Tariff wars and consequences

Posted: April 5, 2018 in Uncategorized

US and China are trading blows.

 

As of now it is more a tit-for tat than full blown trade wars. The US has still a negotiating windows till late May and China did not set a date -indicating that it wants to negotiate.

Also strangely, in the retaliation, it included soybeans. Soybeans are strange as China is the largest importer (60% of world production). And, without the US, there are not enough soybeans in the world for China consumption (the other large exporter is Brazil, but does not have enough to substitute the US).

In a sense it is a double edged sword.

Yes it hurts Trump in his Republican States (scary for November elections) – but also wills spike costs in China and bringing inflation.

Inflation brings unrest and lots of unintended consequences for China and also export inflation to the world with a lot unintended consequences for yields.

The communication here is “yes we are prepared to go nuclear, but let’s talk before”.

The most likely case is that some tariffs will be passed, but more as a saving face without hurting too much. Or so we hope.

There is still a third wave – are striction on Chinese investment in the US, probably in June,.

In order to add pressure the Chinese Defense Minister warned the US of growing military ties with Russia.

Per converse the US is still leader in military technology. They are advancing swarm drones combat capability and Lockheed Martin has just patented a technology of nuclear fusion jet engine that could revolutionize air combat.

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