Xi’s on the Phone, Again

Xi on the Phone

It’s important to understand, if we can, what kind of game China is playing with Trump. I have had some things to say on the topic. Unlike me, Richard McGregor is an actual China specialist. And, unlike me, Mr. McGregor has some high level sources in China. His views: sort of a first cousin of my own speculations, I believe. The Chinese don’t want anything to do with xiao ren.

Richard McGregor, Trump wants China to help him win. China wants nothing to do with him: What Xi Jinping and his top Communist Party deputies think of the U.S. president:

It is hard to pinpoint the moment when the relationship between Trump and Xi soured. Mostly likely it was in May, when a nationalistic debate inside the top Chinese leadership prompted Xi to tear up a draft trade agreement with the United States that had been painstakingly mapped out by his handpicked negotiator. …

There were many stops en route to the U.S.-China rupture: Trump’s tweetstorms attacking China as a currency manipulator and a thief of “Hundreds of Billions of Dollars a year” in intellectual property; his bans, and occasional reversals, on Chinese tech companies such as Huawei; and of course the mutually destructive trade war, which punishes both countries without yet yielding the United States any meaningful edge. Beijing does not believe that it can do business with the U.S. president, let alone strike a permanent, far-reaching trade deal that might restore trust between the two superpowers.…

Trump’s unpredictable methods and blithe willingness to dispense with long-standing taboos (such as those against phoning the president of Taiwan) initially worked well in laying the groundwork for trade negotiations. His tactics threw Beijing off balance. The Chinese liked the old way of doing business, when the two sides mixed public diplomacy with discreet back channels to reach understandings on difficult issues, out of the glare of the media. …

Trump has no interest in back channels; he blasts his Twitter foghorn, no matter what the issue or its sensitivity. He has also been tougher on China than any other president in the modern era. In China, for a while, many scholars extolled Trump as a master strategist for his ability to shape the agenda and bully the Chinese leadership. For Xi, this was especially disruptive. Xi is his nation’s most powerful, ambitious and assertive leader in a generation, someone who is used to riding roughshod over critics in his unapologetic embrace of a bigger role for China in the world.

Like any leader, Xi also has to manage domestic politics. He is the most ideological Chinese leader since Mao Zedong, placing the Communist Party, and himself as its head, at the center of governance and power while sidelining all his rivals. Trump has presented a challenge to his vision of an ever more powerful China. Many senior officials portrayed the U.S. draft trade deal in May as humiliating, a lethal charge in a country with a history of capitulation to foreigners. Faced with mounting condemnation in the Politiburo, Xi abruptly abandoned his chief negotiator, Vice Premier Liu He, and led the nationalist charge against the agreement himself. (Liu also led the tentative deal announced Friday; it’s unclear whether this one will stick.) Xi has also faced heavy internal criticism for his assertive foreign policy, which many Chinese scholars blame for triggering a backlash against Beijing in much of the West.

The reason Chinese leaders decided they see little value in engaging seriously with Trump is that they don’t believe a trade deal would solve their problems with the United States. The two sides might be able to finalize the mini-deal in coming weeks, but Chinese scholars and officials I have spoken to over the past year recognize that any accord will just be a stopover on the way to the next fight.

There are plenty of Chinese hard-liners who don’t want a deal at all. “I hope that the negotiations will break down,” said one of the best-known hard-liners, Dai Xu, a colonel in the People’s Liberation Army, before the May rupture. Hu Xijin, the hawkish editor of the Global Times, the tabloid mouthpiece of the Chinese Communist Party, tweeted that “a trade deal, even if reached, will be limited in actual meaning and could be broken constantly.” As a result, he added, many Chinese “support being tough on the US, giving up any illusion.”

Beijing knows that if Trump loses, the next president might be a more stable interlocutor, though it’s not expecting sudden and miraculous relief. Democratic presidential candidates have broadly criticized Trump’s trade war tactics as counterproductive but have sided with the overall strategy of constraining and punishing China. But even if the Chinese consensus is right — that the two countries’ broad, systemic rivalry is here to stay — Beijing is not that interested in sitting across the table from Trump. Not because officials fear he’ll out-negotiate them. They believe that the United States is not interested in negotiating at all. Instead, Xi is returning the party-state to its communist roots, telling his colleagues that they should be prepared for a decades-long “struggle” with their enemies in the West.

Flying Blind

flying blind

Axios, The flying blind economy

The top post on Axios, as of 10:30 this moring, nicely complements my immediately preceding post. To summarize Axios’s summary:

  • Uncertainty is driving down corporate investment
  • “Businesses don’t know what to do about their operates in China, how to price their products and source their materials”
  • “Powerful central bankers are also throwing up their hands”
  • Small businesses on Main Street are finding it impossible to plan
  • Investors have no idea what to do with their money
  • A hedge fund leader laments, “There’s apperception that everything is find, and then that perception is shattered with the president announces he’s going to change the tariffs”

Thinking Three Steps Ahead in a Chess Match? That’s for Wusses.

door 1 door 2

Donald J. Trump and Xi Jinping are playing a great and very risky game.

According to Janet Yellen, the former chair of the Federal Reserve, one of these two individuals does not understand even elementary concepts of macroeconomics or international trade.

And let me add, that selfsame individual also does not think ahead a few steps in the chess game. I feel his pain. Lacking athletic ability myself, I think that wordsmanship is much more important than athleticism. Lacking the ability to think ahead, Trump likewise reasons that strategic thinking must not be important.

Xi Jinping understands macroeconomics and international trade; plans ahead in terms of decades and centuries, not news cycles; and knows, from millennia of Chinese statecraft, the importance of manipulating foreign barbarians.

With these intellectual skills, President Xi has rubbed his chin thoughtfully for a period of time and has concluded that he will offer Donald Trump a forced binary choice. From Xi’s perspective, if Trump chooses the first option, then it will be heads, I (Xi) win. But if Trump picks the second option, then it will be tails, I (Xi) don’t lose.

Door Number One or Door Number Two?

By devaluing China’s currency, Xi has forced Trump to decide whether to follow through on his threat of draconian new tariffs on September 1. The forced binary choice: do it, or don’t do it.

Door Number One

If Trump chooses to follow through on the new tariffs, then the price of smart phones, computers, tablets, and men’s socks will rise considerably—just in time for Christmas shopping. The stock market will tank. And there will be a recession, just in time for the 2020 election.

Before the devaluation, Trump probably thought he was just issuing some more bullshit tweets, that he could walk back at his convenience. But now that Xi has acted, it’s a problem if Trump doesn’t take real action in return.

Trump forgot an important rule: don’t take the hostage unless you are prepared to shoot the hostage.

Door Number Two

Alternatively, Trump can respond to the currency devaluation by backing down on his new tariff threats.

Such a course of action would expose him to the world as a coward and a blunderer.

What a Rational Trump Would Do

A rational Trump would choose Door Number Two as the lesser of two very bad evils.

What the Real Donald Trump Will Do

I don’t know, but there’s a good chance he’ll go running through Door Number One. Remember that, as Ms. Yellen said, he doesn’t understand diddlyshit about international trade and he doesn’t understand diddlyshit about macroeconomics.

And, as David A. Graham told us in a post this morning, Trump has now ensured that he is blissfully free from advice and counsel by those who do understand diddlyshit about economics.

And he feels empowered.

And a Binary Choice for the Plutocracy, Too

I am confident that the Chinese leadership was not just imposing a forced binary choice on Trump. They wanted to force a similar binary choice on the plutocrats, too. Keep enabling this doofus? Because if you do, then we Chinese will keep on kicking you where it really hurts: not in your nuts, but in your balance sheet.

Confucians, not Communists

Among the leaders of the Chinese Communist Party you will not find a single Communist. They are all Confucianists. The are absolutely convinced that the only form of good government is benevolent autocracy, run by competent and well motivated people.

Anticipating Donald Trump, Confucius had a lot to say about a certain kind of person that you do not want to let anywhere near the court—the xiaoren:

the xiaoren (小人, xiăorén, “small or petty person”) does not grasp the value of virtues and seeks only immediate gain. The petty person is egotistic and does not consider the consequences of his actions. Should the ruler be surrounded by xiaoren as opposed to junzi, his governance and his people will suffer due to their small-mindness. Examples of such xiaoren individuals can range from those who continually indulge in sensual and emotional pleasures to the career politician who is interested merely in power and fame; neither sincerely aims for the long-term benefit of others.

In Donald Trump. Chinese leaders and intellectuals see the poster child for the xiaoren.

He offends them deeply.

They want him out of there.

Confusion Worse Compounded: Trump’s Wedge Politics

wedge

Trump tariffs tear Republicans apart: Senate Republicans want to rein him in, but the House GOP isn’t going there.

Farm groups go on anti-tariff blitz after Trump offers trade aid

Meanwhile,

Americans don’t think President Trump has been tough enough on Russia, according to a new NPR/PBS NewsHour/Marist poll conducted after Trump’s summit in Helsinki last week with Russian President Vladimir Putin.

Nearly two-thirds said so, and it wasn’t just Democrats. Almost half of Republicans surveyed (47 percent) also said Trump hasn’t been tough enough on Russia, with just 20 percent saying he has taken about the right approach.

As to whether Trump should view Putin as a friend or foe, Americans are nearly evenly split, with 45 percent saying he should be seen as an enemy and 44 percent saying he is an ally. That might be a surprise to those who grew up in the Cold War era, but partisanship might have something to do with it. Among GOP voters, 58 percent view the Russian leader as an ally. …

But a whopping 72 percent of Americans said they have faith in the CIA’s and FBI’s conclusions about the assessment of the Russian election interference, compared with just 15 percent who believe Putin’s denials. Trump has said Putin strongly denies any involvement. Eighty-six percent of Democrats say they believe the intelligence community over Putin, and 63 percent of GOP voters say the same thing. However, 21 percent of Republicans do say they believe Putin’s dismissals. …

Female voters say they prefer Democrats this fall by a 21-point margin, 54 percent to 33 percent. Republicans win men by 9 points, 48 percent to 39 percent.

Negative opinions of Trump are pronounced among women. Trump’s job approval has remained relatively static — still underwater at 39 percent approval to 51 percent disapproval among all Americans. But there is a staggering 43-point gender gap with 62 percent of women disapproving of Trump’s job and half of men approving of his performance.

flatulence

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Aardvark welcomes recent readers from Martinique and from French Guiana. The Aardvarks hope to visit you soon on Martinique. Don’t know when we’ll make it Guiana.

How Will YOUR STATE be Affected by Trump’s Trade War?

Ask the folks who know: the United States Chamber of Commerce! Visit https://www.uschamber.com/tariffs today, and click on YOUR STATE to learn more about the economic pain and suffering that your very own state will soon experience.

After picking yourself up from the floor, please scroll down to the bottom of the page and fill out the Chamber’s handy email form. There you can add your name to a Chamber-endorsed message, to the general effect that Trump should fold his tariff orders five ways and stuff them down where the sun don’t shine.

To top your evening off, just before getting out the Jack Daniels, read Paul Krugman on business and the trade war. To sum up: it just couldn’t happen to a nicer bunch of guys.

 

 

America First, Baby

Trump to Pull Tariff Trigger at Midnight in Trade-War Escalation

Mexico imposes retaliatory tariffs on dozens of U.S. goods

Trade war set to escalate as Fed warns of economic hit

How Trump’s Policy Decisions Undermine the Industries He Pledged to Help

China rejects ‘threats and blackmail’ on eve of U.S. tariff hike

Meanwhile, a confidential source has provided Aardvark with this confidential McKinsey & Company presentation to the Business Roundtable:

Presentation1

 

Not from Aardvark, Not from The Onion

From Politico this morning:

Trump goes to war with corporate America:

The president’s widening trade war is pushing longtime GOP allies to the front lines of a fight against the Trump administration.

President Donald Trump is now at full-scale war over trade policy with some of the Republican Party’s staunchest allies in big business, including executives at iconic American brands such as General Motors and Harley-Davidson who previously shied away from criticizing an often irascible president.

Trump’s approach has created a high-stakes showdown without recent political precedent: A Republican president betting that his populist approach to trade will thrill his working-class base and blow away any short-term economic fallout or reduced political support from the nation’s largest business organizations. His message to corporate America so far: I don’t care what you say, my base is with me.

On the other side, corporate titans and market analysts fear Trump is on the cusp of damaging the American economy — and that he will not recognize the failure of his approach until it’s too late.

“With every successive firecracker that Trump sets off, we see corporate leaders and groups emboldened and ready to go on the public stage to take him on,” said Nancy Koehn, a business historian at Harvard. “This isn’t the natural order of history that large business groups oppose a Republican president. Trump has a from-the-gut sense that his base will be with him come hell or high water. But it’s a very big bet with no certainty of success.”

faust

Poetic Justice

irony

Koch Brothers to Spend Millions Fighting Against Trump’s Trade-War Agenda.

U.S. Chamber of Commerce Hits Trump Tariffs With Opposition Campaign.

US business leaders warn on impact of Trump tariffs.

‘This would widen the trade war tenfold’: U.S. automakers say no to Trump’s car tariffs.

So how nice it is that Citizens United allows giant corporations to spend unlimited amounts of money to influence our politics!

Grieve and Resist

This morning I join Charles Blow in his eloquently expressed grief for our country—or what we had thought was our country. (He could have said—though he didn’t say, in so many words—that half of America’s white people are not a credit to their race.)

He is attempting to weaken our institutions, our protocols and conventions, our faith in the truth, our sense of honor and our respect for the rule of law.

And somehow, many Americans, even those disgusted by what they see, have resigned themselves to this new reality.

In fact, Trump’s poll numbers had been inching up before he created a humanitarian disaster at the border by separating children from their parents.

I guess this is how empires begin to fall. It isn’t necessarily one dramatic moment, but the incessant monotony of assaults on normalcy that slowly shift the ground beneath you, reorienting what is proper and preferable, what is outrageous and what is acceptable. …

Not to mention the fact that those tactics keep his base riled and ready. Trump is like a drug dealer who has addicted his followers to fear and rage and keeps supplying it in constant doses. His supporters have become rage-junkies for whom he can do no wrong.

Let’s be clear about the demographics of this base: While the overwhelming majority of blacks and Hispanics have an unfavorable view of Trump, just as many white people have a favorable view of him as have an unfavorable view of him, according to a Suffolk University/USA Today poll conducted last month.

Blow despairs of our situation, and I understand his despair.

But progressives are a mighty army of resistance, and E.J. Dione reminds us that all is far from lost. And we have a new ally of convenience: big business, motivated by crass and cynical economic considerations, is finding that Trump’s delusional blundering on trade is about to bring the house crashing down.

Welcome to the newest member of the resistance, the United States Chamber of Commerce.

I Has Conspircy Thery

conspiracy

Paul Krugman predicts that Trump’s trade war is going to result in terrible economic disruption—quelle surprise—and that, when the disruption becomes evident even to those of the meanest intelligent, Trump and his minions will respond by finding someone to blame. Quelle surprise encore.

Globalists, speculators, rootless cosmopolitans, people like George Soros.

I think you get the gist.

Sounds about right to me.

Those Russian social media bots are gonna be hard at work, again.

Gonna get ugly, folks.

rothschild

An Open Letter

trade war

An open letter on trade — from 29 European Union ambassadors to the U.S.:

There has been a lot of talk recently about the trade and investment relationship between the European Union and the United States. Who wins? Who loses?

The fact is, we are both winning and have been for years. Claims to the contrary, including that the United States is at the losing end of this relationship, deserve to be debunked. Because the United States makes more money doing business with the E.U. than with anyone else.

The facts speak for themselves:

Fact No. 1: Together, the U.S. and the E.U. have created the largest and wealthiest market in the world. The transatlantic economy accounts for half of the global gross domestic product by value, which directly supports more than 15 million high-quality jobs and $5.5 trillion in commercial sales. And nearly one-third of the world’s trade in goods occurs between the E.U. and United States alone.

Fact No. 2: The United States has a partner in the form of the European Union that invests more in the United States than the United States does in it. The E.U.’s foreign direct investment in the United States is $2.56 trillion, compared with $2.38 trillion in the other direction. Seventy percent of all foreign direct investment in the United States comes from Europe.

Fact No. 3: There is no “buy European” policy for U.S. enterprises to compete with. We have a level playing field in public procurement, regardless of whether you are a European or American company. On top of that, we have eliminated thousands of legal and bureaucratic barriers to trade, leading to an open and thriving marketplace of more than 500 million consumers.

Fact No. 4: The European Union is the top destination for American exports — in 2016, we bought $269.6 billion worth of goods from the United States. And U.S. exports of services to the E.U. — increasingly the backbone of any modern economy — have been steadily increasing over the years, coming in at a record-setting $231 billion in 2016. That makes us the top destination for U.S. services – in fact, transatlantic trade in services results in a surplus for the United States.

Fact No. 5: Our tariff rates are constant, level and predictable, helping U.S. enterprises to seamlessly enter our markets without having to fear sudden, perhaps unforeseen heightened charges. The United States currently imposes individual tariff rates of more than 15 percent on 330 separate manufactured goods. Yet when U.S. companies sell their products to the E.U., they encounter only 45 such tariff peaks.

Simply put, the E.U. invests more in the United States, buys more American services and employs more American workers than the other way around. As a ready comparison: 45 of 50 U.S. states export more to the E.U. than they do to China. And what of China’s foreign direct investment into the United States? It’s around one-hundredth that of Europe’s.

This is a relationship, indeed a partnership, that other countries can only dream of. It’s a partnership underpinned by a broad set of shared values, grounded in a common determination for freedom, peace and prosperity. But, as with any partnership, the prospect of unilateral action by one side, to the detriment of the other partner, places the entire mutually beneficial relationship at risk. Placing tariffs on E.U. steel and aluminum imports — imports that are high value and support critical U.S. industries — is a significant step in that protectionist direction. So is going after the European auto industry — an industry that invests billions in the United States and creates millions of jobs.

Instead, as the two most free and open economies in the world, let’s focus on what benefits us both. We should work together to address Chinese steel overcapacity and other market distortions. We should work together toward a fair, open and rules-based global trading system. We should work together to improve market access for our companies and farmers around the world. Together we should tackle intellectual property theft and look at how we can further reduce red tape, regulatory barriers and tariffs between us — facilitating innovation and investment, to the mutual benefit of business and consumers on both sides of the Atlantic. This, not tariffs and quotas, would be moving in the right direction.

Ambassador of Bulgaria to the United States, Tihomir Stoytchev

Ambassador of Austria to the United States, Wolfgang Waldner

Ambassador of Romania to the United States, George Maior

Ambassador of Finland to the United States, Kirsti Kauppi

Ambassador of Croatia to the United States, Pjer Simunovic

Ambassador of Germany to the United States, Peter Wittig

Ambassador of Portugal to the United States, Domingos Fezas Vital

Ambassador of Slovenia to the United States, Stanislav Vidovic

Ambassador of France to the United States, Gérard Araud

Ambassador of the Czech Republic to the United States, Hynek Kmonicek

Ambassador of Sweden to the United States, Karin Olofsdotter

Ambassador of Spain to the United States, Pedro Morenés

Ambassador of Belgium to the United States, Dirk Wouters

Ambassador of Hungary to the United States, Laszlo Szabo

Ambassador of Poland to the United States, Piotr Wilczek

Ambassador of Denmark to the United States, Lars Lose

Chargé d’affaires of Cyprus to the United States, Andreas Nikolaides

Goodbye, World

U.S. Allies Brace for Trade War as Tariff Negotiations Stall:

With only days left before the exemptions expire and punitive tariffs take effect, it’s dawning on foreign leaders that decades of warm relations with the United States carry little weight with a president dismissive of diplomatic norms and hostile toward the ground rules of international trade.

To my European, Asian, and Latin American brothers and sisters, I am very sorry to say this, but we in the United States are unreliable partners. It’s time for you to go your own way.

I hope that some day we can rejoin you.

Until then, auf Wiedersehen, zai jian.

And vaya con dios.

“This here could be a real negative.”

amberwaves

It has become tedious to write about how Trump lies more often than he goes to the bathroom or about his increasing mental instability. At this point, the far more interesting question is what will cause his supporters’ madness to break. And break, it will. Because great power combined with great irrationality leads to great policy fuckups. And great policy fuckups lead to great injury.

It could be the trade war that is just getting started. This from AP, via Greg Sargent:

The Associated Press talks to voters in Sioux County, Iowa (80 percent of which went for Trump) about Trump’s tariffs on China, and finds widespread worry about a trade war:

After standing with Trump through the many trials of his first year, some Sioux County Trump voters say they would be willing to walk away from the president if the fallout from the tariffs causes a lasting downturn in the farm economy. “I wouldn’t sit here today and say I will definitely support him again,” said 60-year-old hog farmer Marv Van Den Top. “This here could be a real negative for him.”

For Ann Coulter—and, according to her, lots of other likeminded wingnuts—it’s the failure to build the Wall. Speaking metaphorically about the wall, she recently observed, “Stormy says she and Trump had sex only once. I guess if you want the guy to screw you repeatedly you have to be one of his voters.”

And don’t forget the swamp.

Obviously, it won’t be the authoritarianism. Because they really, really want to live in a banana republic. banana republic