Trade War

We just witnessed the 5th largest single day stock market crash in U.S. history. On Thursday the Dow Jones Industrial Average plunged 724 points, and many believe that this is just the beginning of another huge wave down for stock prices. After this latest dramatic decline, the Dow is now down 3.1 percent so far in 2018, and overall it is down 9.99 percent from the all-time high in January. A 10 percent decline is officially considered to be “correction” territory, and that means that we are just about there.

So why are stock prices falling so much? Well, USA Today is blaming the potential for a trade war with China, the latest Facebook scandal and “the impact of rising interest rates on the economy”…

U.S. stocks sold off sharply Thursday, with the Dow tumbling more than 700 points amid growing fears of a trade fight between the U.S. and its trading partners after President Trump said he will impose billions of dollars in tariffs on Chinese imports.

The heavy selling on Wall Street was exacerbated by continued weakness in shares of Facebook as well as concerns about the impact of rising interest rates on the economy.

Of course the possibility of a trade war between the two largest economies on the planet is certainly the greatest concern that the markets are grappling with at the moment. According to Ian Winer, any sign of retaliation by China “will really spook people”…

“A global trade war, whether it’s real or perceived, is what’s weighing on the market,” said Ian Winer, head of equities at Wedbush Securities. “There’s this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people.”

Trump announced tariffs on about $50 billion worth of Chinese imports on Thursday afternoon. It’s not clear which products will be hit, but the action is aimed at curbing China’s troubling theft of US intellectual property.

And we can be quite sure that China will retaliate.

In fact, before the end of the day on Thursday the Chinese embassy boldly declared that China will “fight to the end”…

The Chinese embassy released a statement late Thursday saying China “would fight to the end..with all necessary measures.”

What people need to understand is that China has been taking advantage of us for decades.

For example, many U.S. vehicles cost three times as much in China because of all the tariffs that China slaps on them. But we have been allowing China to flood our shores with giant mountains of super cheap goods with no tariffs at all.

This is why we have been buying far more from China than they have been buying from us. It has been an unfair playing field. As a result of our massive trade deficit with China, they have been systematically getting wealthier and we have been getting poorer.

Since China joined the WTO in 2001, we have lost more than 70,000 manufacturing facilities and millions of good paying jobs. We have to beg China to lend us back a lot of the money that we send to them, and as a result the Chinese now own more than a trillion dollars of our national debt.

So we simply cannot afford to continue to allow China to take advantage of us, but if we start standing up to them it is inevitable that they will strike back. Here are just a few of the things that they could do…

1. Impose higher tariffs on all US exports to China

2. Restrict market access for US firms in China

3. Provide preferential treatment to US competitors

4. Restrict US travels by Chinese nationals

5. Sell US treasuries and buy other government bonds

But what is the alternative?

Should we just continue to allow China to walk all over us?

Hopefully we can negotiate with China without causing a horrible trade war, because without a doubt trade wars are not good for the global economy…

Trade wars are bad for the global economy, as they cause prices that consumers and businesses pay for goods and services to rise. A rise in inflationary pressures could prompt the U.S. central bank to speed up its pace of interest rate hikes, which could slow economic growth. Trade skirmishes can also hurt U.S. exports and corporate earnings.

And in the short-term, any news about a potential trade war will continue to rattle the financial markets. At this point more than half of the companies on the S&P 500 are already in “correction territory”, and dozens of companies are already down at least 20 percent from their one year highs…

The U.S. stock market is under pressure once again, with more than half the S&P 500 falling into correction territory.

More than 275 components in the broad index were down at least 10 percent from their 52-week highs as of 11:04 a.m. ET. Of those companies, 84 were in bear-market territory, or down at least 20 percent from their one-year high.

As most of you already know, my race for Congress is extremely close and voting day is on May 15th. If you would like to send someone to Washington that understands the long-term economic and financial challenges that we are facing, I would very much encourage you to get involved. If you would like to make a financial contribution, there are several ways that you can do that…

Donate By Credit Card Online: https://secure.anedot.com/michaelsnyderforcongress/donate

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Donate By Check: Make your check out to “Michael Snyder For Congress” and send it to the following address…

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Bonners Ferry, ID 83805

We have already seen more financial shaking in 2018 than we have during any year since the great financial crisis of 2008.

Hopefully things will settle down in the days ahead, but I wouldn’t count on it. Our long-term economic and financial problems are really starting to catch up with us, and Donald Trump is trying to navigate our ship through some very rough waters.

As always, let us hope for the best, but let us also get prepared for the worst.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District. If you would like to help him win on May 15th, you can donate online, by Paypal or by sending a check made out to “Michael Snyder for Congress” to P.O. Box 1136 – Bonners Ferry, ID 83805. To learn more, please visit MichaelSnyderForCongress.com.

The United States and China are the two largest economies in the world by far, and the upcoming trade war that is about to erupt will be cataclysmic for both sides. The Trump administration and the Chinese government are both gearing up for a prolonged trade war, and this is going to have very severe implications for the entire global economy. During the campaign, Donald Trump repeatedly stated that we “can’t continue to allow China to rape our country”, and he was quite correct about that. Over the past ten years, the U.S. has run a trade deficit of over $2 trillion with China, and as a result of imbalanced trade we have lost tens of thousands of manufacturing businesses, millions of good paying jobs, and hundreds of billions of dollars of tax revenue.

So clearly something needs to be done to balance our trade with China and other countries. But the situation must also be handled delicately, because trade disruptions could bring substantial short-term economic pain.

Prior to winning the election, Trump threatened to unilaterally impose a 45 percent tariff on Chinese exports. Unfortunately, China is not just going to sit there and take whatever Trump throws at them. Every single time the U.S. has imposed tariffs on Chinese goods in the past, China has responded by slapping tariffs on U.S. goods.

And this time around, the Chinese are already preparing a very harsh response even though Trump has not officially made his move yet…

The policy advisers believe the Trump administration is most likely to impose higher tariffs on targeted sectors where China has a big surplus with the United States, such as steel and furniture, or on state-owned firms.

China could respond with actions such as finding alternative suppliers of agriculture products or machinery and manufactured goods, while cutting its exports of consumer staples such as mobile phones or laptops, they said.

Other options include imposing tax or other restrictions on big U.S. firms operating in China, or limiting their access to China’s fast-growing services sector, they added.

When this coming trade war erupts, economic activity will be reduced significantly. And considering the fact that U.S. economic growth is projected to be about one percent in the first quarter of 2017, that could be more than enough to push us into a deep recession.

Some of the biggest U.S. exports to China include airplanes, autos and agricultural products, and the Chinese are ready to attack on all of those fronts. The following comes from CNN…

Here’s what Global Times, a newspaper backed by the Communist Party, had to say about how Beijing would respond to tariffs of 45%:

“A batch of Boeing orders will be replaced by Airbus,” the paper said Monday. “U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted.”

But once again, something must be done for the long-term good of our country. We have been allowing the Chinese to flood our shores with super cheap goods, but meanwhile they have already been hitting our products with ridiculously high tariffs. Here is just one example…

U.S.-made cars exported to China face tariffs of at least 25 percent, including American-made Cadillacs. The American-made Jeep Grand Cherokee costs $27,490 at U.S. dealerships and cost at least $85,000 in China.

What we have with China today is very far from “free trade”, and if they want to trade with us they need to do so on a level playing field.

But China will never allow that to happen. As Donald Trump has correctly stated, they have been “raping” us for years, and they are going to fight very hard to keep anything from upsetting the status quo.

Trump has got to do something for the long-term good of the U.S. economy, but he has also got to try to find a way to avoid a major trade war, because a major trade war would be exceedingly painful for both countries.

Most Americans don’t realize this, but more iPhones are actually sold in China than in the United States. And it is being projected that Boeing will sell nearly 7,000 airplanes to China over the next decade…

By the end of 2015, Chinese consumers bought 131 million iPhones. The total sales to U.S. customers during the same period stood at only 110 million. And iPhones are only a small part of U.S. exports. Boeing, which employs 150,000 workers in the U.S., estimates that China will buy some 6,810 airplanes over the next 20 years, and that market alone will be worth more than $1 trillion.

So what happens if all or part of that economic activity goes away?

According to one study, in the short-term millions of U.S. jobs could potentially be at risk if a major trade war happens…

“Millions of American jobs that appear unconnected to international trade—disproportionately lower-skilled and lower-wage jobs—would be at risk,” according to the PIIE study.

And of course a major trade war would hit American consumers very hard as well.

Just think about it. When you go into a Wal-Mart or a dollar store, are more of the products made in the United States or in China?

A trade war would hit all of us in the wallet as the cost of living goes up. And considering the fact that about two-thirds of the country is essentially living paycheck to paycheck, that would not be a good thing.

So yes, our trading relationship with China definitely needs to be rebalanced, but Trump needs to find a way to make this transition as minimally disruptive as possible.

A major trade war is just one of the “black swans” that could push us into the kind of economic nightmare scenario that I have been warning about for a very long time. And sometimes a trade war can serve as a prelude to a real war. The South China Sea has become a major sticking point between the U.S. and China, and the Chinese are getting ready to cross one of the “red lines” that Barack Obama established while he was still in office…

Beijing has plans to start construction on the disputed Scarborough Shoal this year.

China has reclaimed land in both the Spratly and Paracel Islands and constructed military outposts, but it has been hesitant to start construction on the Scarborough Shoal. Xiao Jie, the mayor of Sansha — an administrative base for China’s South China Sea activities masquerading as a city — said this week that China intends to construct environmental monitoring stations on a number of territories in the South China Sea, including the Scarborough Shoal.

So how will Trump respond when construction on Scarborough Shoal actually begins?

It will be very interesting to watch how that plays out.

The relationship between the United States and China was starting to deteriorate badly even before Donald Trump was elected, and it is very easy to see how it could totally break down in the months ahead.

And considering how interconnected the global economy is today, the United States and China could easily end up dragging down everyone else along with them.

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