Trade War Now Escalating, Social Mood Will Compel Confrontation

China has locked itself into a tit-for-tat escalation that it cannot win.

ZH: China Vows Retaliation With "Same Scale, Intensity" To Any New US Tariffs
According to Reuters, China is preparing aggressive counter-measures of the “same proportion, scale and intensity" if the Trump administration imposes further tariffs on Chinese goods, China’s Ambassador to the United States Cui Tiankai warned. And, as we discussed here previously, the worst-case scenario of a looming trade war could soon be realized, forcing the U.S. into a recession.
Previewing what's coming, Chris Kreuger, a strategist at Cowen Washington Research Group, said to keep a close eye on China’s retaliation if Trump continues the trade tariff assault.

“The approximately $3 billion in steel and aluminum tariffs against China were reciprocated with approximately $3 billion in tariffs on 128 U.S. exports to China (tariffs of 15% to 25% on products including pork, nuts, wine, and fruits),” Kreuger wrote in a note to clients Monday. “It is important to note that the Chinese response to 301 is still TBD. If 232 is an indicator, it is probably fairly…reciprocal.”
Meanwhile, Horizon Investments' Greg Valliere said Monday China is preparing for the next leg up in trade wars.

“This is a signal that China is prepared to do more, since these tariffs were in response to US steel and aluminum tariffs, not the $60 billion in other tariffs announced by the US in response to widespread Chinese theft of US intellectual property,” Valliere said. “Talks on this bigger issue are underway between the two countries; failure to make progress in these talks could lead to serious Chinese tariffs.”

Incidentally, KPMG warned that a full blown "global trade war would be worse than 2009 global recession" while Jeremy Grantham warned that a Global Trade War would lead to a 40% market crash.
Trump loves tweeting about the stock market, but his supporters want wage increases. Deporting illegal aliens, restricting immigration to high-wage earners and increasing domestic production will achieve that.

Belleville News-Democrat: Illinois bakery that makes McDonald’s buns loses 800 workers in immigration raid
A Chicago bakery that makes buns for McDonald’s lost 800 workers — about one-third of its workforce — after an immigration raid and was struggling to replace them.

Aryzta AG CEO Kevin Toland said the company was trying to replace 35 percent of its workers after a raid at Cloverhill Bakery in Chicago, according to Bloomberg News. The Swiss-based company bakes hamburger buns for McDonald’s Corp. and other fast-food chains and supermarkets.

The company now struggles to find enough workers and will have to increase its wages — what Toland called “like having a brand new factory and brand new workforce.”
Assuming the U.S. doesn't shift its imports to other nations, domestic production must rise, consumption must shift into domestic output, and/or savings rise. China must shift its exports into other markets, cut production or increase domestic consumption. A U.S. trade war with China benefits other nations and domestic producers. China will harm domestic producers and could run into trouble with other nations if it starts redirecting U.S.-bound exports into other markets. It is the nature of the trade deficit-surplus relationship. The U.S. is at its weakest position when the deficit is largest, China strongest when the surplus is highest.

The U.S. economy will suffer from a large trade war because it will cause disruption, but it will not suffer nearly as much as China. In the beginning, every retaliation by China will cause symmetrical pain to the United States, but China cannot keep playing this game because long before the U.S. cries uncle, the Chinese economy will run into serious trouble. The U.S. can escalate to $500 billion, China can only escalate to $150 billion. At $150 billion, China puts tariffs on all U.S. goods. The next U.S. response is tariffs on all Chinese exports.

Countries can win trade wars because they do not measure victory solely with GDP. Economists say trade wars cannot be won because they only measure with GDP. Many of them do not include debt in their models, and ignore falling or stagnant wages, rising populism, falling life expectancy, and myriad other problems associated with what is rightly termed a depression. Very few economists fighting the idea of trade war are calling for reform of the Federal Reserve and global monetary reform. Some do not even believe in nations and national sovereignty, but view all the workers of the world as widgets in a global economy. There is something to that vision, but it is not shared by most people in the world.

What the free traders and globalists failed to see is that social mood moves in cycles from optimism to pessimism. They created global systems that deny human nature, the desire to live among your own people, your nation, and to act to some degree as a collective entity in the world. They also created a system that did not account for negative social mood, from a swing that would intensify these aspects of human nature. Thus the European Union, globalism 2.0 (the political form it took, not the communications revolution) and the current global monetary system are all in danger of eventual collapse depending on where social mood finally hits its trough. The response to rising identity politics and nationalism is to categorize this as akin to thought crime, similar to how communists viewed self-interest. Healthy nationalism and identity politics is collective self-interest. It can become toxic, as individual self-interest can turn toxic, but it isn't going away. Systems that cannot deal with it will fail as surely as communist economics failed.

Despite the turn in social mood the political establishment is still pushing for "solutions" such as mass migration, 180 degrees out of tune with the trend in social mood. They are insane, but they view the world as going insane with populism, failing to see it as the body politic's healthy response. The insanity can stop as soon as the establishment realizes it has dug an enormous hole for the past 10 to 20 years and stops digging, but for now the response is ever more furious digging, triggering even more extreme reactions.

Finally, it is possible that Trump could lose support if the economy suffers from a trade war. But if social mood turns increasingly negative, it is also possible the public will support a confrontation with China. Those who oppose the trade war could be labeled unpatriotic. Trump might also get impeached if the Democrats somehow win the Senate and the House in the midterm elections, especially if it accompanies a bear market in stocks. Then along with escalation towards civil conflict in the United States, foreign policy will shift from trade war with China to kinetic war with Russia.

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