Giddy up… President Trump has fulfilled another campaign promise to confront China and hold firm. As promised, three decades of Donald Trump’s intense commitment to stop the exfiltration of Amerian wealth is on display today.
When you plant your tree in another man’s orchard don’t be surprised when you end up paying for your own apples….
U.S. Trade Representative Robert Lighthizer; U.S. Treasury Secretary Steven Mnuchin; U.S. Commerce Secretary Wilbur Ross and U.S. President Donald Trump are confronting Chinese Chairman Xi Jinping and Vice-Chairman Liu He… and now consequential things get economically very serious.
There are going to see multiple geopolitical background moves now as the confrontation shifts to the painful phase…. who can outlast the economic standoff.
WASHINGTON DC – Negotiations to end the US-China trade war came to a surprisingly early close in Washington on Friday with no signs of a deal – reportedly just hours before the Chinese delegation will return to Beijing.
US Treasury Secretary Steven Mnuchin told reporters at noon that the talks had been constructive as he left the US trade representative’s office, where negotiators held their latest round of talks in an attempt to end a months-long trade dispute. (more)
Steel your nerves; we’ve waited decades for this.
As most CTH readers are aware, Lighthizer has focused heavily on the enforcement mechanisms within the trade talks. [Previous Bookmark] Apparently, when the 150 page draft agreement was presented to the Chinese politburo, Beijing balked at allowing the U.S. to hold controlling enforcement over the trade agreement terms.
The fallback presentation from Vice-Chairman Liu was: we cannot put the binding enforcement mechanisms in writing, you’ll have to ‘trust us’ to honor the agreement; at which time Lighthizer said no-way.
However, Lighthizer and Trump are not only fighting China, they are fighting U.S. politicians who are beneficiaries of China. They are also fighting against the U.S. CoC, the multinational corporations, Wall Street and members of both political parties who desperately want to stop any trade balance reset.
Almost half, perhaps more than half, of congress has a better financial self-interest if China can gain economic superiority over the United States. This congressional hearing, and the severity of Lighthizer toward those purchased politicians, highlights this very tenuous internal challenge.
Stop and think about this again.
The U.S. economic, trade and manufacturing system is so structurally broken, after three decades of severe corruption by corporate financial interests: Almost half, perhaps more than half, of congress has a better financial self-interest if China can gain economic superiority over the United States.
The likely response from China will be additional tariffs on U.S. goods and/or refusal to purchase U.S. agriculture products. Their strategy will be to get key BIG AG senators, and the U.S. Chamber of Commerce, to target fire toward President Trump over diminished farm prices.
CTH anticipated this dynamic in 2016. Any Chinese pull-back from U.S. farm purchases hits the Wall Street multinational corporations hardest.
Multinational corporations, BIG AG, are now invested in controlling the outputs of U.S. agricultural industry and farmers. This process is why food prices have risen exponentially in the past decade.
The free market is not determining price; there is no “supply and demand” influence within this modern agricultural dynamic. Food commodities are now a controlled market just like durable goods. The raw material (harvests writ large) are exploited by the financial interests of massive multinational corporations.
Because the domestic supply-side agricultural market is based on perishable goods; this predictable Chinese response has a rapid downstream impact. The wholesale price of domestic food drops rapidly inside the U.S. as the supply now exceeds the market. The multinational mega-food conglomerates will be apoplectic.
The prices of imported durable goods (stuff from China) will increase, slowly over time; depending on the supply chain for the specific product sector. However, if China retaliates by stopping import of U.S. agriculture products, the prices for U.S. domestic highly-consumable goods drops quickly.
In this scenario Wall Street is hardest hit. Other than the AG sector, Main Street -and the U.S. consumer therein- actually benefits.
The Big Club will go bananas.
There are trillions at stake.
It is simply incredible how President Trump has taken his 2015/2016 proposals, and made them current policy, absolutely proving he was right. Go back and READ THIS from February 2016…. it’s stunning how he was able to deliver on the plan.
What you will find in all of Donald Trump’s positions, is a paradigm shift he necessarily understands must take place in order to accomplish the long-term goals for the U.S. citizen/worker as it relates to “entitlements” or “structural benefits”.
All other politicians begin their policy proposals with a fundamentally divergent perception of the U.S. economy. They are working with, and retaining the outlook of, a U.S. economy based on “services”; a service-based economic model. Consequently their forecasted economic growth projections are based on ever-increasing foreign manufacturing dependency, and even more solidifying service-based economics.
While this economic path has been created by decades old U.S. policy, and is ultimately the only historical economic path now taught in school, candidate Donald Trump intended to change the course entirely.
Because so many shifts -policy nudges- have taken place in the past several decades, few academics and even fewer MSM observers, are able to understand how to get off this path and chart a better course.
President Trump has begun a process for less dependence on foreign companies for cheap goods, (the cornerstone of a service economy) and a return to a more balanced U.S. larger economic model where the manufacturing and production base can be re-established and competitive based on American entrepreneurship and innovation.
No other economy in the world innovates like the U.S.A, President Trump sees this as a key advantage across all industry – including manufacturing.
The benefit of cheap overseas labor, which is considered a global market disadvantage for the U.S., is offset by utilizing innovation and energy independence.
The third highest variable cost of goods beyond raw materials first, labor second, is energy. President Trump unleashed the U.S. energy sector and slashed regulations; as a consequence the U.S. manufacturing price of any given product now allows for global trade competition even with higher U.S. wage prices.
In addition the U.S. has a key strategic advantage with raw manufacturing materials such as: iron ore, coal, steel, precious metals and vast mineral assets which are needed in most new modern era manufacturing. Trump proposed we stop selling these valuable national assets to countries we compete against – they belong to the American people, they should be used for the benefit of American citizens. Period.
EXAMPLE: Currently China buys and recycles our heavy (steel) and light (aluminum) metal products (for pennies on the original manufacturing dollar) and then uses those metals to reproduce manufactured goods for sale back to the U.S.
President Trump stopped this process with global Steel and Aluminum tariffs; and shifted the dynamic to where we do the manufacturing ourselves with the utilization of our own resources; and we use the leverage from any sales of these raw materials in our international trade agreements.
When we combine FULL resource development (in a modern era) with with the removal of over-burdensome regulatory and compliance systems, necessarily filled with enormous bureaucratic costs, President Trump has proven we can lower the cost of production and be globally competitive.
In essence, Trump changed the economic paradigm, and we are no longer a dependent nation relying on a service driven economy.
In addition, an unquantifiable benefit comes from investment, where the smart money play -to get increased return on investment- becomes putting capital INTO the U.S. economy, instead of purchasing foreign stocks.
With all of the above opportunities in mind, this is how Trump takes us back to the pathway of rebuilding our national infrastructure. The demand for labor increases, and as a consequence so too does the U.S. wage rate which has been stagnant (or non-existent) for the past three decades.
As the wage rate increases (it is), and as the economy expands (it is), the governmental dependency model is reshaped and simultaneously receipts to the U.S. treasury improve. More money into the U.S Treasury and less dependence on welfare programs have a combined exponential impact. You gain a dollar, and have no need to spend a dollar. That is how the SSI and safety net programs are saved under President Trump.
When you elevate your economic thinking you begin to see that all of the “entitlements” or expenditures become more affordable with an economy that is fully functional.
As the GDP of the U.S. expands, so too does our ability to meet the growing need of the retiring U.S. worker. We stop thinking about how to best divide a limited economic pie, and begin thinking about how many more economic pies we can create.
Simply put, we begin to….