Trump triumphant
Is China losing the trade war against America?
A weak Chinese stockmarket gives America the edge, at least in confidence
WHEN Donald Trump tweeted on August 5th that tariffs were working “big time”, American media sprang into action to test the claim. In China, editors were more circumspect. No major Chinese-language newspaper reported his tweets. One of his claims—that China’s stockmarket has fallen 27% in the past four months—was an exaggeration. But why would any self-respecting propagandist in Beijing dwell on that? Chinese stocks have indeed fallen sharply (see chart), which officials do not wish to emphasise.
And this is just one of a series of awkward facts for China as its trade war with America deepens. The yuan is down 8% against the dollar since April, and near its weakest in more than a year. A shrinking trade surplus produced a current-account deficit in the first half of 2018, China’s first such gap in at least two decades. More broadly, China’s growth is slowing at a time when America’s economy is expanding at its fastest pace since 2014. No wonder Mr Trump feels that he is on the right path, and that Chinese investors are jittery.
Making matters worse for China is a whiplash effect. Until recently officials and executives believed their own declarations of technological prowess. Privately, advisers were confident that Mr Trump could be placated with promises to ramp up imports from America. Now both views look wanting. An agreement for China to buy more American natural gas and soyabeans collapsed in June. Chinese officials are keenly aware of vulnerabilities; had America maintained its sanctions on sales of semiconductors to ZTE, the Chinese telecoms giant might well have gone out of business. Those with a conspiratorial mindset see things in a darker light.
“The Americans don’t want a deal. They want to screw us,” says a fund manager.
The asymmetry in the trade war is another uncomfortable fact. Since America buys far more from China than vice versa, America has more scope to impose tariffs. This imbalance, long discussed in theoretical terms, is close to becoming a hard reality. Mr Trump has instructed his trade team to consider 25% tariffs on $200bn of Chinese imports as early as September, taking the total affected by its tariffs to about $250bn, with room for twice that amount. China’s threatened retaliation, announced on August 3rd, will be tariffs on $60bn of American imports. This would take the total under its tariffs to $110bn, with little room for more.
China has other weapons at its disposal. It can disrupt the lucrative Chinese operations of American businesses, from Apple to Starbucks. But that would have downsides. Declaring bogus justifications (health violations, say) would reinforce foreign criticism of government meddling in China’s economy. And the nature of such interference, unlike tariffs, is that it will not be announced in advance, meaning it can take longer to register the impact.
The timing of the trade war is most inconvenient for China. Over the past two years the government has waged a campaign to rein in debt levels. Finally this has started to bite, with credit growth slowing sharply. Officials could opt to abandon their tightening stance in order to counteract the trade turmoil. But that might erase the gains from the deleveraging. This explains their restraint so far. At a meeting of the Politburo on July 31st, China’s leaders noted that it was a priority to support growth amid the “clear change” in the external environment, but also pledged to press on with their efforts to control debt. Investors who had hoped for more easing were disappointed.
So there is cause for concern about China’s growth outlook. But markets may be unduly pessimistic. One conclusion from the past few weeks is that policymakers now accept that the trade war is real, and are starting to cushion the economy. The boost to exports from the falling yuan, down about 6% on a trade-weighted basis since mid-June, should be “roughly proportionate” to the blow from the first $50bn of American tariffs and some of the next $200bn, says Andrew Tilton, the chief Asia economist at Goldman Sachs. At the margins, he adds, China is shifting to a more active fiscal policy. Officials have made it easier for cities to get funding for infrastructure projects. One government adviser says there is discussion of a bigger stimulus, likely to be focused on promoting consumption rather than investment.
The economic backdrop to the trade war could also change over the next year. As China tiptoes towards easing, its credit growth should pick up. Meanwhile, America may be near the top of its growth cycle, with gains from last year’s tax cut set to dissipate. Louis Kuijs of Oxford Economics, a research firm, says the divergence in their stockmarkets might reflect overconfidence in America and an evaporation of confidence in China. “Both reactions seem exaggerated,” he says. With no resolution to the trade war in sight, there will be time enough to test this proposition.
TRUMP TRIUMPHANT: IS CHINA LOSING THE TRADE WAR AGAINST AMERICA? / THE ECONOMIST
CHINA AND RUSSIA´S DANGEROUS LIASON / THE FINANCIAL TIMES OP EDITORIAL
China and Russia’s dangerous liaison
The west ignores the alliance forming between Moscow and Beijing at its peril
Jamil Anderlini
In the annals of western intelligence blunders, the failure to notice the Sino-Soviet split in the frigid depths of the cold war looms very large. Despite a small group of heretical CIA officers pointing to mounting evidence from the late 1950s onwards, successive governments in Washington and elsewhere refused to believe that the two biggest members of the communist bloc actually hated each other. It was not until China and Russia fought a war along the Siberian-Manchurian border in 1969 that the sceptics finally accepted the schism was real.
Today the west risks making the opposite mistake by dismissing the anti-western, anti-US alliance that is now forming between Moscow and Beijing. At a conference in Singapore in June, Jim Mattis, US defence secretary, talked about a “natural non-convergence of interest” between Russia and China and his belief that both countries had more in common with America than with each other.
This idea that Russia and China can never really be friends is just as wrong and dangerous as the cold war dogma that portrayed global communism as an unshakeable monolith.
Even as many in the west dismiss or ignore the rapidly warming ties between the two countries, presidents Vladimir Putin and Xi Jinping have gone to extravagant lengths to praise each other, in a budding bromance.
According to Mr Putin, Mr Xi is the only foreign leader he has celebrated his birthday with — over a glass of vodka and a plate of sausage. For his part, Mr Xi recently called the Russian president his “best, most intimate friend” while presenting him with China’s inaugural friendship medal.
It is easy to dismiss this all as superficial posturing, but such gestures between autocrats matter immensely to their respective systems. The two leaders have met at least 26 times since Mr Xi made his first overseas trip as paramount leader to Moscow in 2013.
It is true that Russia’s ego has been bruised by the obvious role reversal — from the former Soviet Union as “big brother” to Russia as “little brother” today. But China has been careful to save Moscow’s pride — by speaking of the two as equals, massaging Mr Putin’s ego and offering many of his confidantes and advisers lucrative contracts.
While heavily lopsided — Russia’s economy is about one-tenth the size of China’s — the countries’ economic relationship is critical for both sides. China is the world’s biggest importer of crude oil; Russia was China’s biggest supplier last year and Beijing has lent tens of billions of dollars to Moscow to secure future oil and gas supplies.
Crucially, from Beijing’s perspective, oil imports from Russia do not need to travel by ship through strategic chokepoints, such as the Strait of Malacca or the Gulf of Aden, that can easily be shut off by the US military.
But even more significant than their economic entanglement is the military relationship between the neighbours. On his first trip abroad in his new role in April, Wei Fenghe, China’s defence minister, visited Moscow with a very direct message: “The Chinese side has come to show Americans the close ties between the armed forces of China and Russia,” he told his counterpart. “We’ve come to support you.”
Again, this is not just friendly rhetoric. Until recently, Chinese naval vessels had not strayed from the country’s coastline for centuries, but today its warships conduct regular joint exercises with Russia from the Sea of Japan to the Mediterranean. For decades, Russia resisted selling its most advanced military equipment to China but it has now abandoned that policy. In May, Beijing deployed the latest model Russian fighter jets in a show of force over democratic, self-ruled Taiwan.
The most important unifying factor between the two is ideological. Mr Xi and Mr Putin are strongmen autocrats who share an aversion to representative government and a deep fear that they will one day be thrown out of office by a US-backed “ colour revolution”. Their tightening embrace is as much about antipathy towards the US and the US-dominated global order as their rapidly growing common interests. This presents an opportunity for Washington to drive a wedge between them before their alliance becomes unbreakable.
The failure to accept the reality of the Sino-Soviet split in the early 1960s allowed the so-called “domino theory” — the idea that global communism had to be confronted everywhere to stop its spread — to become orthodoxy in Washington. If the US had attempted rapprochement with China a decade earlier than it did under Richard Nixon, perhaps the horrors of the Vietnam war and China’s Cultural Revolution could have been avoided.
Thanks to its continued rise and obvious ambition to supplant the US, China is a far bigger long-term challenge for America than Russia. No less a figure than Henry Kissinger — the architect of that reconciliation with China in 1972 — has reportedly counselled Donald Trump to pursue a “reverse Nixon-China strategy” by seeking to befriend Moscow and isolate Beijing.
Given the current investigation into possible collusion with Russia, it will be almost impossible for the US president to pursue such a strategy successfully. But American institutions, and whoever succeeds Mr Trump as president, must recognise how serious a threat the nascent Sino-Russian alliance is to US interests — and the current world order.
Rebalancing China and Bracing for the Trade War
By Phillip Orchard
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THIS YEAR´S BIG DISRUPTER: THE DOLLAR / THE WALL STREET JOURNAL
This Year’s Big Disrupter: The Dollar
Lucrative trades were upended by the second-quarter rise in the dollar. Getting the greenback’s path right matters.
By Richard Barley
Much of the disruption to global financial markets this year has come from a source close to home: the U.S. dollar.
Investors obsess over stock indexes and bond yields but the most important number in financial markets may be the dollar’s exchange rate. That was clear when the dollar’s sudden rise in the second quarter derailed many moneymaking trades and changed the path of economies and industries. In some places, the pain is extending: The Turkish lira went into meltdown this week, sending ripples through global markets. Friday, the ICE dollar index hit a fresh one-year high.
The dollar’s rebound came after a broad decline in 2017, as growth outside the U.S. picked up.
That lured investors into riskier bets: the MSCI Emerging Markets stock index gained over 30%.
This year kicked off in similar style. But then U.S. growth vaulted higher and momentum stalled elsewhere, sending the dollar on an unexpected upturn. It gained 5.5% against the euro and 4.2% against the yen in the second quarter; moves in emerging markets were even bigger, with the greenback up 17% against the Brazilian real and 16% against the South African rand.

Nearly everything that surged in 2017 has wilted in 2018. After months of tumult, there is reason to believe the rest of the year will be calmer for the dollar, meaning less risky for emerging markets and other volatile assets.
The oddity is that much of the uncertainty about global growth has been generated by unorthodox U.S. policy, whether on tax, trade, or political alliances such as NATO. But even as the U.S. becomes the global disrupter, its assets have proved more alluring for investors. The dollar has kept its role as a magnet in times of doubt.
That is in part because the dollar remains so dominant. In the $5.1-trillion-a-day foreign-exchange market, the U.S. currency is on one side of 88% of all trades, according to the Bank for International Settlements’ 2016 survey. While its weight in foreign-exchange reserves has declined a little, it still accounts for 62.5% of the $10.4 trillion in allocated reserves identified by the International Monetary Fund. The euro, meanwhile, accounts for 20.4%. U.S. capital markets are the biggest and most liquid in the world, making the dollar attractive both to companies looking to raise finance and investors with cash to put to work.
The dollar’s path not only reflects changes in global growth, but can also steer them. Most notably, a rising dollar tightens financial conditions in emerging markets: It may lead central banks to raise rates to shore up their currencies, for example, or dampen the appetite of commercial banks to lend in dollars since their chances of getting paid back declines as the local currency falls. While floating exchange rates in emerging markets have reduced the risk of sudden explosive crises, they come at this cost.
The dollar’s performance in the second half could be less disruptive. Against major currencies like the euro, the greenback has stopped climbing. A good deal of divergence between growth and monetary policy in Europe and the U.S. already looks priced in.
Where the dollar’s strength has exposed weak links in emerging markets, it may continue to cause problems. For countries like Turkey, where the lira is down 36% this year, the problem now is homegrown, not external: There is a serious loss of investor confidence that wouldn’t be solved by a broad-based weakening in the dollar. The bigger picture will be influenced a good deal by the trade dispute between the U.S. and China and whether the Chinese yuan continues to fall, raising depreciation pressures on other currencies.

The dollar has rebounded after a broad decline in 2017. Illustration: photo illustration by WSJ; iStock (2)
For all that the dollar’s rise has accompanied stronger growth in the U.S.—with second-quarter gross domestic product expanding at a 4.1% annualized clip—there is a domestic downside.
Over time, a stronger dollar can hurt U.S. corporate profits as exports become less competitive and foreign earnings are worth less translated back into dollars. While tax cuts have boosted economic growth, they have also raised the budget deficit, which may lead investors to start thinking about the scale of U.S. borrowing.
The flip side could be a debate about whether assets denominated in other currencies are cheap enough to be attractive. Growth outside the U.S. has shown signs of stabilizing, and overseas stocks have started to rebound. A less disruptive dollar could, given time, add to the momentum beyond American shores.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
Paulo Coelho

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