China Warns Trump About a Trade War

China just put Donald Trump on notice.

That’s the first bit of real news out of the World Economic Forum in Davos, Switzerland. There, Chinese President Xi Jinping took to the podium to defend economic globalization.

In the process, China’s top politico fired the first salvo in what could be an ugly spat — one that morphs into a potential trade war between the U.S. and her Far East rival.

Xi warned the Davos audience — a gathering of the world’s business and political elites, as well as the rest of the world — that “chaos in our world” is not the result of economic globalization.

He also said that negative events such as the financial crisis and Europe’s refugee crisis were not connected to globalization.

Later in the speech, Xi offered up the following direct shot at the president-elect:

“No one will emerge as a winner in a trade war.”

So, how is that likely to go over with what President-elect Trump is thinking? And what does that mean for your money?

Image Credit: Wikipedia

Looking at the latest appointments to advisory positions, it certainly seems like the Trump administration is gearing up for a potential trade war.

Here’s how the Wall Street Journal described it in an article published today:

President-elect Donald Trump’s pick of four key advisers on trade and international affairs shows he is serious about confronting Beijing, Mexico City and other capitals in an attempt to open up markets for U.S. exports, while curbing imports that compete with key American-made products.

Indeed, part of the appeal of Trump’s candidacy was his “get tough” policy on China. Candidate Trump repeatedly accused China of manipulating its currency to help exports while hurting imports.

He also criticized companies such as Apple (AAPL) for choosing to make products in the nation with rock-bottom production costs.

Xi’s comments at Davos are undoubtedly aimed at making sure the Trump administration doesn’t impose tariffs on his country’s estimated $483 billion in exports to the U.S.

***

Such tariffs might help some industries here in the U.S. (steel and manufacturing). But that also would really hurt industries such as discount retailers, including companies (and widely held stocks) such as Wal-Mart (WMT) and Target (TGT).

This also would increase the cost of goods for nearly every American, and that could lead to 1970s-style “stagflation,” a situation where economic growth stagnates in part due to rising inflation.

I suspect that a President Trump is not going to court the handmaiden of stagflation … but that’s not a given.

I do, however, think that the last thing Mr. Trump wants is an ugly battle with Beijing.

Really nobody I know wants that. And nearly everyone who has money in the markets is rightly fearful of the implications if there were to be a real trade war.

If we do see an escalation of trade tensions, counterintuitively, it could mean a boost for many of China’s domestic stocks.

The Global X China Consumer ETF (CHIQ) could benefit from U.S.-China trade tensions.

That’s because China would likely act to pump more fiscal stimulus into its economy to make up for any loss in exports. That would also likely mean a boom for China’s domestic markets, including companies that do more business within the country than they do in exports.

This is just some of the counterintuitive thinking you’ll find at Uncommon Wisdom Daily, and particularly in my Crisis Options Trader service, in the coming days and weeks.

Right now, we are preparing for what I call the “Orange Swans” associated with the decisions and policies of the Trump administration.

And while a trade war with China is just one of many Orange Swans we’re watching, it’s not likely even the most probable.

If you’d like to find out more about how to invest for the Trump administration, stay with us … as everything is about to change in literally three days.

***

What do you think about China’s trade war warning? Do you think we are in for a brawl with the world’s second-largest economy? I want to know what you think, and doing so is as easy as leaving me a comment on our website or sending me an e-mail.

***

Stocks opened lower across the board, weighed down by profit-taking in financials. The Financial Select Sector SPDR (XLF) fell 2.4% in Tuesday’s session, while the Dow and S&P 500 shed 0.3% apiece.

• Morgan Stanley (MS) fell 3.8% despite handily beating Wall Street estimates in today’s Q4 earnings report. The bank reported earnings of 81 cents per share on adjusted revenue of $9 billion, while analysts expected 65 cents on $8.5 billion.

• MS wasn’t the only falling financial. Goldman Sachs (GS) dropped 3.5% in front of tomorrow’s pre-market earnings report. Citigroup (C), which also reports tomorrow, fell 2.1%.

• “All out”: UK Prime Minister Theresa May said the Brexit will be a clean break from the European Union, rather than a “half in, half out” partial membership in the bloc. The pound sterling gained 2.6% after May’s statement, its best day since 2008.

• Bigger Tobacco: Reynolds American (RAI) surged 3% after British American Tobacco (BTI) said it would buy the rest of Reynolds that it didn’t already own. The $49 billion deal is $2 billion more than BTI’s previous offer and creates the world’s largest publicly traded tobacco company.

• WTI crude oil gained 0.2% after the Saudis said they would strictly adhere to their production-cut promises.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “China Warns Trump About a Trade War”

  1. I think that it is best to get along with China because just about everything we buy is either made there or the parts are. Seems like they have worked like slaves for USA long enough to make a lot of people in USA rich. My advice is leave them alone.

  2. me a couple of more months to turn the classroom into a pre-kindergarten and then drop by and see what happens! If I can do this at age 83.6, I think it will be time worth spending!

    Dick Cornell, Emeritus Professor, Instructional Systems Design, College of Education, University of Central Florida (Go Knights!)

  3. As with any re-negotiation that one side feels that they have been fleeced(which for over 30 years the US has seen the lesser side) you start high and come to a better then the last position. I think it is laughable that Xi jingping (first time china attending Davos) when his country manipulates the currency when ever it wants. China has a major problem with it’s masses…they are becoming middle class citizens in a changing political system other replacing the old hard core communism, and will eventually be more democratic.

  4. Orange Swans. laughable globalist nonsense we cannot continue to roll over or should I say bend over for China we must stand our ground and establish fair trade deals. Otherwise we will lose the war without firing a shot !

  5. Why is it that every time someone in power mentions that we need to greatly reduce our trade deficit, he wants a trade war? No matter what action is recommended to solve the deficit, it’s going to cause massive unemployment, another depression, prices on everything to increase and world financial destruction. Well, let’s see. We already have multi millions out of work and currently experiencing a depression. Prices on most everything have been increasing for quite some time. If you don’t know this, then your wife must be doing all your shopping. Finally, we will have world financial destruction, if anyone even so mentions reducing our trade imbalance with China.
    Obviously, the answer is to do nothing to upset China and “shazam” our trade deficit will cure itself. This garbage has been preached to us for many decades and nothing changes. Stupidity can be described as doing the same thing over and over again and expecting a different result. Then again, not so stupid. The multi-nationals, their lobbyist and the politicians that support them have all become wealthy. Not bad work, if you can get it.

  6. Hi Brad,
    Well it is TOTALLY predictable what the Chinese president would have said at a GLOBAL ELITE mtg. such as Davos. The issue here is very simple: Xi Jingping is a globalist and trump is more nationalist. Xi knows without globalization, he country would be in big trouble. Conversely, Trump wants to build up the USA to be able to trade on an even playing field. Trump is a nationalist. Fortunately, Trump is nationalist.

  7. Because of poor, weak, leadership, China has had their way with the US, and we’ve helped to build their economy. I’m sure they feel a little threatened their huge trade imbalance may change with Trump. It’s about time they have some competition. They have all but pushed the US out of the way, and now the Yen is even an alternative currency on the exchange.
    Before we can export anything, we must have industry in the US. Hats off to Trump for being proactive on bringing jobs back and companies back to the US. I hope he continues.
    I only hope that people will put aside their personal problems with him, give him a chance, and realize he’s there to try and save our great nation. He has a lot to fix after Obama finally gets out of the Oval. He doesn’t need rock throwers while he’s trying to do it.
    I only hope it’s not too late, as our entire economic system is on the verge of collapse due to selfish politicians catering to the lobbyists and staying in office way too long.
    People that have any brains at all, realize we are at the brink of peril and aren’t concerned with the knit picking penny anny crap that doesn’t help our country. I want us to all prosper, and I want our nation to be great again, powerful, and respectable.
    China should be thanking us for making them rich. They have no right to be warning us of anything.

  8. First, let me say Brad that you offer the best thought provoking and bias free topics for discussion.

    When listening and reading Trump comments, I have to stop myself every time and remember he is a salesman first an foremost. He throws out lines and based on responses, he judges where the deal boundaries lie. If you go back to his earliest comments to his present comments, you notice how those boundaries have narrowed. I do not think he is making a fundamental change to his goal but rather has narrowed down how far in each direction he can go. Much like a car salesman who with casual conversation tries to determine if he can up sell you one or maybe two models or if he will be lucky to even sell you the model you are looking at. Obviously the Presidency is more complicated than selling a car (and I by no means want to demean the new President) but if he’d wishes to get a better trade deal for the country he uses the same basic techniques; toss out a wild idea, gauge reaction, narrow the scope of his goals and fine tune his approach.

    Finally, I guess I wonder where it is written that the US has to put itself in a position of subsidizing employment across the planet. Why is everyone so upset that the man (PEOTUS) wants to see more Americans with jobs? I lived in Germany for 17 years, speak/spoke and read the language and believe me it is German-made products first regardless if a bit more expensive than imports. No one cries about the Germany first program.

    Keep,up your good work Brad.

  9. maintain a flexible balance – keep buying cheap clothes shoes from China – export natural gas, add import tax on cars trucks, and products such as steel used in infrastructure that is targeted to boost industry and increase employment inside US not China – look at other countries India, for example, that may also need to be taxed
    Increase tax on those countries that are polluting the earth

  10. I think a lot of what Trump says is what I refer to as “automatic speech”. I’t’s like saying, ” … hello, how are you doing?” The person making the statement generally doesn’t care how you’re doing. The greeting, simply, automatically, rolls out of the person’s mouth. Trump is a businessman first and foremost. He’s going to do what is good for the business. In this case the United States of America. He’s going to want to talk with leaders of other countries, expressing his concerns as a particular country’s relationship with the USA. That can be good. It can clear the air, and potentially lead to improved relationships – economic, strategic, and otherwise. He likes to keep the other side off balance because, he feels, it gives him some type of advantage.

  11. Firstly, I am not a fan of Donald Trump. But, as a business owner, I understand that when negotiating (for example) for the prevention of a price hike from your supplier, you need to be prepared and have something to counter back to the proposed price hike. Today, the USA has no cards to play with China, or with anyone else in the world. Trump is quickly trying to make enough noise to “get some cards back” so that when he negotiates, he gives back the only thing he has, and that is his newly acquired cards. In the meantime, he has to improve the US business climate so that we change from one of the worst place to do business to one of the best. And with business flourishing, Americans will make more money and will spend more money. Besides, if US company make profits abroad, they should be given a prize for bringing money back to the US, and not penalized with a second tax at home.

  12. Never underestimate Trump. Although he doesn’t know everything, he has this uncanny ability to adapt to the now moment, something that made him successful and very wealthy. If someone challenges him, my bet is that Trump will come out, if not on top, unscathed.

  13. Have to stand up to their violating our IT systems, stealing our data and violating the world court decisions. We should not be change adverse as they have much more to lose and an import tax is not a tariff, we can finally start to level the trade playing field.

  14. Brad —This trade war subject is a complicated subject, just like most of the rest of the problems facing the USA. I don,t have the time now to respond but I will.

  15. XI JINPING IS ONLY REACTING TO TRUMP’S THREAT AND ITS UNDERSTANDABLY THE SORT OF REACTION YOU WOULD EXPECT.
    GOING FORWARD HOW IT PANS OUT AGAIN DEPENDS ON TRUMP. IS
    HE GOING TO CUT HIS NOSE TO SPITE HIS ALREADY UGLY FACE ?
    FOR THE REST OF US WE WILL HAVE TO EXPECT A LOT OF VOLATILITY
    IN THE NEXT FEW MONTHS AS THE SITUATION DEVELOPS.

Comments are closed.