In Search of the Perfect Investment

Trump brags trade wars are good and “easy to win.”

They’re not. They’re devastating.

From today’s Wall Street Journal:

President Donald Trump plans to unveil his trade and investment actions against China today, in response to what the administration considers Beijing’s violations of U.S. intellectual-property rights.

+ The U.S. actions against China involve tariffs and investment restrictions. The proposed punitive measures include tariffs on imports worth at least $30 billion. U.S. companies are seeking exemptions from Mr. Trump’s tariffs but complain the process is confusing.

+ The U.S. particularly objects to China’s requirements that many companies-including those in the technology, auto and finance industries-do business in China through joint ventures. The U.S. contends Beijing pressures American companies to transfer advanced technology to their Chinese partners.

+ Meanwhile, Chinese officials are preparing their own tariffs focused on U.S. exports of soybeans, sorghum and live hogs, according to people with knowledge of the matter. The U.S. is among the top suppliers of these products to China.

The Chinese argue: that the economic ties between the two countries have lowered costs for American consumers.

They’re right. Don’t believe me? Visit Walmart. Check out where most of the stuff you buy on Amazon comes from.

I thought of which stocks I should sell? Not easy. I eye my list. (See column on right column of blog). They all have China involvement. All of them either sell to China or buy from China. Most do both. Think of Apple.

It’s a pity this whole thing could not have been handled through private, closed-door negotiations with the Chinese.

I have no idea what to do with my stocks, except grit my teeth and pray.

Some people argue this is Trump’s method of negotiating — open with a most aggressive move. Then back down as the other person backs down. Personally, I’ve never found this method to work. It tends to annoy and offend my negotiating partner. They get hostile and walk. Not good.

In this case, it’s hard for China to walk. But they certainly could bump and keep bumping their own tariffs on key American imports. This is what happened during the Great Depression, when this nonsense of trade protection via tariff was last tried. And the result? It devastated the world’s economy.

My portfolio looks like poop this morning. Down over 2% and falling. And falling. Looks like my worst day ever. Thank you, Donald Trump.

Meanwhile here’s today’s New York Times piece on this unmitigated disaster:

Trump Plans Stiff Trade Tariffs and Other Penalties on China

WASHINGTON – President Trump on Thursday plans to announce at least $50 billion worth of annual tariffs and other penalties on China for its theft of technology and trade secrets, which administration officials say has robbed American companies of billions of dollars in revenue and killed thousands of jobs.

The measures would mark Mr. Trump’s most aggressive move yet against a fast-rising economic rival that he has accused of preying on the United States.

The measures will be targeted at imported Chinese goods in as many as 100 categories – hitting everything from shoes and clothing to consumer electronics – and will impose restrictions on Chinese investments in the United States, people briefed on the measures said.

Mr. Trump will instruct the Treasury Department to pursue restrictions on certain types of Chinese investments to counter China’s ambitious industrial policy, which aims to dominate cutting-edge sectors like artificial intelligence and mobile technology, officials said.

For Mr. Trump, the steps fulfill a frequent campaign pledge to crack down on China, which he has characterized as an “economic enemy” that has “taken advantage of us like nobody in history.” But the actions will only ratchet up tensions with the Chinese government at a moment when Mr. Trump needs its support for his campaign to curb North Korea’s nuclear program.

The announcement comes hard on the heels of Mr. Trump’s tariffs on steel and aluminum imports, which are scheduled to go into effect on Friday and are aimed at combating a flood of cheap metals into the United States, including Chinese steel.

Taken together, Mr. Trump’s actions demonstrate his resolve to turn away from a decades-long move toward open markets and integrated world economies and toward a more starkly protectionist approach that erects barriers around a Fortress America. The moves risk further isolating the United States at a delicate geopolitical moment by inflaming key allies, as well as China.

China has long argued that both sides benefit from the flow of Chinese money into the United States. At a daily news briefing on Wednesday, Hua Chunying, a spokeswoman for China’s Foreign Ministry, reiterated that the country does not want a trade war and that the economic ties between the two countries have lowered costs for American consumers.

Ms. Hua added that China would be ready to retaliate, without providing details. “If the day did come when the U.S. took measures to hurt our interests, we will definitely take firm and necessary countermeasures to safeguard our legitimate interests,” she said.

The effect of the China tariffs would be larger and more concentrated than the steel and aluminum measures and would have a bigger impact on United States consumers, who are heavy purchasers of electronics, clothing and other Chinese imports. The steel and aluminum tariffs would affect imports of roughly $33 billion, excluding Canada and Mexico, which are expected to be exempt from the measures, said Joseph Parilla of the Brookings Institution. The China moves would affect at least $50 billion a year in imports, officials said.

Chinese companies have also been placing big bets on American companies. New Chinese acquisition deals in the United States once totaled tens of billions of dollars annually, according to Rhodium Group, which tracks Chinese investments abroad, though last year they fell sharply to $8.7 billion as China cracked down on money leaving its borders.

Chinese companies have purchased many nonstrategic assets like movie theaters and the Waldorf Astoria hotel in New York. But they also sought out deals in cutting-edge areas like semiconductors and start-ups related to autonomous driving as China looked to upgrade its technological capabilities. China sees the American stranglehold on fundamental technologies as a long-term economic and security threat to its rise as a superpower.

Unlike the metal tariffs, which caused bitter divisions within the Trump administration and were opposed by many Republican lawmakers and businesspeople, the technology moves against China are likely to be politically popular on Capitol Hill and throughout some industries.

“Their theft costs us over $350 billion per year, so the bigger the better,” said Daniel DiMicco, a steel executive and trade adviser to the Trump campaign, referring to the forced transfer of intellectual property and other unfair practices alleged by the administration.

The business community, which long defended trade with China despite accusations of theft of intellectual property, has grown more dissatisfied with adverse treatment in the Chinese economy. With the Chinese government and state-owned enterprises playing an ever-larger role in the market, the environment for American companies has steadily deteriorated.

Still, American business groups expressed concern over the possibility that the United States tariffs would spur others around the world to raise their own trade barriers.

“A focused effort to fix the problems is better than imposing sanctions that will bring collateral damage to American households, farmers and manufacturers,” Jake Parker, vice president of China operations for the U.S.-China Business Council, said in an emailed statement.

The country, under the leadership of President Xi Jinping, has sought to build up businesses it considers critical for defending its national security interests and meeting its economic goals.

Beijing has been enlisting American companies in its effort. As it looks to create its own national champions, China has been forcing American stalwarts like Qualcomm, Advanced Micro Devices and Hewlett-Packard Enterprise to create joint ventures, hand over their technology or develop local expertise. If they do not, companies risk losing access to China, the world’s second-largest economy.

But China’s national security interests are colliding with those of the United States. A worry is that companies are handing over critical technology that the United States needs for its military, defense or infrastructure. By transferring technology, they may also be giving an edge to Chinese rivals that one day may prove dominant.

This month, the United States government blocked Broadcom’s hostile bid for Qualcomm, a chip maker, citing national security concerns. The fear was that the acquisition would weaken Qualcomm, allowing China an advantage in the race to build the next generation of wireless technology.

Last August, Mr. Trump ordered an investigation into four types of Chinese trade practices, including requiring companies to share trade secrets to gain access to the Chinese market, forcing them to license their technology in China at below-market rates and cyberintrusions to steal technology. China also uses state funds to buy American high-tech companies.

On Wednesday, a senior official at the United States trade representative’s office said the investigation, which is now complete, found ample evidence of abuses in all these areas. The official said China had not changed its behavior, despite years of negotiations in the World Trade Organization and economic dialogues with the last three administrations.

If anything, the administration said, its failure to honor the obligations it made when it joined the World Trade Organization has gotten worse. China’s theft of intellectual property, officials said, contributed to its trade surplus of $375.2 billion with the United States last year. China has also introduced a plan to gain global leadership in advanced information technology, new energy vehicles and aerospace, among other industries.

Mr. Trump is expected to ask the United States trade representative to come up with a full list of products to retaliate against within 15 days, according to an official briefed on the plans.

Experts worry that the United States’ actions could ignite a trade war, noting that Chinese economic officials have a keen understanding of the American system and are good at designing targeted retaliatory measures against American agricultural products and other exports.

Mr. Trump’s moves will also test the personal relationship he has cultivated with Mr. Xi, the Chinese president. Last year, Mr. Trump held off imposing tough trade measures against China because, he said, Mr. Xi was cooperating in his campaign to pressure the leader of North Korea, Kim Jong-un, over his nuclear and ballistic missile programs.

Two weeks ago, Mr. Trump agreed to meet Mr. Kim for talks, surprising Mr. Xi, whom he did not consult before making the decision. Now, Mr. Trump will be seeking the Chinese president’s support for his diplomacy at the same time that trade tensions between are on the rise.

Still, given their deep frustration, business executives may greet Mr. Trump’s move with quiet satisfaction.

“There’s now palpable frustration across a number of sectors of the American business community feeling increasingly squeezed by an ever-more-emboldened China,” said Scott Mulhauser, a former chief of staff at the American Embassy in Beijing. “While some are eager to continue seeking as much engagement with China as possible, others are openly using terms and invoking options they hadn’t previously considered.”

The United States’ chief trade representative, Robert Lighthizer, who testified before the House Ways and Means Committee on Wednesday, indicated that the administration was specifically concerned about Chinese policies that compel American companies to share technology when they make investments in China.

(Harry’s comment: So who’s forcing them to make investments in China? We could also initiate the same rules here.)

“There are certain technology products that are under assault,” Mr. Lighthizer said. “You have to give consideration to whether or not you would put tariffs on those products.”

But he noted that any tariffs would take into account the economic impact of raising the cost of consumer goods. “You would create an algorithm that would maximize the pressure on China and minimize the pressure on U.S. consumers,” he said.

Mr. Lighthizer’s testimony came a day after the Treasury secretary, Steven Mnuchin, was warned by global economic leaders at a meeting in Buenos Aires that the United States was risking a trade war by initiating the tariffs. President Trump declared earlier in the month that “trade wars are good, and easy to win.”

Harry Newton, who today is reminded of an old joke.

What’s the only guaranteed way to achieve a small fortune?”

Answer: Start with a large one.

Not so funny today.

Surely this whole thing couldn’t be a way to get our minds off all the Russian and Mid-East money that the press and Mueller are digging into? Surely?