Dear Reader,
Today I want to talk about a note out from JPMorgan predicting the U.S.-China trade war will escalate.
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You know, Trump is getting a lot of criticism for pausing the Mexico and Canada tariffs after both countries agreed to do things they were already doing before he enacted the tariffs.
But, China’s a little different.
Canada and Mexico are in a very weak position vis-à-vis the U.S.
But JPMorgan’s note speaks to the bar being really high for a truce.
China wants to be considered a peer to the U.S. in power.
So they’ve got to fight with the United States.
If they blink, they’re going to look weak, like a supplicant.
China has a lot of incentives to raise the bar, and they are doing so.
They are raising tariffs on the things the U.S. sells to them.
And they’re specifically targeting a handful of states that are strong Trump supporters by putting tariffs on their exports – a 15% levy on coal, a 10% tariff on agriculture.
Plus, you think of global trade…
Americans want more manufacturing jobs in the U.S.
China and Mexico are taking those jobs.
They’ve taken car making jobs – jobs at the lower end of the value chain.
The U.S. has owned the top end of the chain – software and services.
But as a country develops, it starts to move from the low end of the chain – putting bolts on cars…
Up to the middle – creating the software others design…
Right up to the high end of the value chain – designing their own software and having middle-tier countries like Taiwan make it for you.
China is developing and not backing down.
They’re fighting back – not just targeting Trump’s constituent states with tariffs, but also blocking rare earth metals and opening an antitrust investigation against Google.
I’m glad that the U.S. is working things out with Mexico and Canada – those trade wars would have just destroyed the auto industry.
But, like JPMorgan, I believe the U.S.-China trade war will escalate.
Here’s how this all plays out >>>
“The Buck Stops Here,”
P.S. China’s assault on the dollar has reached a critical phase…
They’ve dumped $72 billion in U.S. treasuries in the last few months alone…
Plus, they just convinced Saudi Arabia to end its 50-year “petrodollar” agreement with the United States.
