Today a legend who is connected in China at the highest levels said China may peg the renminbi to gold.  He also warned the next downturn is set to rival the Great Depression.

Back To The Future
By John Ing, Maison Placements
 (King World News) – This economic cold war is about the future world leadership for global economic, technological, financial and geopolitical dominance. We believe that the tariff war is about Team Trump’s desire to contain China who already has taken a lead in the high-tech field and is now pushing for alternatives to US hegemony. The inclusion of an anti-Chinese poison pill notice in NAFTA 2.0 opens up a new front making the so-called free trade deal, not so free.

In fact in reshaping the world order, we believe that we are returning to the great shifting of power rivalries of the 19th Century. America is afraid of the “Thucydides’ Trap”, when ancient countries’ rivalry ended up in wars to establish which country was top dog. Work by Professor Allison from Harvard studied a 500 year period when one power threatened to displace another, that in 12 of 16 instances, they ended badly in bloodshed, including more recently the two World Wars. Today, defense spending is rising substantially everywhere and in some places breaking Cold War levels. Worrisome too is that Trump is seeking to end the 1987 nuclear treaty with Russia.

And China’s difficulty is that in this game of chicken, backing down to a public browbeating would be a loss of “face” which would resurrect a nationalist upsurge, not easy with a 1.3 billion populace. A win-win battle is increasing unlikely if the Trump Team stays the course. Needed is a compromise deal like the USMCA deal where minor concessions allowed both sides to claim a tweetable win…

Shooting Themselves in the Foot
Unlike Canada, China has options and multiple fiscal and monetary levers to counter the tariff impact. To date, China’s retaliation has been muted and measured, imposing tariffs on some 5,200 products, including LNG, cocoa powder and frozen vegetables. While 70 percent of the US economy is geared towards consumption, China by contrast is only 40 percent. Therefore the American consumer will be harder hit by higher prices from this tariff war. Although parts for computer servers, smart phones, and network working gear manufactured in China face higher US tariffs, the US exempted the popular Apple watches and other consumer gadgets. However, America’s champions like Cisco Systems, Dell and Hewlett-Packard were not so lucky and have asked for exclusions or waivers. Ford Motor, America’s number 2 automaker said the tariff war will cost them $1 billion. And, despite the tariffs, US farmers’ income will drop this year.

Ironically, tariffs won’t fix the trade imbalance between China and the United States. Despite unleashing the tariff dogs, US goods’ trade deficit surged to a near high in August, plunging to $75.8 billion, as its exports fell. The value of China’s exports rose 14.5 percent in September and China achieved a record $34.1 billion surplus with the US, despite the onslaught of the trade war. China’s entire export sector accounted for less than 20 percent of China’s GDP in 2017 down from 35 percent in 2007. Exports as a percentage of China’s GDP has fallen every year for the past decade. So why the tariffs?

Tariffs Will Upset American Supply Chains
Mr. Trump believes he has the upper hand but among the bravado, the dealmaker has a losing hand. The so-called Chinese trade surplus is driven largely by the Chinese comparative advantage and global capital flows. Tariffs won’t change that. In 1960, the US represented 40 percent of global output and today that has shrunk to 20 percent. Trump’s new world will further marginalize the United States. Just as Trump didn’t expect some 100 plus world leaders at the UN General Assembly to laugh at his bragging so will he learn that his trade policy and rejection of globalism is no laughing matter.

To be sure there are other unintended consequences. For example, America’s isolationist stance already has hurt their multi-nationals’ well-developed supply chains. By contrast, China’s supply chains are largely based in the East and will be little affected by the tariff escalation. The Chinese One Belt, One Road initiative creates international supply chains to bring food, raw materials and energy back to China. In a fundamental rearrangement of those supply chains, Chinese companies have developed extensive infrastructure and logistics in nearby Philippines, Malaysia and Vietnam taking advantage of their skilled and lower priced labour. And, American companies will be at a major disadvantage with limited access to China’s huge $12 trillion economy, as the EU, Mexico and Japan are given more access…..more here