{"id":1116257,"date":"2019-05-14T19:28:02","date_gmt":"2019-05-14T19:28:02","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107392"},"modified":"2019-05-14T19:28:02","modified_gmt":"2019-05-14T19:28:02","slug":"prepare-for-trench-warfare","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1116257","title":{"rendered":"Prepare for Trench Warfare"},"content":{"rendered":"

This post Prepare for Trench Warfare<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

What if China isn\u2019t half so desperate for a deal as the president believes?<\/p>\n

Are we in for an extended siege of economic trench warfare?<\/p>\n

Today we explore possibilities\u2026 and their implications.<\/p>\n

We first direct our gaze to Wall Street.<\/p>\n

Investors came crouching from their shelters this morning\u2026 as if expecting an aftershock to the quake that drove them underground yesterday.<\/p>\n

With Monday\u2019s 617-point battering \u2014 piling atop last week\u2019s losses \u2014 three months of stock market gains have vanished into the ether.<\/p>\n

The S&P 500 endured its 15th-largest decline in history yesterday. It has shed $1.1 trillion since May 5 alone.<\/p>\n

Markets Bounce Back<\/b><\/h2>\n

But the Earth held today. And investors cleared away some of yesterday\u2019s wreckage.<\/p>\n

The Dow Jones rebounded 207 points.<\/p>\n

The S&P reclaimed 23 of the 70 points it lost yesterday. The Nasdaq gained 87.<\/p>\n

Markets were encouraged by President Trump\u2019s comments that he will strike a deal with China \u201cwhen the time is right.\u201d<\/p>\n

He will have an opportunity at the G20 summit in late June. There he will meet China\u2019s Xi Jinping, for whom his \u201crespect and friendship is unlimited.\u201d<\/p>\n

But is China sweating dreadfully for a trade deal as Trump assumes?<\/p>\n

China Braces for Escalation<\/b><\/h2>\n

China does \u2014 after all \u2014 ship some $500 billion of products to these shores each year.<\/p>\n

It cannot afford to sit on them like a broody hen.<\/p>\n

But you might have another guess, says the director of monetary policy at the People\u2019s Bank of China:<\/p>\n

\n

As for the change in the domestic and external economic environment, China has sufficient leeway and a deep monetary policy toolkit, and so has full ability to deal with [economic] uncertainties.<\/i><\/p>\n<\/blockquote>\n

But here we cite a government mouthpiece, a marionette in human form. You no more trust his word than you would trust a dog with your dinner.<\/p>\n

Just so.<\/p>\n

But affirms Brad Setser, senior fellow for international economics at the Council on Foreign Relations:<\/p>\n

\n

Trump\u2019s escalation comes at an awkward time, but if push comes to shove, they\u2019re quite capable of supporting growth through more investment and credit.<\/i><\/p>\n<\/blockquote>\n

There may be justice here.<\/p>\n

Twice as Much Stimulus as During the Financial Crisis<\/b><\/h2>\n

If you believe the Federal Reserve is a gargantuan spigot of credit, the People\u2019s Bank of China brings it to shame.<\/p>\n

ING estimates China has pledged 8 trillion yuan in economic support \u2014 twice as much \u201cstimulus\u201d as it offered during the global financial crisis.<\/p>\n

And the Organization for Economic Cooperation and Development (OECD) estimates China’s fiscal stimulus this year equals 4.25% of GDP… up from 2.94% last year.<\/p>\n

Meantime, Chinese domestic consumption has been on the increase.<\/p>\n

Growth through increased consumption \u2014 say the economics wiseacres in practice among us \u2014 reduces dependence on exports.<\/p>\n

Is most of this stimulus woefully wasteful? Does it finance vastly unproductive economic activity?<\/p>\n

Yes and yes.<\/p>\n

Is the way to wealth through consumption \u2014 rather than production?<\/p>\n

No, it is not.<\/p>\n

But if Chinese authorities believe they can offset lost exports by bellowing credit and vomiting money\u2026 they may choose to dig in for the long haul.<\/p>\n

\u201cA nation is never as happy as when it’s at war\u201d<\/b><\/h2>\n

A trade war may even rally the people to the colors\u2026<\/p>\n

A nation is never as happy as when it’s at war \u2014 even trade war.<\/p>\n

War gives the people enemies to hate\u2026 and leaders to love.<\/p>\n

What better way to distract a people from their own government\u2019s eternal swinishness, its infinite rascality?<\/p>\n

Despite all contrary appearance, the United States government does not run a corner on either.<\/p>\n

In fact, China\u2019s state media took to the warpath Monday.<\/p>\n

It shouted for a “people’s war” against Mr. Trump\u2019s \u201cgreed and arrogance.\u201d<\/p>\n

And why not? It could argue…<\/p>\n

\u2018China is a proud, accomplished and ancient nation, with roots sunk deep into history.<\/p>\n

It is the \u201cMiddle Kingdom,\u201d the center to which all the world\u2019s divergent rays bend.<\/p>\n

Who are these upstart Americans to shove us around?\u2019<\/p>\n

Economic \u201cTrench Warfare\u201d<\/b><\/h2>\n

We would remind the president \u2014 respectfully \u2014 that wars are far easier to start than finish.<\/p>\n

The boys will be home by Christmas, they gloated in August 1914.<\/p>\n

Four years later they were still in the trenches \u2014 or in boxes.<\/p>\n

Could the United States and China soon be locked in the extended stalemate of economic \u201ctrench warfare\u201d?<\/p>\n

The strategists at Deutsche Bank\u2019s chief investment office fear so:<\/p>\n

\n

Unless a deal can be struck quickly in the coming weeks, markets will need to prepare themselves for an extended period of economic trench warfare. And large listed U.S. companies in particular could well find themselves in the line of fire.<\/i><\/p>\n<\/blockquote>\n

China has previously chosen to \u201cwait, strategically inflict pain, delay and hope U.S. pressure eventually goes away.\u201d<\/p>\n

But China has heaved aside that option, argues Deutsche Bank.<\/p>\n

Now it is reaching for its shovel\u2026 and preparing to hunker in.<\/p>\n

In conclusion:<\/p>\n

\n

The nature of trade wars (like actual wars) is that they foster nationalist sentiment and jingoism. The first shots are fired in the hope of quick victories. And before you know it, both sides are stuck in the trenches, with no obvious and politically feasible way out.<\/i><\/p>\n<\/blockquote>\n

The coming weeks may well yield the answer.<\/p>\n

But how will markets hold up if diplomacy collapses?<\/p>\n

All Pressure May Fall on Trump<\/b><\/h2>\n

A failed trade deal was sufficient to send stocks careening this past week.<\/p>\n

President Trump has all his cargo loaded on two wagons \u2014 the stock market and economy.<\/p>\n

If either cracks an axle, if either collapses under the strain, his reelection prospects collapse in turn.<\/p>\n

Therefore, argues analyst Sven Henrich of Northman Trader, all pressure rests upon the presidential shoulders of Donald J. Trump:<\/p>\n

\n

Because for Trump there\u2019s an election to worry about. The Chinese don\u2019t have an election to worry about and that puts the time pressure on Trump, not the Chinese. The Chinese will continue to intervene and yesterday they showed backbone and followed through on retaliation. But because the U.S. election cycle clock is ticking Donald Trump cannot afford a trade war extending into the end of the year, especially if the consequences of such a protracted trade war would spill into the larger economy.<\/i><\/p>\n<\/blockquote>\n

Will the Great Negotiator be the one to blink first?<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/i><\/p>\n

The post Prepare for Trench Warfare<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post Prepare for Trench Warfare<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Markets rebound after yesterday’s bloodbath… “Trump’s escalation comes at an awkward time, but if push comes to shove, [China is] quite capable of supporting growth through more investment and credit”… Why Trump may feel more pressure to reach a trade deal than China…<\/p>\n

The post Prepare for Trench Warfare<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[484,366,463,466,467],"tags":[30],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1116257"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1116257"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1116257\/revisions"}],"predecessor-version":[{"id":1116258,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1116257\/revisions\/1116258"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1116257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1116257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1116257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}