Update: President Trump is showing absolutely zero signs of backing away from his trade tariffs plan and has just tweeted…
“We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. “
Which as the chart below shows is true. Trump has a warning…
“Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!”
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“It’s not the economy, it’s China stupid!“
While establishment globalists doth protest loudly of the Steel (and Aluminum) impositions that President Trump is proclaiming, it appears their memories of recent historic reality is gravely absent (or willfully being ignored).
On Friday, Peter Navarro, Trump’s newly reincarnated foreign trade advisor, made clear that this is not a ‘first strike’ in the ‘trade war’, this is America’s retaliation to years of abuse:
“I don’t believe any country in the world is going to retaliate for the simple reason we are the most lucrative and biggest market in the world,” Navarro told Fox News Friday.
“They know they’re cheating us. All we’re doing is standing up for ourselves.”
One look at the record US trade deficit, with both the entire world, (and more specifically China alone and Europe alone), and one could make the case that he is correct.
The US administration appears to be taking an increasingly aggressive stance on trade and the following chart is the breakdown of which countries Trump will – or should – be going after…
As we noted previously, while many have been quick to slam Trump’s strategy, at least one hedge fund believes that Trump is correct in his trade war stance. Here is Stephen Jen from SLJ Macro Partners:
- The US is the least protectionist large economy in the world, while China is the most protectionist. In our note on this subject a couple of weeks ago, we pointed out that the US, based on data from the WTO, is by far the least protectionist nation in the world (with the exception of a tariff-free city state like Hong Kong) — far more open than Europe, Japan, and especially China. And it seems a bit hypocritical to us that more protectionist nations are complaining about the actions of the least protectionist nation.
- Excess capacity in China. China has half of the world’s steel production capacity, much of which is excessive and unnecessary, even Beijing would admit. The 2008-09 RMB4 trillion stimulus in China further boosted China’s industrial capacity, including in steel and other sunset industries. This has led to a situation where Chinese steel production had to be exported to the rest of the world at very low prices. Some in the US, not surprisingly, consider this ‘dumping’. Further, both the US and the EU share the verdict that China is still not a ‘market-based’ economy, because of the large and persistent explicit and implicit government subsidies, and other forms of support from the public sector, that make Chinese products unfairly competitive.
- Why is Europe not held to the same standard as the US? Europe is complaining about the US’ latest policy. Investors should know that Europe has already imposed two dozen anti-dumping measures against Chinese steel exports. What then is the substantive difference between the anti-dumping measures imposed by the EU and what the Trump Administration is doing? Is Europe less protectionist than the US? If Europe were so open, what is all the fuss about Brexit and the inability of the UK to access the European market?
As Jonathan Ferro (@FerroTV) so eloquently tweeted, “hate to puncture some of the narratives out there. But… EU tariffs on US autos = 10% US tariffs on EU autos = 2.5%”