the US-China trade war was “on hold” while the trade talks were being conducted. That didn’t last long. Apparently, those talks have collapsed. And Monday evening, President Trump threatened to hit another $200 billion of imports from China with 10% tariffs.

The Shanghai Composite Index plunged 3.2% by midday in China on Tuesday, to 2,924, the lowest level since June 2016. The index is down 12% since the end of February. Hong Kong’s Hang Seng fell 2.4% by midday. Tokyo’s Nikkei fell 1.5%. US futures edged down [Update 10:15 am EST: US markets opened 45 min ago, and the Dow is now down nearly 400 points, or about 1.6%…].

It would be the second wave of tariffs, following the already decided first wave of 25% tariffs on $50 billion in goods, with $34 billion of imports to be hit on July 6, and $16 billion to be hit at a later date.

But instead of buckling under Trump’s first wave and addressing the IP-theft issues brought forth by the US, China vowed to retaliate in equal measure, which caused the infuriated White House to massively escalate the trade war with the second wave of threats.

“This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable,” Trump said.

“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.”

“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said.

And Trump threatened a third wave of tariffs – 10% on another $200 billion of Chinese goods – if China retaliates against the second wave. But that threat also fell on deaf ears.

China’s commerce ministry vowed on Tuesday to retaliate with “qualitative” and “quantitative” measures that would match the US tariffs, adding: “Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions, and is a disappointment for the international community.”

“The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the US, but of the world,” the ministry said.

So it might be dawning on the markets in China that this is getting serious.

In terms of the Shanghai Composite index, since the crash of 2015, when the index dropped into the 2,700 range, the 3,000 level has been perceived as the place where the government steps in and moves the levers, in cooperation with more or less willing institutional investors, to buy-buy-buy and nudge the market back up. This heavy hand is likely to appear soon.

Emerging market “turmoil” is already brewing as the Hot Money flees. Read… Chasing Yield during ZIRP & NIRP Evidently Starved Human Brains of Oxygen. Now the Price Is Due

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  117 comments for “Shanghai Plunges 3.2%, below 3,000 for 1st Time in 2 Years, After Trump Threatens to Massively Escalate Trade War and China Threatens to Massively Retaliate

  1. MCH says:

    Wooohooo. Let the bodies hit the floor.

    At the risk of being callous, the end justifies the means here. Although I doubt Trump is really behind this, more likely some of the hardliners in his administration. They see this effort as a way to try to quash China while they still can. Before it becomes too dominant to quash. Everyone knows that despite all the talking media heads, the Europeans will do nothing, the idea of “working together to curb China” is just a bad joke.

    The consequences will probably be horrific, but its either that or cede power. China cannot and will not back down here, just a little too much history and pride at stake. Trump wasn’t wrong about America first, because despite all of the rhetoric, every other country is also proclaiming themselves to be first. Not some nebulous global order run by Wall Street.

    • Vexser says:

      Well said!

    • backwardsevolution says:

      MCH – “Although I doubt Trump is really behind this…” Oh, I think this is all Trump. He’s been saying that China has been taking unfair advantage for a long time now. Trump is against globalization. That’s why the elite are so opposed to him and are fighting him with the fictitious Russiagate.
      People said Trump was shocked and saddened at the hollowed-out factories he saw while on the campaign trail, the loss of jobs.

      Trump is fighting the globalists on behalf of the American people. So far he’s doing a good job.

      • Tom Kauser says:

        He is very for globalization if its his brand? Given the choice between America and the mango Bush brand ….. He would naturally screw America in any way possible and say its one of his core principles?

      • William Murphy says:

        I will believe Trump’s crocodile tears when he stops using foreign labor at his hotels and stops importing his merchandise from China. He is a lying hypocrite.

      • Smingles says:

        Trump doesn’t have principles.

        That said, regardless of his personal motivation here, I think he’s actually in the right. Unfortunately, I think Xi has the upper hand given that as de facto dictator, he can force China to bear the pain of a bad trade war… not so sure Trump can do the same.

        • TropicalSunset says:

          I agree that China’s dictatorship is an advantage here. How will anyone know if they have a crash? They can hide a lot. They can make any “rouge” journalists and dissidents disappear. They control the press so they control the indoctrination.

          USA is a different story. As soon as prices go up and stocks drop Americans will start whining. The media will attack Trump. He won’t get re-elected if there is a recession due to to tariffs.

          So Trump and the USA is at a big DIS-advantage here due to not controlling media and having to get re-elected.. If the American people could get behind it and tighten their belts, the USA could probably do serious damage to the Chinese economy with heavy tariffs.

      • JZ says:

        Trump is “pretending” to fight the globalist on be half of himself to get more vote. In the end, you will be dog-wagged and found that there is lot of fights, nothing material is done and he got the vote because he has fought those the voters hate.
        You must be smoking something if you think Trump is doing anything in be half of anybody but himself.

        • Gershon says:

          Agree, JZ. Trump masqueraded as an economic nationalist to get elected, but has since wasted no time selling out to the Swamp. These trade war antics are pure Kabuki theater with an eye toward looking like a champion of the middle and working classes with the November elections coming up. After that, Trump will drop all pretense of being anything other than what he is: a New York con man on the make and on the take, with no core principles or convictions besides a desire to enrich himself and his spawn.

    • Nicko2 says:

      China has 7% growth. They’re spending $2 trillion on the New Silk Road. They already have open rail routes reaching from Hangzhou on their Eastern most coast, all the way to London. The Rise of China, India, and rest of the East will not cease, indeed it will accelerate. Trump is committing a gigantic, own-goal for the US. We’re in the post-global era, Trump is thinking like a 20th century failed businessman with a bankrupted Atlantic City Casino.

      • Bobby Bridgeseller says:

        > China has 7% growth.

        It might. It might not. Nobody knows because you can’t trust any of the numbers that come out of China. There’s almost certainly a reason for that, and the most likely possibilities cast doubt on the notion that China is as healthy as you seem to believe.

        • James H says:

          No one has lived to tell about shorting China the past 30 years. All you need to do is go to any of the top 20 cities in China to realize their growth has been unrivaled in modern history. Compare that to the stagnation in many American cities. Detroit, Baltimore, Cleveland to name a few. Take out California, which Trump voters hate, and American growth would be near zero. I don’t know if Chinese GDP is 7%. I do know they are one of the largest buyers of oil, coal, iron ore, most precious metals, plastic, wood and farm crops in the world. Look at the companies selling to China if you don’t believe Chinese data.

        • Shawn says:

          Ah, the magnificent Chinaphiles come out of the woodwork. Do you have any idea how much money the Chinese central bank has had to print in order to maintain a measly 7% (very low for China) growth rate? As well as, fund it’s cities to nowhere? About 15 trillion dollars, a QE program that dwarf anybody else.

      • Bobber says:

        The only reason China has 7% growth is the US consumer. Bring that production back home and the US will be the country with growth. Globalisation works only if there are no trade imbalances. I’m all for globalisation and trade if trade imbalances are kept in check through measures like tariffs.

        • Kenny Logouts says:

          Exactly, hence the $2tn on trade routes out of SE Asia.

          Their growth will end as soon as the Westerners stop buying the cheap tat they pump out.

          A nexus point of consumers waking up to the poor quality, high margin junk, and inflation eroding their buying power to the point China can’t go any lower, will end the show.

          It’s baked in, it’s just when will it happen and what triggers it.

    • Lance Manly says:

      They missed their chance with the 19th party Congress last year. Now Xi is firmly in control for the future and can do as he likes to retaliate. Timing is everything.

    • nick kelly says:

      ‘The idea of Europeans “working together to curb China” is just a bad joke.’


      I’ve been trying to figure out what could possibly be referred to here and I think it might be the EU’s reaction to China’s grandiose claims in the South China Sea.

      True. Indeed all of Europe, Britain, all of Asia ex. China and the World Court agree with the US. Canada too!

      Got it, but the topic is trade. Far from pretending to work with the US, France’s Macron has just said the US attempts to dictate tariffs are aimed to create US trade ‘hegemony’

      He added that if the US was intent on isolating itself with tariffs it might have to be the G 6 instead of the G 7.

      Note that I’m not saying he is right, wrong, wise or foolish but he is NOT offering to back up the US on trade.

      Merkel, who tends to sit back and think about things has not responded to Trump’s aversion to seeing Mercedes cars in New York.

      As for short- term pain for long- term gain: Boeing IS looking at the medium term,or 20 years anyway, and sees a trillion dollars of Chinese orders.
      I don’t think Europe is going to even pretend it would upset them to see Airbus get the business.

      • MCH says:

        Nothing so simple as that, if you listen to NPR or any of our media, when they talk in context about China, the trade dispute, it’s all about how Europe, US, and Canada has to band together to curb China and set it right. But that’s just a fantasy.

        Europe has been a mess forever, what you have now, just as throughout history is tribalism in Europe. The EU sounded good to the idealist, but then the rest of Europe found out it was just so that the Germans could become the dominant economy at the expense of the rest of Europe. The Brits finally got wise enough to want to get out of the game. Other countries in the EU are starting to see the same, that this inclusive global village bullshit is exactly that, bullshit. This is one of the big reason why there is the so called rise of the right in Europe in my opinion. Europe as a whole will never work with the US to “curb” China, for them, there is no existential threat like the Soviet Union and there are too many competing economic interests.

        This is basically a reinforcement of your points, everybody points to Trump and says “America First” is bad policy… what they are really saying is “What about me?” So, Trump is absolutely right when he says that everyone is using America as a piggy bank… to be more accurate, everyone is using the idiotic American consumer as a piggy bank. But that’s basically a self-inflicted wound.

    • Begbie says:

      “Before it becomes too dominant to quash”

      Too late, that horse left the barn 20 years ago

      • Rates says:

        Nope. Beyond all the hype, the Chinese can’t even build their own processors. Their tech is built on sand.

        Just take a look at ZTE.

        China is not Japan. At one time, even Murica had to import chips from Japan for their missile guidance systems. Heck, uncle Sam probably still does this. China imports 90% of their processors.

        • Mean Chicken says:

          “China imports 90% of their processors.”

          Based on direct pricing of the final product, they must be obtaining those processors at no cost.

        • JZ says:

          Have you heard? The “tech” is google, facebook, linkedin, netflix, amazon,Apple
          Chinese have all of them. Baidu,Tecent,Alibaba,Huawei.
          That’s where the money is and that’s where the future is. That’s TECH, not some semiconductors ZTE has to import. That was old out dated outdated dinosaur kind of tech.

        • Kent says:

          China is making plenty of processors. Just not one’s that obviously step on US IP rights. After ZTE, I expect China to have a significant focus on increasing and improving that ability.

        • Rates says:

          @JZ, you do know that code does not run in a vacuum right? They have to run in processors.

          And I am a software engineer ……

        • JZ says:

          Rates, I know software run on semiconductors. I am just being sarcastic about current “TECH” in silicon valley. That’s where the money is, but you can never force China into any position by cutting them off netflix, linkin, google, facebook. The true power is still in semiconductors but that’s NOT where the money is. If you define “TECH” as an “EDGE” against your competitors, “TECH” is still in the good old fashioned foundation industries. If you define “TECH” as where the new hot application is or where money is, then China has all the TECH already. From what Inhave seen, Boston Dynamics is one of the “TRUE TECH” that is providing an edge. Google, FB, Linkedin, Netflix, Apple, Amazon, Uber are just some businesses where every country has its own version.

        • Rates says:

          @JZ understood. Thanks for the clarification. I suggest we should not cut off our exports of semi. Instead we should ship them buggy ones. That should keep them guessing for the next 50 years.

          “Why isn’t 2+2 = 4? Wait, sometimes it’s 4, sometimes it’s 3”. Happy times. While they are spinning their head, we can rebuild Murica again.

      • MCH says:

        I would disagree.

        30 years ago, China set itself on a path, that path started with becoming the world’s factory. In their spectacular shortsightedness, Western companies eyeing the largest “market” in the world and with the western governments casually thinking they are now dominant in the world thanks to the death of the Soviet Union decided it was a good idea to use their economic model to slowly transform China too.

        But time has proven that the Chinese model is working to an extent. The communist government was smart enough to loosen the reins just in the right ways while maintaining control while pushing its economy from third world status to the second largest in the world. Now, the reins are very subtly getting tighter again thanks to technology. This is why Deng Xiaoping is considered one of the greatest leaders in modern China, he set a framework for China that is still being followed until this day. The biggest danger right now is that Xi might overstep.

        China today has to be viewed through the lens of a strategic adversary. One that is increasingly difficult to challenge because it has integrated itself into the world economy in a way that the Soviets never have. This is largely thanks to the fact that for nearly 30 years, the leaders of the US. Clinton, Bush, and Obama has made the wrong assumptions and ignored the big picture. Clinton was too busy doling out the peace dividend, Bush was too busy trying to take on minor threats, and Obama’s strategy for the US can be summed up in one word: “Hope.” I really don’t think Trump has what it takes… fundamentally, he is too selfish and too weak. This is a guy that cares too much about himself to put the country ahead of his own personal goals and ambitions.

        I don’t think it’s too late today to try to “rein in” China, but it will be a hundred times more painful than it was in 2000. The day when the most dangerous members of FAANG (from China’s perspective) gains unfettered access to China… looking at Facebook and Google (if they are still as big as they are today), that’s the day we can mark as when China will have gained dominance.

        By the way, lest anyone think otherwise. I’m not bashing China. We’re simply watching history repeat itself, and from that perspective, China has learned its lesson very well from 150 years ago when the west decided to come to China. It learned that to be able to live in any kind of harmony, they have to be in control and not be subjected to the mercy of others. And they learned that lesson from US history very well, the only real difference now is that the cycle time to gain power is becoming shorter thanks to a connected world.

        • Wolf Richter says:


          You said: “I don’t think it’s too late today to try to “rein in” China, but it will be a hundred times more painful than it was in 2000. ”

          In terms of addressing the goods trade deficit, I don’t think it’s a question of “reining in China” — but a question of reining in Corporate America.

        • MCH says:


          Yeah, about reining in corporate America, and the desire of the American consumers to buy cheap stuff. Good luck with that.

          It’s just another reason that the deck is a bit stacked in China’s favor right now.

    • RangerOne says:

      Global trade is a net positive as long as it is fair. The fact that global trade has hurt some groups disproportionately is in part due to how and who negotiated our trade deals.

      I do agree, without Europe having the will to play along, there is likely no clean way to pressure China to balance trade with the West. Like anything else, give someone too much of a good thing and they will all but go to war to keep it.

      I would not be surprised to find that almost all the drive behind the trade pressure is from Trump. Not because he cares deeply but because this is a clear simple campain promise. Get tough on China trade.

      I kind of roll my eyes at these mindless approaches since I would prefer leaders capable of more nuance and thought. But even a bone headed approach has a better chance of success than doing nothing. Which seems to be the more common approach.

      I have to suspect there are more creative ways to deal with China. But without predicting the future it’s hard to say if there is a better way than this blunt approach. I would prefer he went down this path without taunting some of our trade allies to keep up his tough image.

      If this somehow gets China to give any new ground I suppose he will earn a big fat gold star. Or we will have a recession and his ass will be out of office in 2 years, so maybe it’s a win win.

      • Kent says:

        The grand problem with Trump’s approach is that it is personality based, not process based. The Chinese know it is only a problem for as long as Trump is around. Which is 2 to 6 years. So they just really have to act like they’re making some compromises for a few years. If I’m them, I’m going to just trans-ship my products through 3rd world countries. That way trade with China looks better, but suddenly the US has a massive deficit with the Bahamas.

      • John Taylor says:

        I’d have to agree with Wolff’s point. “America First” and “Rein in China” are nothing more than rally cries – trade issues are entirely about reigning in corporate America.

        Trade is merely a tool used by corporate America to push the balance of power to employers/owners and away from labor.

        We badly needed a pro-labor politician for a long time and Trump is arguably the first one we’ve had since Jimmy Carter (the last monopoly-buster).

    • Ambrose Bierce says:

      It will be easier for China to internalize growth, and to continue to do business with ROW in the usual ways than it will be for America to retool its manufacturing. After a decade of Fed induced asset inflation all the low paying jobs in the world will not help the economy. Much ado, there are many work arounds in the global economy, and China’s so called capital controls are a joke. The US may isolate itself, what does that achieve if there isn’t a coordinated retrenching from these onerous trade deals and the web of interdependence. You can’t achieve a global pullback unilaterally.

  2. J.M.Keynes says:

    – But, but, Trumpie is (like) a “stable genius” ……………

  3. Gandalf says:

    Right, now watch Xi make a personal phone call to Trump, give him rights to build a Trump Hotel in Beijing, and all of this trade war with China will suddenly go away, for a while anyway, just like what happened with ZTE.

    This has never been about America First, it’s been about Trump First.

    • William Murphy says:

      What’s wrong with you saying those thing? I don’t think that you have been drinking the Kool Ade.

  4. ewmayer says:

    ‘But instead of buckling under Trump’s first wave and addressing the IP-theft issues brought forth by the US, China vowed to retaliate in equal measure, which caused the infuriated White House to massively escalate the trade war with the second wave of threats.’

    Hmm, ‘China vowed to retaliate in equal measure’ … does that include forcing the U.S. to steal an equal amount of IP each year from China as China does from the U.S.? Inquiring minds want to know!

  5. Gandalf says:

    And P.S., lest you think this is just a random political potshot at Trump, people far smarter than I have pointed out in very rational articles that, if one were to fight over trade issues, the thoughtful rationale way to do it would be to target one industry at a time with one country at a time and make rational demands designed to benefit the American economy rather than to just set fire entire economic ecosystems. An example would the Reagan administration targeting Japanese car imports into the U.S., which eventually forced the Japanese to build car factories in the U.S.

    Instead, what we see are just these scattershot rage attacks against other countries, which are miraculously and almost completely ameliorated only when they give Trump a huge personal bribe.

  6. Aussie andy says:

    If we stay out of dollar tree and general dollar could probably add another 3 %

    • Gershon says:

      The growing millions of poors in our mythical “recovery” can’t afford to shop anywhere else.

      • R2D2 says:

        What poor millions? You mean people living in tents on the side of the roads? They are just there for picnic and fresh air; otherwise, they can afford any 5 star hotels :).

        OK, a smiley is cruel when the discussion is of poor people, but I used it anyway.

      • Michael Fiorillo says:

        The CEO of one of them recently said their business prospects were excellent “because the economy keeps creating more of our customers.”

        Just like we keep creating more “business” for the prison-industrial complex.

        • alex in san jose AKA digital Detroit says:

          This is all capitalism operating as designed. There have to be less jobs than people and a “surplus army of the unemployed”. And they have to live in misery with drastically reduced lifespans (being homeless cuts your life expectancy by 30+ years) to keep the main run of workers scared to quit.

  7. Jas says:

    I don’t normally ascribe to conspiracy theories but I’m starting to smell a rat.
    Trump spouts something on twitter, markets react negatively, a few days or weeks later an “agreement” is met and markets soar. A month or two later, Trump says something on twitter, markets tank (wall street bankers swoop in and buy buy buy), an agreement is met, markets soar, etc etc. These market tanks and meteoric rises seem contrived.
    Game the system and make some cash, if your in the know…

    • marie says:

      You are onto something : in the NLP world it’s called pacing.
      You engage the other emotionally (the easiest is to create fear/anger) and once shaken you bring them straight to the negotiation table. They’re in induced trance.
      Trump has done it all his life.
      Same exact tactic.
      He used it with the fat rocket man.
      You can profit from it as well.

    • Steve Graves says:

      It’s not a conspiracy, it’s just how Trump operates. For better or worse, he seems to thrive on chaos. Might be wise for investors to buckle up.

  8. peter says:

    Trouble is China owns most of the US debt, so if it dumps that on the world, or stops financing the massive deficit, then all the tariffs in the world will be little good. Americans will have no Chinese funded credit cards to buy anything!

    • Wolf Richter says:

      “China owns most of the US debt…”

      Not quite. It owns $1.18 trillion in Treasuries, or just 5.6% of US national debt.

      And we don’t know how much US corporate debt it holds, but it’s not much. The total foreign-currency denominated assets (exchange reserves) it holds are about $3 trillion. 1/3 is Treasuries. The rest is a mix of investments in euros, yen, and other currencies, plus some dollar investments that are not Treasuries.

      • EcuadorExpat says:

        Wolf, it would be most helpful if you documented how much of China’s exports go to the USA market. It was less than 18% last I heard. This number should be included in every article posted on this subject. Americans simply have no concept of the magnitude of the Chinese economy or a workforce twice that of the USA population. And there is no way in hell that the USA can become competitive in the world markets with the current level of USA wages. The only way the USA becomes competitive in world markets is automation, which equals no jobs. The way this ends is when USA wages equals Chinese wages, so Americans sure as hell better hope Chinese wages go up instead of USA wages come down to match. USA prison labor is the template for a competitive USA.

        • Wolf Richter says:


          Here’s a broader discussion on the US trade situation with China and other US trading partners:

          Also, it’s not quite as simple as your 18% data point makes it look:

          China shipped $2.3 trillion in products to other countries in 2017. To the US: US$432 billion, or about 19% of total Chinese exports, which is what you said. But it also shipped $281 billion (12.4% of the total) to Hong Kong. Hong Kong (which China thinks of as being part of China) serves as transshipment location. From there, the goods head elsewhere, including the US. For trade purposes, you have to look at mainland China and Hong Kong together.

          So up to perhaps a quarter of all Chinese exports by value head directly to the US.

          In addition, China exports to countries like Mexico and Canada – such as automotive components – that then end up in products, such as cars, to be exported to the US.

          In addition, China exports to countries like Vietnam – raw steel is a good example – where it then receives some or no processing and is then re-exported to the US.

          So the actual amounts of goods made in China that end up in the US is very hard to track — but its far higher than 18% of China’s total exports.

          These complexities are why it is so hard to just target China. The supply chains of Corporate America go all over the world. But China plays an enormous role in them.

    • Steve Graves says:

      I find it astounding with so much actual information out there that so many people believe the counter-factual myth that China owns most of our debt. Where on earth do you get your facts, peter, from Facebook?

      • Mean Chicken says:


        • Steve Graves says:

          Then they must be peddling propaganda, given that China owns a little over 5% of our outstanding debt (as Wolf outlined above).

      • Ambrose Bierce says:

        Actually I think Wolf is making his point because of the convoluted supply chain. Chinese goods are assembled in other countries, payments go to these third parties, and ultimately to their supplier which is China. Take China out of the equation and you have big problems. Mexico is holding China’s debt which is?
        Trump is being a giant ass about this, he should have approached the problem as one of environmental, social, and financial reform. Stop using China as a source of cheap labor and resources. The voters who elected Trump are finding out they are going to pay to play with this guy, when American farmers go broke and the new jobs don’t pay living wage.

  9. Truthalwayswinsout says:

    Trump made a big mistake. Measured responses to such a massive trade deficit are very bad.

    Look what happened to ZTE when it got boycotted. Trump needs to boycott China and watch the Communist Party disintegrate.

    With such pressure on the Communists they will either agree or simply disappear.

    Yes, Walmart, Apple, and Amazon will suffer but who really cares abut them. I mean so Bezos will have to get more of his employees to pee in bottles at work. And Walmart and Apple will have to actually use their tax breaks to help build automated factories in the US.

    • RangerOne says:

      That would hurt a whole lot more than just FAANG companies and I am not even sure boycotting a country like China is possible.

      The whole point of highly globalized trade is to reach a point with other countries where we are so co dependent on trade that things like war and isolationaism become too painful to fathom.

      Unless we really think the world was better and safer pre world war 2…

  10. Julian says:

    You’d have to expect this to keep ratcheting up at least until the November Mid-Terms when the Chinese can assess how the US public perceives Trump’s moves and motives and then reassess their own responses.

    What does that leave, 5 months of fun to come?!?

    Should be interesting to watch.

  11. Trey says:

    The “China will dump Treasuries!” apocalypse scenario is overstated. Consider the following. As of February, China held $1.18t in Treasuries (source:Bloomberg). In comparison, Japan held $1.06t. As of June, the Federal Reserve holds over $2.3t in Treasuries…more than both China and Japan combined (source: StL Fed).

    Furthermore, from March 2009 to August 2011 the Federal Research increased their Treasury holdings from 474$b to $1.652t (source: StL Fed). That is an increase of $1.178t. And that was not a one-off event. From Jan 2013 to Oct 2014, the Federal Reserve increased Treasury holdings from $1.67t to $2.46t representing an increase of $790b. If China tried to dump Treasuries, the Fed could swallow their entire holdings.

    That assumes that there would be no other buyers in the market. But there would be plenty of other buyers. And the line would get longer if a “China dump” raise rates to even the lower range of history norms (i.e. 5% on 30 year US Treasuries). Just look at the number of suckers who lined up for 100 year Argentine bonds. 30yr USTs at 5% would have investors from Japan to Europe lined up at the door. It would be a TINA situation for fixed income.

    Which brings us to the final problem with the China Dump Theory. What would China exchange their Treasury holdings for? Dollars? Euros? Bunds? JGBs? EM bonds? The ECB would love to trade their holdings of Greek and Italian bonds for USTs, if only they could find a greater fool to buy them. Banks and investors holding zero to negative yield Bunds and JGBs would be thrilled to swap them for 5% yielding USTs.

    In other words, China has few appealing alternatives to “dump” US Treasuries in exchange for. Any attempt to swap USTs for other sovereign bonds could turn into a Chinese bailout of investors and central banks in Europe and Japan…at China’s expense. And even assuming no buyers, the Fed Reserve’s printing presses have proven that they are more than up to the job. As bad as these options sound, if China tried to dump USTs for currency holdings such as Euros, the results would be even worse for China.

    In short, engaging in a trade war with the issuer of the dominant reserve currency, while holding over $1t in sovereign debt in that currency, is a fool’s game.

    China’s only hope is that political will in the US will falter before their bluff is called.

    • fajensen says:

      China’s only hope is that political will in the US will falter before their bluff is called.
      Except China is not bluffing. Of course “Donald Trump” is not bluffing either, “he” may think China is bluffing, but, if thats what “he” does, that would be a mistake. The Chinese people are every bit as nationalistic and belligerent as the most patriotic American Citizen one could ever imagine, they will not tolerate a leadership who lose face to some American who wants to “sell opium to them again”.

      What China would do in the ways of “dumping” US treasuries is to buy up friends, land, ressources in Africa, Russia, latin America and to some degree Europe (except Africa and Latin America gives more bang-to-the-buck). The Chines have been at this game for at least a decade, probably two. Now they will just be more brazen about it.

      Nobody will move until actual damage is done, the discussion is just how much damage will be acceptable. I’d think quite a lot.

      • RD Blakeslee says:

        “…buy up friends, land, ressources in Africa, Russia, latin America and to some degree…”

        Don’t leave the U.S. out:

        U.S. as target of China’s mercantile strategy will now need “modification”.

      • Trey says:

        What exactly are these productive assets you think China can trade their UST holdings for in “Africa, Russia, latin America and to some degree Europe “?

        Farmland in South Africa?
        Mines in Zimbabwe?
        Gas fields in Russia?
        Oil wells in Venezuela?
        European sovereign bonds? European corporate bonds? Better yet, if they want any yield how about European junk bonds?

        The Chinese government has not been buying USTs out of the goodness of their hearts. There are simply precious few alternatives.

        The ugly truth is that the Chinese economy is laced with corruption and bad debt. While a sustained trade war will inflict pain on US investors, the Chinese financial system will fall into crisis. If China dumps USTs, the money will not be going into Africa, Russia, or anywhere else. It will be used to try to prop up the bad debt domestically. That is the Chinese bluff.

        As for Trump, all he has to worry about is the rust belt. As long as the voters in Michigan, Pennsylvania, Ohio, and Wisconsin are cheering him for punishing China, Trump will not back off one inch…no matter how much Wall Street, Silicon Valley, and those of us with investment portfolios complain. With those states in his pocket, he is electorally invincible. And rust belt voters would enjoy seeing Goldman Sachs suffer almost as much as they enjoy seeing China punished.

        The octogenarian Chinese Communist Party bosses do not understand this. So when you say:

        “Nobody will move until actual damage is done, the discussion is just how much damage will be acceptable. I’d think quite a lot.”

        I agree 110%. China thinks they can win a war of wills because they do not understand the political/electoral dynamic in the US. It has not yet dawned on them that Trump may be in this for the long haul. It will take some real damage before they start running those numbers. So we are on the same page on that point.

        • Smingles says:

          “As for Trump, all he has to worry about is the rust belt. As long as the voters in Michigan, Pennsylvania, Ohio, and Wisconsin are cheering him for punishing China, Trump will not back off one inch…”

          “The octogenarian Chinese Communist Party bosses do not understand this.”

          You’re wrong.

          Which markets did China initially target with their tariffs? Do you think it was a coincidence that they almost all revolved around Trump’s base in the bread basket?

          “China thinks they can win a war of wills because they do not understand the political/electoral dynamic in the US.”

          Again, you’re wrong. They understand it all too well… if YOU understand it, you think THEY don’t? I mean this isn’t rocket science… if a couple of Joe Schmoes on an internet board understand these things…

          “Trump’s tariff war threatens to erode support of farmers” (Reuters) – June 18, 2018

          -Tariffs could see a 30% loss in income for Ohio soybean and corn farmers in 2018, and a 63% loss in income in 2019 if the tariffs remain in place.

          -The U.S. Apple Association will start running TV ads today (June 19) in Pennsylvania and Michigan attacking Trump and the tariffs.

        • Mike G says:

          And rust belt voters would enjoy seeing Goldman Sachs suffer almost as much as they enjoy seeing China punished.

          Yeah, Trump really stuck it to Goldman Sachs when he stacked his administration with their alumni, including the Secretary of the Treasury.
          If anybody still buys Trump’s rhetoric against Goldman, it’s because they’re willfully being ignorant.

        • Rates says:

          “The ugly truth is that the Chinese economy is laced with corruption and bad debt.” I think the US economy is the same. Shale oil, private equity, crazy amount of corporate debts, mortgage debts based on stratospheric equity prices, etc, etc. Corruption: how about corporate lobbying? Let’s face it, in a true working democracy, Google and Facebook will have been broken up sometime ago.

          And the US people misunderstand the political/electoral dynamics in BOTH countries. Given that it’s Trump that launched this trade war, it might actually unite the Chinese people behind the Communist Party even more, and if the blowback reaches back to America’s economy, let’s be honest, Trump will be out the next election. First lots of people dislike him for whatever reason, and second, he’s been taking credit for the economy’s performance so he’ll have to take the fall if the economy heads south. Thirdly, the Chinese are currently trying to hurt his supporters the most in the heartland through their own tariffs, how long before those people complain?

      • Mean Chicken says:

        Pave the giraffe habitat and put up a parking lot.

  12. wkevinw says:

    The “trade war” has been going on for many years, waged by China only (US has only started to “retaliate”).

    The US is the least dependent on international trade of any large economy. ~10-15% of the US economy has to do with trade. However, as usual in economic systems, the dependency is complex (think supply chain- and how this ripples through the economy).

    The “economy theory” on free trade is actually very thin. Think carefully about the “dogmatic” statements made by the “economic experts” in the public. They trot out a few studies, which as usual, are very focused/controlled on specific situations (which don’t model the complex real world that well)- they will never admit that. To do so would undermine their whole discipline- which the academics and government economists depend on for making a living.

    Obviously, nobody really knows how this will play out.

    • EcuadorExpat says:

      Yes, the USA may have the largest economy, but it is 70% services, services I might add, that here in Ecuador do not even have, much less even miss.

  13. Mike Ra says:

    Bring it on, I say!

    Trump will unwittingly wreck the economy but that will be a good thing in the long run because that could result in a rebalancing of the gross economic distortions within our economy.

    • Bobby Bridgeseller says:

      Are you saying that I might be able to rent a 2 bedroom apartment in the SF Bay Area for under $4,000 soon?

      • Rates says:

        LOL. I like how you are thinking. I am a Bay Area guy too. I had this colleague that’s always moaning about real estate prices.

  14. unit472 says:

    I think the acronym ‘TINA’ may apply here. China imports food, other commodities and energy from the rest of the world. Switching sources, say from US soybeans to Brazilian has no effect on supply or demand. People and animals gotta eat. The supply of soybeans remains constant.

    Tariffs on manufactured goods raise the price on those goods and impacts demand. Since China is in the business of exporting manufactured goods to the US they are going to feel the impact more.

    • Jas says:

      Are you referring to Angela Merckel use of “TINA”? There is no alternative? She used this term when she described the conditions for the Greek government’s “repayment” of debt to the European Central Banks. Some people in Greece started calling her TINA Merckel

  15. Paulo says:

    Keep in mind, this is being orchestrated by a man who has declared bankruptcy 6 times over the course of a career based on debt and intimidation.

    I remarked last night to my wife that while it might be easy to intimidate and beat down a tile or drywall contractor who is over-extended on a hotel project, it is a different kettle of fish dealing with an Oriental world-power leader whose Country is ascendent. Xi won’t blink on this one, he has an unlimited term in office and the ability to marshall his country against the Americans. The Chinese are playing a long game with someone who cannot even read a speech script to the end, let alone who has a plan beyond opinion and a highly over-rated ‘gut instinct’.

    I would guess most Canadians, Mexicans, and Europeans are rooting for the Chinese on thjis one.
    26 seconds and worth it:

    • Paulo says:

      From Axios: (this morning and just now)
      “Trump’s biggest crisis will come if the trade wars cause a slowdown in the economy. The boom is giving him a cushion against the impact of his policies, personal behavior and impetuous decision making. No boom, no cushion. Political collapse.”

      “It’s easy to break things. Much, much easier, it seems, than building them.” Steven Weber
      Read more at:

    • BirdBrain says:

      You should probably get your facts straight so you don’t get sued. He (“a man who has declared bankruptcy”) has never declared bankruptcy. Don’t let your personal biases get too far in the way, there, Paulo! Please edit this libel.

      • nick kelly says:

        True…he’s never declared personal bankruptcy, He is adept at looting the host and then letting it die. When he loaded the Taj with 800 million of junk bonds the main casino analyst predicted its collapse,
        In the case of the Taj Trump laundered it twice, buying the junk bonds and repeating. Each time he skimmed fees of all kinds.

        And now he’s CEO of USA. Good luck.

  16. Gershon says:

    The Chinese aren’t going to take this lying down. When they drop the mask of reasonableness and cooperation and show us who and what we’re really dealing with, things could turn very ugly, very fast.

  17. Bruce Kowal says:

    It has been so long since we had leadership that took a hard-nosed view of what are the country’s strengths and weaknesses, and used that as a basis for formulating policies that will benefit the American people. And this is recognized by the voters who elected him. The man has been negotiating with all sorts of players in his construction career that he has learned to recognize certain types of players and how far to push them. As for the Chines, they have been absolutely dishonest since we “admitted” them to the WTO. They are an existential threat, and do not hide this in their own published opinion pieces. Trump is upsetting their 2025 Plan for dominance, and they don’t know how to react.

    • cdr says:


      Where’s China or the EU going to go to sell their goods, Argentina? Venezuela? They have to deal with us. No choice.

      So the next step is to make sure the US gets a decent deal. The globalist fantasy of low interest rates, low wages, open boarders, and free open immigration from low wage countries is gone, but it caused a lot of damage over the past decade or so.

      The “trade war” is simply undoing the free giveaway the US offered the world to support the globalist agenda where the top 1% prospered at the expense of the 99+%. It’s the definition of populist.

      You can’t fix a decade of deterioration without it looking a little messy and certainly not overnight. China is not going to embrace any form of this change but they will eventually comply with a better trade agreement that both side profit from.

      • cdr says:

        The really interesting times will arrive when China and the EU have to reorient their internal economies to offset the end of the globalist dream in the US. Their systems have evolved partly as a reflection of the “US fire sale everything is free and we’ll pay freight” philosophy over the past decade. We’ve been subsidizing their economies, until now.

        Get your popcorn and watch the show. A bucket to vomit in occasionally would be a good idea. Not suitable for children, economists, or the media.

    • Smingles says:

      “The man has been negotiating with all sorts of players in his construction career that he has learned to recognize certain types of players and how far to push them.”

      I have to laugh at this… you think Manhattan plumbers and tilers are at all comparable to Chinese bureaucrats?

      It’s just silly.

  18. Charles says:

    I think any trade war can ultimately be won by the USA when you take into consideration the products that USA exports to China are basically fungible commodities that have a floor price no matter how much China says it will buy from South America or other countries. These other countries can’t ramp up supply. The stuff China sells the USA basically has no floor price. It’s basically the USA or zero for many of these products. I think Trump is trying to increase China’s buying of US made goods (grains and energy) while also lowering tariff barriers in China. This makes sense. The fact that China is being so stubborn about this makes zero sense. It’s almost like an ego battle between Trump and Xi.

    • Gershon says:

      There isn’t going to be a trade war. Trump will bluster and posture, then fold like a lawn chair, just like he did for ZTE. This is pure political grandstanding and Kabuki theater, full of sound and fury, signifying nothing.

      • Kent says:

        +1. China is still a communist country. They don’t have to make a profit. They don’t actually have to sell anything they make. Heck they can build whole cities and not have anyone live in them. And they can monetize all their debt if they want. DJT doesn’t understand what he’s really dealing with here.

        I expect some Mid-Western manufacturer to announce layoffs due to not be able to import key parts from China, and Trump will quietly allow this issue to go away.

  19. MC01 says:

    The Shanghai Composite Index is down a further 3.78% today, but it seems the Plunge Protection Team has finally arrived on the scene as the index is picking up right now. It took them their sweet time. ☺

    Always remember the Shanghai Stock Exchange and the Shenzhen Small Caps are mostly the playground of small investors with little or no experience who get spooked easily or want to cash in their profits as quickly as possible: it would be interesting to see what locally available news caused them to become so spooked. Perhaps one of the experienced China hands who frequent this fine website could fill us in.

  20. Jean-Marc says:

    Here is sense some “bullishness” against China… which is deserved since China violates patent protection, as everybody knows.

    But one must never forget the fact that, if any country intends to squash another county and enforce humiliating measures, sooner or later boomerang effect will come in. Let’s not forget that measures imposed on Germany (after WW1) has led to WW2. And let’s not forget that China has been humiliated by England, France, Portugal,… during occupation of their territory in 19 & 20th century. Not to mention the Japanese invasion of China and millions of people killed. China has been humiliated in the past and, nowadays, rightfully, they feel some sense of pride from their recent economic progress as a world leader.

    All this to say that, with “proper” measures, China can be made to understand that violating IP in the future has to stop and could adopt measures accordingly. Not by imposing “stupid” tariff measures on goods but by using alternative measures (re. ban of export of semiconductors to ZTE, for example).

    Lastly, a recent Bloomberg article, referring to a study carried out by Deutsche Bank, revealed that China has a 80 B$ trade deficit with the US when one not only considers goods but also services and profits made in China’s market by US companies, profits that benefit the American people and taxpayers.

    So, let’s stop this “bullish” approach on China and implement measures that will bring China to implement IP protection of foreign technology.

    • Paulo says:

      re: “Let’s not forget that measures imposed on Germany (after WW1) has led to WW2. ”

      No one is. But in this case US is doing it to themselves and it most likely will lead to war(s)…rinse and repeat.

      This is a one day news cycle and 2 year re-election plan vrs a country that understand sacrifice and owns a will to submit to Govt authority as required. I’m pretty sure a stair step plan defeats gut instinct on this one. Two days ago I would have believed that history would have agreed, but then I read about the directive for a new “Space Force”, says the leader of a country who imports rocket engines from Russia. I knew at that moment it was almost over and an economic collapse was secondary.

      Space Force, remember that one going forward as PR is still trying to rebuild from last year and a new hurricane season unfolds. Space Force; you can’t make this stuff up. Unbelieveable. Debt to GDP 106% and they’re talking about building a space force.

  21. DK says:

    China has been slowing for quite a while now. This will not be good for them. Probably why Trump decided to play hardball now.

  22. Steve Graves says:

    This trade war isn’t going to be against China, it’s going to be against EVERYONE. I agree that something had to be done to level the playing field with China, but slapping tariffs on the entire world will do more to benefit China than anything else we could possibly do. Sure, they will suffer – we will all suffer – but Trump is turning the US into a global villain and nothing strengthens people’s resolve more than having a focal point for their angst. I see the world uniting against the US, and it’s doubtful that such a united front will ever give in to Trump, who is despised by nearly everyone outside the US.

  23. Rates says:

    China only has 1 weapon in the end. 30% devaluation of the Yuan right now.

    If that does not disintegrate the world economy, nothing will. Deflation will be exported across the world, and it will set off a ton of bankruptcies and defaults everywhere including in Murica. That should set off some derivatives, and it will be total KABOOM.

    • Rates says:

      And the nice thing is they can point to Trump and said : “he made me do it”.

    • David Calder says:

      China has another weapon and that is mountains of cash while we’re tottering on debt. Things left out of this discussion is the reason China is in a strong position and the rest of the world is not is because industrialists and capitalists the world around beat down China’s door to accept their investments and factories in the quest for cheap labour and a fresh huge consumer market. Campaign (bribes) contributions were paid to every neoliberal government to make it legal to move whatever could be moved to China, and other lost cost nations, and now we’re left with nothing but our howls over how unfair all of this has been, something the working class has been saying for 40 years. China didn’t do this to us, we did it all on our own.
      I don’t think China will devalue because it doesn’t need to but if Trump’s bluff, gamble, ego-spat, whatever it is, blows up in our faces then we will see the deflation that “Rates” is predicting and that would make 2008 look like a cakewalk..
      “Steve Graves” is right. While China has been on a buying spree using actual money to get what it wants and needs we’ve been bombing our way across the globe actually and metaphorically. Trump has insulted our allies while praising despots and dictators but the time is coming when we’ll need those allies which we might find in China’s camp and not ours. Read the Global Times (China) for articles openly asking Denmark and Belgium to consider their trading relationship with China vs the US..

  24. Future Historian says:

    Who collects the revenue from tariffs? Are tariffs not similar to corporate taxes, and does one roughly cancel out the effect of the other from the perspective of government finances? Has someone done the math on how many more tariffs it would take to make up for lost tax revenue due to the lower corporate tax rate?

  25. Bobber says:

    The US has all the power in this trade war because it gives it’s citizens the right to vote. A country can handle some pain if its citizens know they have a stake in it. In China, there is no vote so there is no ownership of decisions. I’d hate to be in China when the riots start.

    • Steve Graves says:

      Or it may work in the exact opposite way, Bobber. China, being a totalitarian state, is far more able to shape the message of its media and therefore influence public opinion. Trump can claim everything is fake news all he likes, but the problem for him is that most Americans simply don’t believe him. China, on the other hand, can use their centralized media to blame the US for everything, which will undoubtedly boost public support for their policies. It’s highly unlikely that a free press will be Trump’s friend in this fight, in other words, and you’d be surprised how much people can endure when they’re given someone to hate.

    • William Murphy says:

      Your comment would make sense if Americans actually voted but they don’t. 42% of eligible voters did not vote previously and the number of people who feel that they have no stake in this country is steadily rising. Uruguay is looking really good right now.

      • Gershon says:

        The last time I voted was in 2008, for Ron Paul. Since then the “choices” have Republicrat duopoly Tweedle Dees and Tweedle Dums who vy to outdo each other in cravenly licking the boots of their globalist oligarch masters and Goldman Sachs organ grinders. Maybe people aren’t voting because they correctly recognize that there’s not a dime’s worth of difference between the GOPe and the Democrats. Both parties are completely corrupt and beholden to their corporate masters and special interests. Voting for these Wall Street puppets only sanctions their swindles against the middle and working classes.

    • Smingles says:

      “The US has all the power in this trade war because it gives it’s citizens the right to vote.”

      No, you’ve got this backwards.

      When farmers incomes drop by 50%, you think they’re still going to vote for the guy who caused it?

      The Chinese leadership can do whatever it wants. There’s not really any recourse for the people.

      “I’d hate to be in China when the riots start.”

      Two words: Tiananmen Square

    • Rates says:

      The delusion in this comment is so deep, one does not even know where to start. There’s like a super deep divide in this country between the left and the right. Heck, young people want to move to socialism. Where have you been hiding? In a cave?

      • Kent says:

        Meh, the Chinese got nothing on us. Remember that pesky Occupy Movement? There was some serious skull-crackin’!

    • Jean-Marc says:

      Here I still feel bullishness… with all respect. I’ve been 4 times in China, twice as a representative of Canadian govt and twice as an “ordinary citizen”. And, believe me, Chinese people are proud as they’ve been humiliated > 100 years by England, France,… and Japan. They’ve suffered a lot and, nowadays, through their economic successes, they are proud and, believe it or not, united.

      Obviously, chinese state controls the “message” but same in US: recall the invasion of Iraq based on allegations of weapons of mass… US govt & media managed a PR campaign to reach their objectives. Free press, come on!

      “The US has all the power…”… Same ideology that prevailed, before WW1, when France and England declared war on Germany, which was predicted to last a few weeks since they believed they had overwhelming assets compared to Germany. War lasted 4 years, was the bloodiest war in human history and Germany barely defeated. Same thing happened a long time ago when Athens, although superior to Sparta, was defeated since Sparta residents were united with their leaders.

      Now, President Xi is bright and doesn’t “punch on the table” compared to Donald Trump. He smiles but has surely a medium/long term strategy to counteract US’s tariffs strategy. And, since Chinese people are supporting their leader (contrary to a divided US), I wouldn’t bet on President Trump being able to win this war in the end.

      Lastly, since Canadian diplomats risked their lives to save US embassy personnel in Iran in 1979. we feel betrayed as the US is imposing sanctions on Canada (or it’s other allies and friends in Europe and Asia) on the basis of “national security”. Next time such events happen, should we turn our heads “the other way” and reply: sorry my friend, won’t help you, nothing personnel but this is business?

      • nick kelly says:

        ‘when France and England declared war on Germany, which was predicted to last a few weeks since they believed they had overwhelming assets compared to Germany’

        You represented Canada and you can write such utter nonsense?
        Where did you study your history of WWI?

        In August 1914 two million Germans streamed into Belgium, the greatest movement in history.
        Can anyone imagine that the relatively tiny British Expeditionary Force of 100, 000, at that point still in Britain, was preparing to attack Germany?
        If it the British intention to ally with France to attack Germany, would it not make sense to prepare?
        No one can doubt the German preparations.

        Suggested reading: The Outbreak of the First World War, Edited by Dwight Lee. Clark University.
        Of particular interest: the contribution of Fritz Fischer, professor of history at Hamburg University.
        In the 1960’s Fischer was the first historian to obtain access to the cables between Germany and Austria-Hungary.

        The German professor’s conclusion: (the cables are quoted)

        Germany wanted war because she thought she was best prepared ( no doubt about that) and that as in the 1870 war with France, it would be brief. Up until the last week Germany had convinced herself that Britain would remain neutral.

  26. Mean Chicken says:

    What would Putin do?

    • MC01 says:

      I think he would troll the West like he so often does, then head off to the stadium to remind the Russian football team if they perform poorly there’s an all-expenses paid vacation in Siberia waiting and finally hit the dojo for some judo training.

  27. Michael says:

    The one advantage I believed Trump would bring to the Presidency is entertainment. In that he has never disappointed.

  28. xear says:

    I thought the plan was to allow China an unfair trading advantage on almost everything for years and then stiff them on $1T in Treasuries in the end.

  29. Ishkabibble says:

    We have the well known quote of Clausewitz. “War is merely the continuation of politics by other means”. For the present time under Trump, I would modify it to “trade is merely the continuation of war by other means”.

    The first question every person on planet earth must ask and answer is really fundamental and really simple. Why “trade” at all? Very specifically, why have US citizens been paying Chinese citizens to manufacture things that US citizens living in the US used to quite easily manufacture in the past for US citizens? Just exactly HOW was the “decision” made to move production to China (and other places on the surface of planet earth that are completely, artificially delineated as “nations”), and just exactly WHO made it? Did the invisible hand of an invisible man make that decision? No, some human beings made, and continue to make, those decisions to benefit themselves and their businesses. “Profit” is the bone-simple answer to the four-word, bone-simple question “why trade at all?”

    It’s pretty obvious what US citizens buy that was manufactured in China by Chinese workers. What is far less obvious to the vast majority of US citizens is what the Chinese buy from US workers or “invest in” in the US and how that affects their everyday lives. The latter MUST be determined very precisely, and here’s EXACTLY WHY it must, as explained very plainly by Arther Jensen to a stunned Howard Beale (Trump?) in 1974:

    Paulo recently wrote:

    “Keep in mind, this is being orchestrated by a man who has declared bankruptcy 6 times over the course of a career based on debt and intimidation.”

    Right on, Paulo! Over the decades of increasing US national debt, a lot of people have talked about bankruptcy. The Golden Golem of Greatness (GGG) (Kunstler’s fantastic moniker for Mr. Trump) is just the President to eliminate the US national debt and conduct a great big reset of “a system” that he feels has been so, so unfair to the United States of America for the past several decades. (In case you didn’t realize it already, the USA never treats anyone unfairly. It is, a priori, impossible for the US to treat anyone unfairly.) Declaring the US bankrupt just might be the GGG’s ticket to ride to MAGA.

    But there is another elegant, perfectly “legal” alternative to outright bankruptcy that might be attractive to the GGG. Remember that just a few short years ago some Very Knowledgeable People such as Ellen Brown ruminated about the US Mint stamping out some trillion-dollar coins to “pay off the national debt”.

    With GGG in office, that bankruptcy thing or that coin thing might be ideas whose times have come. As Agent Smith said to Neo in “The Matrix”, “we’re willing to wipe the slate clean ……….give you a fresh start.” That’s all that the GGG wants from “the world” — “a fresh start”– in order to MAGA . IMO, that’s what all this trade stuff and tax-cut stuff and war stuff and increasing-the-US-national-debt-to-$100-trillion stuff is all about — making America Great Again.

    All of us, “us” including candidates for public offices, must “imagine” the intimate details of their very own version of a “better world” — for example, a world in which America is great again. But if you do miraculously become President of the United States, etc., how will you go about making the world match your imagined better world? This is the question that the “immaculate conception”, the GGG, is attempting to answer in his very own way.

    Here’s one example of just one part of what in the end must be his multi-faceted, multi-dimensional answer. Just exactly HOW does a 105-year-old parent (the pathologically evil, Fed-controlled “parent” born in 1913), boot all of the 70-year-old, teat-sucking children “out of the house” (get them “out on their own”), because the old parent is 21 thousand billion dollars in debt and, unless “something” is radically changed, the 105-year-old parent is only going to get even more deeply in debt as time marches on?

    Unfortunately, most of the “children” are also deeply in debt, but how they “pay back” their own debt is up to them, their parent thinks. “They’re 70 years old. They’re old enough to figure it out”, the parent thinks.

    Once again with feeling, the parent and the children MUST figure out how to “go it alone” rather than keep feeding and sucking each other into debt hell and social chaos. After they figure out how to go it alone, THEN they can examine whether they should try to establish some kind of mutually-beneficial relationship. If “the family relationship” remains the same, using 105-year history as a guide, the US’s debt situation will only get worse.

    Then there are the wars that must some how, some way be stopped, forever. And for them to be stopped, some person or persons or things must “figure out” how to stop them. The sad fact is that NO outright anti-war candidate has ever become president and very few have made it to congress. There is at least some glimmer of hope that the GGG might be the closest thing to a peace president in US history.

    I have absolutely no doubt that the GGG has an imagined better world in his mind.

    I have absolutely no doubt that the GGG is desperately attempting to make the world match his imagined better world.

    I have absolutely no idea what GGG’s imagined better world “looks like” and I don’t think anyone else does, either. Therefore, what would be very helpful to US citizens and all the other people who inhabit planet earth, would be for the GGG to describe in minute detail just exactly WHAT America and the rest of the world would “look like” AFTER he Makes America Great Again. But the GGG is not going to do that. He’s going to continue do exactly what he’s been doing and not explain a damned thing to anyone.

  30. Neal says:

    What I notice in many comments is the old trope of “cheap Chinese junk”. Well CCJ is only a high-volume, low-return subset of China’s production these days. Sure, plenty of low-wage jobs in making CCJ but they know that the future doesn’t lie in being the bottom-dollar producer of anything. There is no western monopoly on “innovation”–they now have the capital, the education, and the cultural exposure to trending needs that are required for thoughtful innovation to lead in the future.

  31. Mean Chicken says:

    $200B is still considerably less than the Pentagon’s budget.

  32. James H says:

    Americans have no appetite for a trade war. The Chinese do. Just ask Toyota or Lotte Group in Korea. I can easily see boycott America campaigns in China affecting Nike, MCD, Starbucks and Apple. Good luck convincing Americans to do the same. Trump voters love to bash China while filling their carts with Chinese goods at Walmart and the dollar stores. If you think America will win a trade war, short Walmart stock.

    China will target manufacturers and farmers in Trump country. As soon as job losses are announced by manufacturers in Michigan, Wisconsin and Ohio, Trump will fold and move on to bashing Canada or Germany. China has the will to prolong this fight because there is no mid-term election in China. Xi is not seeking another term, he can stay there as long as he wants. The only thing Trump has going for him is the economy and when the signs of cracking show, Trump has nothing else to run on.

    Americans like to think they are indispensable. But when you bully all nations, friends and enemies alike, America alone seems like a fitting consequence.

    • Shawn says:

      If Trump get’s re-elected, which is looking like a definite possibility, US and China trade will simply stagnate. Production will move to other countries or back to the US. We will no long be able to export our inflation to China and that added inflation may prompt the Fed to increase interest rates faster, deflating all these asset bubbles we’ve been having over the last decade.

  33. JR says:

    Some comments indicate that this is “All About Trump”. I have to respectfully disagree. A good bit of this strategy comes out of Peter Navarro – who has a long history of “Death By China” positioning. I thought he had been knocked out of Circle Of Trump a couple of times, but amazingly he is still there. His quote in today’s FT is telling: “It’s clear that China does have much more to lose. There is a fundamental reality here and that is that talk is cheap.” I personally am with this observation – I watch for actions and ignore the spin and propaganda – signal to noise for you engineers out there – the signal is the important thing. In summary – review his “Death By China” videos which amazingly enough are STILL available on youtube, then think about where this tug of war might be heading.

  34. Shawn says:

    For anyone that is interested, here is a 2013 article on the incredible scale of the Chinese QE program.

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