I found an interesting article that has similar experiences similar to mine. Chinese stuff produced by quasi-SOE companies are incredibly cheap. Here, with telecom, 30-40% cheaper than the competition. Even with a 25% tariff, this stuff would still be cheaper than ANY of the competition. Your goal when you undercut your competition by 30-40% isn’t profit.
Trump will fold when the SP500 reaches 2000-2200 technical levels. At that point instead of seashells, Trump is going to take whatever the Chinese offer him. The Chinese know the game of face much better than Trump. They’ll give him two cold egg rolls and an egg-foo-young to be named later – targeted to make Trump’s base happy. In exchange, the CCP will get what they want: 1) IC and IP and 2) use Trump as a scapegoat for any economic problems in China.
What nearly every article I have read that says China will fold first is based on the idea that Chinese businesses operate under a capitalism profit system. They don’t. They are gov’t subsidized entities competing against capitalist companies. I think this is because most of the pundits haven’t worked in Asia, or have only worked on the “buy” side and not competed against the “sell” side.
The people thinking China is going to give up because it hurts too much are like taxi companies waiting for UBER to run out of money. Yeah, sooner or later, UBER is going to run out of money, but “the market can stay irrational longer than you can stay solvent.” In this case, China can burn money until they burn Trump out.
This January, China TSF’d (Total Social Finance’d) US$1,000B. That’s over 1 year of American QE at its most frantic pace done in just one year. The Chinese did it in one MONTH. I believe that’s one of the reasons we saw such a sharp rise in the US markets – much of that money leaked out of China as fast as they were “printing” it and found a home in the US markets. I think that credit impulse is now exhausting.
One example of the Huawei dilemma is Eastern Oregon Telecom, which covers a string of communities in the northeastern part of the state. CEO Joe Franell said he originally bought the Chinese company’s gear, including fiber broadband equipment, because it was 30 percent to 40 percent cheaper than other products on the market. But he estimates the labor and engineering costs of pulling it out and installing new, more expensive parts, as he fears he may have to do in the wake of a U.S. crackdown on Huawei, will run to about $1.4 million.
