President Donald Trump continues to say the US can’t lose a trade war with China, but can China withstand a trade war? But Shareholders Unite said in an article on “Seeking Alpha” that China’s loss is not our gain.
The Chinese economy is vulnerable at the moment, Shareholders Unite said. Plagued by large debts, which authorities are attempting to reign in and a worsening emerging market climate, China’s economy may be soft.
Trump might be tempted to think that, because of that weakness, china will cave if only he puts enough pressure on them. So, the President might think the US cannot lose a trade war. The US just needs to bring enough pressure on China to make it crack first.
The Chinese economy is vulnerable at the moment with high debts, slower growth, capital flight, a declining stock market and bond defaults, but a bring-them-to-their-knees policy would be a serious mistake for two reasons, Shareholders Unite said.
- China isn’t likely to cave to demands. These are proud people.
- The world is globalized, and serious problems in China will not go unnoticed elsewhere. Trade isn’t a zero-sum game where we win at their expense. It is a positive sum game where both can win or lose at the same time.
THE 2015-2016 SCARE
In 2015 and again at the start of 2016, world financial markets got a significant scare with a surprising amount of capital flight from China and a partly botched attempt to deal with it with a partial devaluation, Shareholders Unite said.
The devaluation was misinterpreted as the start of a trend, so it only accelerated the capital outflows, Shareholders Unite said. To fix it, China’s central bank had to spend $1 trillion of its forex reserves and impose strict capital and currency controls.
At one point before the central bank stepped in, capital outflows reached $100 million a month, and Chinese forex reserves were dropping almost as fast. Traders realized that the Chinese could not support its currency indefinitely.
Plus, a substantial Chinese devaluation could bring on a risk to many companies who could no longer service their dollar-denominated debt. And then there was a risk of a subsequent deflationary wave around the world.
THINGS DIFFERENT NOW
Back then, the US Federal Open Market Committee might have helped by slowing its interest rate hikes, but that’s not the case now, Shareholders Unite said. The FOMC is tightening credit and selling the assets purchased during its three QE episodes boosting dollar-denominated debt around the world, including in China.
Tuesday, the central bank intervened and supported the yuan, pledging to not allow it to be used as a tool in the trade tensions.
Both economies remain strong for now, but both are subject to contagion from each other.
CATTLE, BEEF RECAP
No Livestock Exchange Video Auction took place Wednesday. Fed cattle sold last Wednesday on the Livestock Exchange Video Auction at $106 per cwt, down $4 from the previous Wednesday.
Cash trade was reported last Wednesday at $106 per cwt on a live basis, down $2 to $4 from the previous week, and at $168 to $170 on a dressed basis, down $3 to $4. On Friday more cattle sold at $107 to $108 per cwt live, down $1 to $2.
The USDA choice cutout Wednesday was down $1.83 per cwt at $208.43, while select was off $1.01 at $198.70. The choice/select spread narrowed to $9.73 from $10.55 with 113 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday, was $144.73 per cwt, down $0.04. This compares with Thursday’s Aug settlement of $152.57, down $0.22.