China and US declare economic war

It is not going well. As the White House intensifies its trade targets, its intellectual outrider, Steve Bannon is off the hook and running riot, as SCMP:

Driving Huawei out of the United States and Europe is “10 times more important” than a trade deal with China, according to former White House chief strategist Steve Bannon.

He also said he would dedicate all his time to shutting Chinese companies out of US capital markets.

The remark by Bannon, a strong advocate of an “all-encompassing war” against China, came days after US President Donald Trump signed an executive order effectively banning Huawei from the US market and cutting off its vital components supply.

“It is a massive national security issue to the West,” Bannon said, in a phone interview on Saturday with the South China Morning Post. “The executive order is 10 times more important than walking away from the trade deal.

It [Huawei] is a major national security threat, not just to the US but to the rest of the world. We are going to shut it down”.

…“The next move we make is to cut off all the IPOs, unwind all the pension funds and insurance companies in the US that provide capital to the Chinese Communist Party,” he said.

“We’ll see a big move on Wall Street to restrict access to capital markets to Chinese companies until [they agree to] this fundamental reform.”

…Without providing further details, Bannon said he “talks to senior officials in the White House every day about China”. When asked if he meets Trump regularly, the right-wing populist said, “No, if I need to talk to him, I go through his lawyers.”

…Bannon said the objective of what he called “an economic war” with China was to force Beijing to carry out fundamental reforms.

“I don’t think it’s going to be resolved quickly. This is the beginning of a very long and tough process,” he said.

“I have dedicated my life to this. This is what I do 24 hours a day. The pressure we are going to keep up will be relentless. We are not going to be quiet.”

Note that although Steve Bannon is the spear tip, he is leading an American revolution. His recent discussion with Tom Friedman, free trade and globalisation fanboy, said it all:

This is NOT going away.

Australia’s own free trad cheer squad is rallying. Peter Drysdale is up in arms:

What needs to be done is to bring into play all the machinery we have in the bilateral relationship to persuade China and the Australian public that we’ve strong joint interests that can escape the shadow of US-China trade wars and other tensions.

This does not mean any dramatic change in Australia’s security relationship with the US unless that country was to demand lockstep Australian support for an aggressive posture towards China and abandonment of rules-based multilateralism.

The resilience of the Australia-China trade relationship depends fundamentally on both partners’ commitment to the international market system and the rules under which it has flourished. That system is the core of the economic and political security in Asia and it’s under threat from America First trade and decoupling strategies. Australia and China have common cause with their partners in the region in dealing with this global threat. At the same time, political anxieties caused by China’s rise – partly but not wholly because of its different political system – have to be confronted frankly in our dialogue with China.

True enough but only so far as China embraces that same system. If it is misusing it to rort the US, and everyone else with technology, then our choices are a little more stark as a US ally.

Jen Hewitt at the AFR, who often travels to China on the FMG purse, is freakin’ out:

Chinese officials had been openly wondering if a Labor government might allow Huawei some involvement in 5G, too. In fact, Labor under Bill Shorten would not have altered the Coalition’s course – a rare show of campaign bipartisanship. And a newly re-elected Scott Morrison is not going to revisit the decision he actually announced last August the day before he succeeded Malcolm Turnbull.

As an elected PM, he will still have to deal with the fallout of China’s criticism on that issue as well as Australia’s refusal to formally sign up to Xi Jinping’s Belt and Road Initiative on infrastructure. China would like to claim official Australian involvement as a diplomatic advance, promoting it as a useful gesture to repair tensions. The unofficial trade-off would be improved prospects for more Australian companies becoming involved in BRI projects in the region.

…The business community is making it plain it would prefer a different approach from Australian diplomacy.

The Party of Davos, as Mr Bannon would put it. Good luck. American business knows what’s what, via the FT:

US companies in China are facing a backlash from the intensifying trade dispute between Washington and Beijing, with almost half the members of a US business lobby group in the country reporting they have been hit with retaliatory measures.

Roughly 47 per cent of the members of the American Chamber of Commerce in China and a similar group based in Shanghai said that on top of recently imposed tariffs, they faced retaliation such as slower customs clearance, more inspections and delayed approvals for licences, according to a survey released on Wednesday.

About a third of the 239 American companies surveyed said they were cancelling or delaying investments in China while about 40 per cent said they were considering relocating manufacturing facilities outside of China, with south-east Asia and Mexico among the favoured destinations.

“Such strategy constitutes a rational choice for many companies to insulate themselves from the effects of tariffs while maintaining their ability to pursue domestic market opportunities,” the report stated, in reference to companies’ investment decisions.

China is taking some some serious economic damage, from NPR:

For more than a decade, Chongqing’s economy sped ahead with double-digit annual growth. But last year, the city’s gross domestic product grew less than expected at 6% — its slowest pace since 1989, according to the South China Morning Post. Industrial output overall grew just 3%, a 30-year low, the site said, while production in the auto sector plunged more than 17%, compared with the previous year.

Zhong Hua, 38, is one of thousands laid off from his assembly line job at Ford’s joint venture with China’s state-owned Chang’an. His position was terminated four months ago. “The economy here is really slipping,” Zhong says at a job fair at a Chongqing office building. It is the eighth job fair he has been to since losing his employment. “We can feel the impact of the trade war with America here. The auto industry is in recession. There are so many unemployed people.”

…Figures released by the China Institute for Employment Research at Renmin University in Beijing show the supply of jobs in western China, including Chongqing, fell by an alarming 77% in the fourth quarter of last year compared to the same period in 2017.

…Yet it’s a fortunate outcome compared to that of a colleague who only gives his surname Zhang. The 40-year-old electrician for Yinxiang Group, the parent company of the SUV brand Bisu, is among the last remaining workers for the company in Hechuan.

“They haven’t paid our salaries for a couple of months now,” complains Zhang. “When workers protested, the company fired all of them. They punish whoever says anything bad about the company.”

And that’s why Zhang doesn’t give his full name. He says the boss of Yinxiang Group owns residential towers in Hechuan. Many of the families who live there were forcibly moved off their land to make way for the company’s two auto factories, which now stand empty.

Yinxiang Group representatives hung up each time NPR called requesting an interview, but according to the company’s website, it has spent nearly $2 billion on a development in Hechuan named “Yinxiang Town” that is filled with condos, hot springs and entertainment complexes.

Zhang says employees at Yinxiang Group are perplexed that the company is still eagerly building this development behind rows of empty factories. “Meanwhile they’re not paying us,” he says. “The factory isn’t running. Yet here they are, still building.”

Because they have been ordered to.

But it is rallying the troops to hand it back, via Epoch Times:

A Chinese company recently notified all of its employees to boycott U.S. products and stop traveling to the United States, or face dismissal.

The announcement immediately triggered a public outcry, when a netizen posted in on the internet.

Chinese state-run media have begun ramping up anti-American propaganda, as the U.S.-China trade dispute recently escalated with tit-for-tat tariff increases. The company’s memo came to light shortly after the hawkish state-run newspaper Global Times in a May 13 editorial called on the Chinese public to “fight a people’s war” with the United States.

In an internal announcement issued May 16 by the Jinggang Motor Vehicle Inspection Station located in Donghai County, Jiangsu Province, the company echoed the propaganda, explaining that China’s developments in military, science, and technology have frightened and worried the United States.

As a result, the United States started the trade war with China. “To help our country win this war, company authorities have decided that all employees must immediately stop purchasing and using American products,” the notice read. The refrain that the United States is impeding China’s rise on the global stage has been repeated in much of Chinese state media lately.

And winning some battles, also at NPR:

The U.S. soybean industry opened an office in Beijing in 1982 because long-range forecasts predicted a large, growing demand for soybeans.

“And that paid off swimmingly for a number of years and now all of a sudden due to geopolitical tension that forecast is changed dramatically,” said Mike Steenhoek of the Soy Transportation Coalition.

And there’s no way other countries will buy up all of what the U.S. has become accustomed to selling to China, he said: “The Chinese market is a very unique customer.”

As well as making empty threats, via the AFR:

Chinese President Xi Jinping’s public visit to a Jiangxi rare earths plant is a deliberately subtle message to Washington that China has the power to retaliate against the US’s ban on Chinese telco Huawei, a prominent investment banker says.

While the highly publicised photo opportunity has been downplayed by some, Credit Suisse’s vice chairman of greater China, Dong Tao, saw the gesture as playing off the subtext of the escalating US-China trade war.

“I think the gesture there is, ‘We know some options we have that could be counted as retaliation measures’,” Dr Tao said.

There’s plenty of rare earths in the US and Australia, they’re just more expensive. China threatening commodity blockades is lunacy. It is the massively dependent commodity importer not the US.

An empty and self-sabotaging threat from China is nice image to end on.

If you consider the the life of the Trump Administration, it actually looks like there is a plan here. First win over the globalists with massive tax cuts to support the economy, then shift focus to China to break it on trade. I don’t know if that is the case but it is the reality (which is not to say that it won’t blow back on the US economy eventually).

Conversely, China has flown too close to the Sun, totally misjudged US resolve, tried to bluster and bullshit its way through a trade deal instead of taking its medicine after two decades of trade cheating, and now its economy is under intensifying pressure even as its stimulus engines spin their wheels for long term stagnation.

China and the US have declared economic war and there is only going to be one winner.

It is not China.

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