Binkius Update

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Preface from Tim: It’s been a long time since we’ve heard from Binkius Hippo (this one was from three months ago), but he emailed me this morning and, at my request, has allowed me to share his email here. I always appreciate his intelligent, well-informed perspective.

“You go to war with the army you have, not the army you wished you had.”

Two main factors:

Trump:

a) Would he rather have a bad-deal rather than no-deal? A bad deal is Caligula bringing seashells back to Rome. No-deal in search of a good-deal means the trade war goes hot.

b) Democrats are controlled by neo-liberal economists who think that China can be reformed through open markets. This is not going to work. Capitalism and technology were supposed to open up China to democracy. Instead the CCP has used capitalism and technology to institute a nightmare autocratic regime with surveillance technology beyond the imagining of western dystonia literary fiction, eg. “1984”.

If the USA wants to maintain its imminent position in the world, then it has to do something with China. The Democrats are unwilling to do anything due to their embrace of neo-liberal economics. So if you want to bring China in-line with mutually acceptable trade behavior, Trump is better than nothing.

The problem is Trump. A good-deal is going to mean a hot trade war. A hot trade war means that China is going to start retaliating. Does Trump have the backbone if it isn’t “easy to win”? Up to now, this has been a genial trade negotiation. In Asian terms, it’s establishing relationships. In western terms, it’s dragging out forever.

I racked up over 1/4-MILLION frequent traveler miles in airfare during a negotiation that took over 1-year for a set of pumps. That’s how a successful Chinese business negotiation proceeds. The reasons are too long to list, but it’s centered on relationships being the cementing factor between parties because there is no law to fall back upon to resolve disputes.

You have members who say to keep this on topic. This is what it has to do with the markets:

The Chinese have been negotiating genially. Just minor tit-for-tat back and forth in a friendly negotiation. Trump just had a temper tantrum on Twitter and attacked the Chinese.

America is using tariffs to attack China in the trade war. As I’ve said before, China’s weapon won’t be tariffs, it’ll be the exchange rate. China has been playing nice and pegging the CNY very high during negotiations as a show of good faith. Watch the CNY. When that starts to move, it will tell you if China is going to retaliate. A large devaluation will cause major market upheaval.

The trade war isn’t about USA jobs. It would take 200-300% tariffs on all good from all countries to bring jobs back to the USA. If you don’t raise tariffs that high, the factories will simply move to: Korea and Taiwan for high tech and Vietnam and Thailand for low tech.

The trade war is about American supremacy in IP, especially integrated circuits. The last time the USA tried to strangle an Asian power over a similar issue was Japan in the 1930s. The USA tried to limit Japanese imperial ambitions by limiting natural resources to Japan. Japan’s response was on December 7th, 1941.

So, it looks like the USA is heading into a hot trade war. Trump is NOT the general any rational person wants leading the army into war. But he is the only general willing to fight. The question is, when China starts to retaliate, will Trump stand and fight or back down with his tail between his legs?

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