Trade War with China


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Hendrik_2000

Brigadier
Via Taishang
'PetroYuan' Futures Surge Limit-Up To Record High As US Sanctions Hit Iran

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Tue, 08/07/2018 - 00:34

China's 'petroyuan' oil futures contract spiked tonight by 5% (their daily limit) to a new record high, coinciding with the re-imposition of US sanctions on Iran.

The first of two rounds of US sanctions kicked in at 12:01 am (0431 GMT), targeting Iran's access to US banknotes and key industries, including cars and carpets.

This is the biggest daily move in China's oil futures since the contract's inception in March to a new high of CNY537.2...



Notably decoupling from Brent and WTI futures, suggesting a sudden burst of contract-specific buying demand in the 'petroyuan'...



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, the Petroyuan... Tiny, Irrelevant, Nothing. Right? But who would have thought oil will start getting priced in yuan.



China can just bypass Iran sanctions by pricing oil traded in Chinese currency known as Petroyuan...

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Anlsvrthng

Senior Member
Registered Member
No. That's not what the link implies. The supply and demand of the particular good is the Treasury itself. If you have too much existing Treasuries in the open market, issue new Treasuries will have to compete with them and this leads to higher interest. There is talk even now about the interest hitting as high as 5%. The whole exercise of quantitative easing to remove debt from the market.
IF you have limited supply of money, like with gold backed currency. It lead to the great depression and the deflation described by you. The interest of treasury define(d) the spot discount price, means on mark to market basis in the above scenario all bank will be insolvent overnight.

None of what you are saying makes any sense. To sell Treasuries and not to buy new ones, you are not after increasing inflation, you are increasing interest rates, which makes borrowing overall more expensive to the US economy and that will cause the economy to slow down and head for a recession.
I don't get it. There is two side on every transaction, a seller and buyer, so selling new treasuries implies that you have buyer for treasuries. Who's perspective you describe the events? FED , treasury,market?
 

Anlsvrthng

Senior Member
Registered Member
how about China dumps the dollar as well? the US has little in FX reserve, they do have some gold, which can buy one tenth of China's reserve.
Dump the dollar for what?
Klingon Talon?

1/P=R=1+r

China holds about 10% of the US treasury in circulation, if China dumps the treasury, a 20% nominal loss will push up the10-year treasury interest by 2%, and the 5-year interest by 4%, it's as simple as that. if America can stand a 2-4% interest hike in one go, that's Trump's business.
This script miss the reaction by the FED.
It is like the games played by kids, when they pretend that the invisible enemy is dumb, and doing exactly what is good for them in the game : D
Why the FED would allow the increase of interest IF the inflation and unemployment low ?
How can China manipulate the inflation and unemployment by dumping the US dollar for Klingon Talon?

I am sorry, but I can not understand this connection.

Yes burning Treasuries will lead to hyper inflation.

I need to add that for the $4.5 trillion in debt the Fed holds, $2.4 trillion are in treasuries, and the rest are notes issued by banks, local governments, corporations and other private and corporate entities, etc,. All these entities have to pay the Fed back, so this is not one pocket going to another pocket.

The FED print money to increase the inflation.
To make profit from the arbitrage between the FED target rate and actual market price is money printing, to create inflation.
 

Tam

Colonel
Registered Member
IF you have limited supply of money, like with gold backed currency. It lead to the great depression and the deflation described by you. The interest of treasury define(d) the spot discount price, means on mark to market basis in the above scenario all bank will be insolvent overnight.


I don't get it. There is two side on every transaction, a seller and buyer, so selling new treasuries implies that you have buyer for treasuries. Who's perspective you describe the events? FED , treasury,market?


Gold backed? Are you serious? It has nothing to do with gold. It is about the supply and demand for treasuries. This situation is what's going to happen soon with the speculation that yields will go up to 5%. You have limited demand for Treasuries because your foreign buyers, China, Japan, Russia among them, are not buying them. When you are not attracting enough buyers to buy the treasuries, you have to increase the yield to make it more attractive.

One reason why buyers don't buy new Treasuries is that they already own too much of it. You are assuming investors have infinite appetite for treasuries when they do not.

This is not about transaction. This is about Supply and Demand. You have so far never addressed this basic tenet of economics. You have too much supply and limited demand. You have to make the treasuries more attractive by increasing interest rates. That is what is promised to happen if investors, especially foreign ones, do not step in and buy. You have too much supply at the same time because you have a One Trillion Dollar deficit which means you are converting that into a large supply of treasuries. The question is whether you have enough buyers to buy that trillion dollar debt. If you don't have enough buyers, the Fed needs to step in and buy those Treasuries, so it can clean up the supply. But this means it releases the same amount of money into the public, because the Fed has to buy out existing Treasuries already out there. If the Fed transfers money to the Treasuries to buy out the new Treasuries, the US government through its spending of the money that was printed, releases this money to the public, and that leads to inflation.

The real culprit is the $1 trillion dollar deficit each year. You are printing money to pay for maturing bonds and treasuries under the Fed's hands, and you are printing money to buy the newer treasuries to cover the deficit. Have you ever heard of TANSTAAFL?
 

Franklin

Captain
China is learning from Japan's past in trade war.

China's Japanese Lesson For Fighting Trump's Trade War

U.S President Donald Trump has threatened to increase the next round of new tariffs on $200 billion Chinese imports from 10% to 25%. This would be a serious escalation if it comes to pass. Will China begin to back down under rising American pressure, which is presumably what Trump wants to see? In this context, it is instructive to re-examine the trade war that the U.S. waged against Japan in the 1980s, largely forgotten today by many, but evidently not by Beijing. What happened to Japan then is precisely what Beijing is determined to avoid now. What is this Japanese lesson?

Japan recorded its first post-war trade surplus with the U.S. in 1965 on the back of rapidly expanding export-oriented manufacturing. It continued to mount in the following two decades, peaking in 1986 at 1.3% of America’s GDP, according to IMF data. America started to grumble in the early 1970s about Japan’s rising trade surplus. But its was the dramatic increase in the world price of oil in the aftermath of the oil shocks of the 1970s that triggered the American trade war against Japan.

The lightening rod was Japan’s auto exports. Post oil shocks, fuel efficient and well made Japanese cars rapidly gained market share in the U.S. at the expense of American auto makers. By 1979, Chrysler, then one of the largest American auto makers, was about to fold. It needed a $1.5 billion bailout loan from the government to avoid bankruptcy. Suddenly, there was a crescendo of complaints about Japan’s unfair trade practices jeopardizing America’s national security and putting American workers out of work. Sound familiar?

Between 1976 to 1989, the U.S. launched 20 investigations under Section 301 of the U.S. Trade Act of 1974 (the very same Section 301 that the Trump administration is now invoking) against Japan’s exports to the U.S., not only in autos, but also in steel, telecom, pharmaceutical, semiconductors, and others. The Japanese government backed down and agreed to a series of oxymoronically termed “voluntary restraints” on exports on all the disputed items.

When America’s trade deficit with Japan failed to decline despite such voluntary restraints, the U.S. government then pressured Japan to import more from the U.S. Again, the Japanese government accommodated America’s demand by loosening monetary policy to encourage more domestic consumption. Japanese domestic consumption did rise, especially in the property market, fueled by rising debts based on low interest rates, but didn’t do much to increase imports from America.

This led to the third and last act of the trade war. The U.S. government accused Japan of manipulating its currency, keeping the yen’s exchange rate low against the U.S. dollar, thus giving Japanese exporters an unfair advantage. Japan was coerced to appreciate its currency at the Plaza Accord in September 1985. This was the agreement engineered by the U.S. as the chief currency manipulator with Japan, France, West Germany, and the U.K. as accomplices to varying degrees of reluctance, to jointly depreciate the U.S. dollar against the yen and the German mark. As far as currency manipulation goes, the Plaza Accord worked. Between 1985 and 1988, the yen appreciated 88% against the U.S. dollar, according to data from the U.S. Federal Reserve.

Still, America’s trade deficit with Japan did not go away. But by then it had also become irrelevant. Years of ultra-loose monetary policy created massive asset bubbles in Japan, most notably in its stock and property markets; and this bubble economy burst in 1989. The crash and subsequent recession was made worse by Japan’s cozy corporate networks that made clearing the market for a fresh start extremely difficult. What followed was two decades of economic stagnation. Even though America’s trade deficit with Japan persisted, there was not much the U.S. can do with a prostrate Japan mired in recession.

Beijing cannot fail to take note that America’s trade deficit with Japan did not disappear even though the Japanese government caved in to all the demands from the U.S.

From Beijing’s perspective, the lessons learned from the U.S.-Japan trade war are clear: don’t yield to U.S. pressure as Japan did, and don’t become solely dependent on America as an export market as Japan was. And China today is in a much stronger position to put into practice these lessons learned. While Japan’s GDP was only at 40% of America’s in the mid-1980s, China’s GDP was close to 70% of America’s last year, according to the IMF. Japan’s total import has never been big enough for it to wield real international influence, whereas China today is the biggest market for a growing list of countries including Japan, Australia, Brazil, Russia, South Africa, and South Korea.

In the trade war with the U.S., China will not become another Japan.

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plawolf

Brigadier
American politicians specialises in externalising their domestic problems. When America has problems at home, rather than take a long hard look at what they are doing wrong and fixing those, there are always demagogues blaming it all on foreigners, and the American public are all too happy to ‘fall’ for those lies.

As the Japanese example showed, yielding to obnoxious American demands will only trash your own economy and future while doing nothing to address the problems America insist you fix for them, because America’s problems have nothing to do with foreigners to begin with.

I think China is taking the wrong approach with Trump.

He is a classic bullying psychopathic predictor. He simply does not understand restraint and subtlety simply goes over his head, instead all he sees is weakness to be ruthlessly exploited.

Just looking at him brown nosing Putin and respecting Chubby Kim for matching him bark for bark is clear to show what he responds to.

Rather than play the responsible adult always showing reastraint, China should start escalating and going on the offensive.

Right now China is allowing Trump all the initiative to come at China when it suits him best. China instead should serve notice that it is willing and able to hit Trump where it hurts when it hurts the most.

The upcoming midterms should be a perfect opportunity.

China should announce massive escalatory sanctions and tariffs (targeting democrats as well as republicans) and immediately implement all the parts designed to hit Trump’s support base weeks before the elections. China should also quietly offload as much US treasury bonds as possible, and publically announce that it has done so, as well as a complete ban on all future purchases of US bonds while the trade wars are ongoing.

You are not going to win an argument against Trump with reason, you win by making him afraid to continue messing with you.
 

Franklin

Captain
American politicians specialises in externalising their domestic problems. When America has problems at home, rather than take a long hard look at what they are doing wrong and fixing those, there are always demagogues blaming it all on foreigners, and the American public are all too happy to ‘fall’ for those lies.

As the Japanese example showed, yielding to obnoxious American demands will only trash your own economy and future while doing nothing to address the problems America insist you fix for them, because America’s problems have nothing to do with foreigners to begin with.

I think China is taking the wrong approach with Trump.

He is a classic bullying psychopathic predictor. He simply does not understand restraint and subtlety simply goes over his head, instead all he sees is weakness to be ruthlessly exploited.

Just looking at him brown nosing Putin and respecting Chubby Kim for matching him bark for bark is clear to show what he responds to.

Rather than play the responsible adult always showing reastraint, China should start escalating and going on the offensive.

Right now China is allowing Trump all the initiative to come at China when it suits him best. China instead should serve notice that it is willing and able to hit Trump where it hurts when it hurts the most.

The upcoming midterms should be a perfect opportunity.

China should announce massive escalatory sanctions and tariffs (targeting democrats as well as republicans) and immediately implement all the parts designed to hit Trump’s support base weeks before the elections. China should also quietly offload as much US treasury bonds as possible, and publically announce that it has done so, as well as a complete ban on all future purchases of US bonds while the trade wars are ongoing.

You are not going to win an argument against Trump with reason, you win by making him afraid to continue messing with you.
I only agree with you that China should sell a part of its treasury holdings. Lets say half of its 1,2 trillion dollars of bond holdings. And not buy any new ones with or without the trade war. For the rest it is good for China to play the responsible adult and not overreact. The Americans in the end will come to their knees not because of China but because of its own internal problems. Problems about which I have written about here several times. China should not give in to the Americans and more importantly china should focus on solving its own domestic problems and China will win. For China just like the US the danger comes from within and not from the outside.
 

In4ser

Junior Member
While Midterms maybe an opportunity to inflict pain on the current POTUS, it isn't China's strength to win on the short term. With China Hawks becoming more and more vocal on both sides of the aisle, I wouldn't be so sure a Democrat majority in Congress or even a new POTUS would necessarily be any more friendly to China than Trump is (i.e. lifting the purchase ban on ZTE).

China has to assume the worse and see this trade war as the new reality. I agree with Franklin that China needs to learn to focus on fixing its own house rather than focusing on influencing US politics and playing all its trump cards (being held for deterrence) as a risky gamble.

That's not to say that China shouldn't retailate whenever Trump imposes more sanctions but it should look at the big picture. I have always seen Trump as more of a wild fire rather than anything else as he's not something who is rational who can be either reasoned with logic nor can he be necessarily subdued with threats or attacks. As the Democrats learned too late, he thrives on attention and it can often provide even more fuel to his chaotic policies, especially when there's bipartisan fears of China. Treat him as a force of nature that should be contained but also an instrument of change that can be potentially expolited in the aftermath (i.e. creative destruction). However, while its burning out of control it something you try to steer clear of while trying to limit the damage.
 
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Anlsvrthng

Senior Member
Registered Member
Gold backed? Are you serious? It has nothing to do with gold.
Gold backed currencies has supply limit. You imply that limited amount of money chased by investment, again and again expressing the (in your world) limited amount of money supply
It is about the supply and demand for treasuries. This situation is what's going to happen soon with the speculation that yields will go up to 5%. You have limited demand for Treasuries because your foreign buyers, China, Japan, Russia among them, are not buying them. When you are not attracting enough buyers to buy the treasuries, you have to increase the yield to make it more attractive.

You mean the FED/treasury has a yuan exchange rate target, and try to adjust the dollar value by changing the interest rate?
It is new, I know that say China, Japan, Korea, Poland, Hungary and so on doing it, but the USA?
One reason why buyers don't buy new Treasuries is that they already own too much of it. You are assuming investors have infinite appetite for treasuries when they do not.

This is not about transaction. This is about Supply and Demand. You have so far never addressed this basic tenet of economics. You have too much supply and limited demand. You have to make the treasuries more attractive by increasing interest rates. That is what is promised to happen if investors, especially foreign ones, do not step in and buy. You have too much supply at the same time because you have a One Trillion Dollar deficit which means you are converting that into a large supply of treasuries. The question is whether you have enough buyers to buy that trillion dollar debt. If you don't have enough buyers, the Fed needs to step in and buy those Treasuries, so it can clean up the supply. But this means it releases the same amount of money into the public, because the Fed has to buy out existing Treasuries already out there. If the Fed transfers money to the Treasuries to buy out the new Treasuries, the US government through its spending of the money that was printed, releases this money to the public, and that leads to inflation.

The real culprit is the $1 trillion dollar deficit each year. You are printing money to pay for maturing bonds and treasuries under the Fed's hands, and you are printing money to buy the newer treasuries to cover the deficit. Have you ever heard of TANSTAAFL?
And where is the inflation ?

Why would be the graph different if China dump?
By the graph China already buying insufficient amount of treasury, so the FED has to mop them up.

 

solarz

Brigadier
American politicians specialises in externalising their domestic problems. When America has problems at home, rather than take a long hard look at what they are doing wrong and fixing those, there are always demagogues blaming it all on foreigners, and the American public are all too happy to ‘fall’ for those lies.

As the Japanese example showed, yielding to obnoxious American demands will only trash your own economy and future while doing nothing to address the problems America insist you fix for them, because America’s problems have nothing to do with foreigners to begin with.

I think China is taking the wrong approach with Trump.

He is a classic bullying psychopathic predictor. He simply does not understand restraint and subtlety simply goes over his head, instead all he sees is weakness to be ruthlessly exploited.

Just looking at him brown nosing Putin and respecting Chubby Kim for matching him bark for bark is clear to show what he responds to.

Rather than play the responsible adult always showing reastraint, China should start escalating and going on the offensive.

Right now China is allowing Trump all the initiative to come at China when it suits him best. China instead should serve notice that it is willing and able to hit Trump where it hurts when it hurts the most.

The upcoming midterms should be a perfect opportunity.

China should announce massive escalatory sanctions and tariffs (targeting democrats as well as republicans) and immediately implement all the parts designed to hit Trump’s support base weeks before the elections. China should also quietly offload as much US treasury bonds as possible, and publically announce that it has done so, as well as a complete ban on all future purchases of US bonds while the trade wars are ongoing.

You are not going to win an argument against Trump with reason, you win by making him afraid to continue messing with you.

China right now is following the classic tit-for-tat strategy in IR.

I believe the reason for that is China is quietly pursuing other avenues of development.

For Xi, the most important goal is OBOR, and if the US is too distracted by the Trade War to counter OBOR, then it is to China's advantage.
 
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