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U.S. vs China: Total Trade War?!

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China on Friday threatened retaliation if U.S. President Donald Trump’s planned tariff hikes go ahead, while the renewed acrimony between the two biggest global economies sent stock markets tumbling. China’s government accused Trump of violating his June agreement with President Xi Jinping to revive negotiations aimed at ending a costly fight over Beijing’s trade surplus and technology ambitions. Trump rattled financial markets with Thursday’s surprise announcement of 10% tariffs on $300 billion of Chinese imports, effective Sept. 1. That would extend punitive duties to everything the United States buys from China.

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Nobody wins a trade war. The US may not need them but there will be a cost, for a starters prices of goods will go up massively. It’s mutually beneficial to have good trading relations, neither side wins this, one just loses worse than the other.

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Tariff hurts both sides, it's just a case of who blinks first ...

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This is going to be "interesting" and painful.

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So, If I understand well, ball's in Chinese court ...🥅

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There always has to be a hiccup or two before a fair deal can be met. This isn't over...

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(edited)

I have no doubt that trade war will have huge consequences for China, already has.. But, trade war with China will have seriously impact on U.S.  economy also...  Too many things are on the table...no winner.

Edited by 50 shades of black
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The U.S. economy added 164,000 jobs in July, as hiring continued at a steady clip despite a trade war with China and a global slowdown...

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(edited)

These tariffs should not be understood as tarriffis as such, they are TAXES being placed on goods at the US Borders or Freeport’s (zones of agreement or cooperation) and will directly affect the US consumer which in turn will affect the distributor or manufacturer. Less capital to employ or develop products and most certainly no “special offer” prices.

Trump is Taxing the US Consumer...

Nike etc will never relocate to the USA...

Edited by James Regan
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4 hours ago, Pavel said:

Nobody wins a trade war. The US may not need them but there will be a cost, for a starters prices of goods will go up massively. It’s mutually beneficial to have good trading relations, neither side wins this, one just loses worse than the other.

10% is "massive"? What's 50% then? Ginormous? 

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3 hours ago, James Regan said:

These tariffs should not be understood as tarriffis as such, they are TAXES being placed on goods at the US Borders or Freeport’s (zones of agreement or cooperation) and will directly affect the US consumer which in turn will affect the distributor or manufacturer. Less capital to employ or develop products and most certainly no “special offer” prices.

Trump is Taxing the US Consumer...

Nike etc will never relocate to the USA...

That is 100% correct. Interesting tidbit for the Brit. When we first escaped from your empirical tyrannical rule, our entire government was funded by tariffs and only tariffs. We even had tariffs in between states, which of course got completely out of hand, hence the laws governing interstate commerce. 

As for Nike, how much margin do you believe is there in a $200 pair of Jordan sneakers? What do you think the tariff is on? The RETAIL price, or the price China Inc. charges Nike? Cost to manufacture those $200 shoes? Less than $6. Same goes for the iPhone that sells for $1000. Cost to manufacture? $6.

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I realize that this is an oil forum, not a farming site. However, I am the product of a farm with oil on it. Before the oil was discovered, we almost perished anytime tariffs were introduced, because most leaders know that the Achilles Heel of American life is the family farm. President Xi visited an Iowa farm in 1985, then again in 2012. He fully understands this Achilles Heel. Watch how he responds: No Soybeans. No pork. No nothing from American farms. Farmers are independent--more so than oilmen, even. They don't want to be put on welfare. They're going to go broke in record numbers in 2019 and 2020. This tariff war is going to end badly. We in the oil field are losing Chinese market share to Putin and MbS. They are in the One-Belt, One-Road Initiative, the new Silk Road: all trade routes begin in China, meander through the Middle East, including Turkey, and most end in . . . . Russia. Putin and Xi signed an agreement with Pakistan, the same day Antonin Scalia died. Russia will build a pipeline through the backbone of Pakistan, all the way from Lahore to Karachi, and will share a warm water port on the Arabian Sea. The tariff-induced trade war is already catastrophic to the American farmer. It has injured American oil trade with China. These markets aren't easy to get back. It's very hard for American presidents and functionaries to understand the pain that they're causing; they think farm subsidies will take care of it. Farmers don't want welfare; they want free trade. Oilmen don't want welfare either; they just want a fair shake. I submit that when the president tweets out that oil prices are too high and Saudi Arabia reacts by dumping oil on the market, he has just shot down some of his best patriots--the independent oilmen who discovered how to drill out the shale. They're going broke, ladies and gentlemen, despite what others have written ad nauseum on these pages. Chevron, Exxon, Occidental will survive, but they're not the shale oil pioneers. The real pioneers are going broke, because they don't own petrochemical plants and refineries which make more money when wellhead prices are at $55. A good price for a barrel of WTI is $75. Everyone eats. The tariffs that are being imposed on Chinese goods are resulting in reduced Chinese purchases of American soybeans, corn, pork and oil and gas. They have alternative markets: Brazil for soybeans, Russia and Saudi Arabia and even Iran for oil and gas. And the Chinese people are accustomed to suffering. This won't end well.

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I want the price of crude oil to go up. Some say this cannot happen unless we sign a trade deal with China. I am not so sure about that, If you look at the top 10 items exported by China it would seem to me that these items could quite easily be procured from other developing countries ( some in our own hemisphere ) , China has a mostly mature infrastructure & a skilled, pushed, regimented, labor force, that is certainly an advantage, but there are 1.4 billion mouths to feed and the per capita income is only $17,760 vs $60,200 in the US.  70 % of China's power generation is from coal, if these top 10 export items are largely resourced from other countries it is likely that LNG would be the primary source of power generation. ( Coal is just to polluting). New infrastructure requirements would consume huge amounts of diesel fuel and other transportation fuels. I have a feeling that the longer China holds out on a trade deal the more they will be the long term loser, in the mean time these other re-sourcing countries will benefit from massive construction projects in order to provide the goods the US now imports from China.

Trump can kill several birds with one stone, He should entice, pressure, suggest, that many of the items now  produced in China be moved to newly constructed factories in Central America, complete with technical & basic education training schools.( paid for in large part by the large US importers of these top 10 imported items ) This strategy would also mitigate the number of illegals crossing into the US saving US taxpayers billions of $'s we are now spending on handling the affairs of illegal border crosser's . This plan will make to much sense for democrats, but even they would benefit ( especially the environmentalist ), as China would be burning much less of the planet polluting coal that currently powers their production.   

 Natural Gas, a by product of shale oil production @  $2.10 per BTU is below the cost to capture/transport/store  and is therefore flared into the atmosphere in West Texas ( what a shame ) when it could be used to CLEANLY power factories in our own hemisphere, namely Central America & Mexico, employ & advance people there and reduce our dependence on doing business with the communist, authoritarian government of China.

Doyle Johnson,

Oil investor   

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On 8/2/2019 at 2:57 PM, Ward Smith said:

That is 100% correct. Interesting tidbit for the Brit. When we first escaped from your empirical tyrannical rule, our entire government was funded by tariffs and only tariffs. We even had tariffs in between states, which of course got completely out of hand, hence the laws governing interstate commerce. 

As for Nike, how much margin do you believe is there in a $200 pair of Jordan sneakers? What do you think the tariff is on? The RETAIL price, or the price China Inc. charges Nike? Cost to manufacture those $200 shoes? Less than $6. Same goes for the iPhone that sells for $1000. Cost to manufacture? $6.

Ward - Better you guys were colonized mainly by the Brits, take a look around the globe most of our colonies are fairly orderly. Liberia is awesome 👏

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(edited)

On 8/2/2019 at 9:40 AM, Pavel said:

Nobody wins a trade war. The US may not need them but there will be a cost, for a starters prices of goods will go up massively. It’s mutually beneficial to have good trading relations, neither side wins this, one just loses worse than the other.

Prices will not go up massively.  

Nobody wins  . . . BUT China loses BIG  . .  .  .  and US loses little(very little)

Trump is holding all the cards.  Go ahead China retaliate . . . Trump will just up the tariff rate. Much more damage will be felt if/when Trump reinstated the ban on technology sale or transfer to Chinese companies like Hauwei.  

China can hold out to the next election but Trump might win or Dem might continue Tariffs.  In the meantime companies start leaving China or start plans to leave. China has already lost.

Consider the loss of soybean sales vs 10% to 25% tariff on all Chinese product sales to US.  Those tariffs will provide funds  so Trump can get US farmers thru trade dispute.

Edited by SKEP
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If it’s not China it will have to be a Vietnam etc, unless the USA will work for $10 a week you will have the same problem.

5G is also a big problem for the States.

Not as simple as bring these jobs home, unfortunately International companies are “all in” with China and its supply chain...

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Sometimes I feel like I am banging my head against a wall because my view of the world is so far removed from the mainstream.

Expect more tariffs by Trump against China, and I view this as a good thing.

 

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7 hours ago, Tom Kirkman said:

Expect more tariffs by Trump against China, and I view this as a good thing.

I anticipate that, as the US re-structures in bringing back more and more manufacturing from offshore, that quotas will replace tariffs.  There will be outcries (and lawsuits) filed with and flowing from the WTO.  I anticipate that the USA, under Trump, will disengage from the WTO. The idolatry of "free trade" is undergoing a paradigm shift, not to "fair trade," but rather to a new form of nationalism as respects manufactured goods. 

For the USA, this will have spectacular advantage.  A boom in US manufacturing will propel the US to high levels of internal prosperity.  The US still has pockets of poverty, in some places deep poverty.  The push for a greater labor force inside US manufacturing will take those folks and incorporate them into manufacturing.  The last time we saw that was after WWII, when Northern (what is today called the Rust Belt) manufacturing enticed an entire generation of Southern, unskilled farming blacks North to work in the factories of Detroit, in Ohio, and in New England. (They were also escaping a virulent and oppressive segregation in the South, but that is another story.) 

US unemployment numbers are deceiving: they only measure those unemployed and actively looking for work.  Perhaps as much as 16% of the male population between 25 and 54 are dropped out of the labor force, many of those now opioid habituated users, and they will end up broken out of addiction and back into manufacturing.  Just watch. Quotas will simply exclude manufactures out of third-world countries.  And that is why outfits like Mahindra with their cheap tractors are living on a short rope in US sales.  International Harvester and John Deere, and other start-ups, will take back that market with quotas, especially as quotas start to approach zero. 

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(edited)

On 8/2/2019 at 9:45 AM, joze44 said:

Tariff hurts both sides, it's just a case of who blinks first ...

Hurts China a Lot

Hurts US very Little 

US agriculture hurt . Brazil and Argentina have been taking market share for years.  Nice if China bought , but not the end of the world.

US still selling oil thru third parties like Trafigura.  Plenty of other Asian markets for US oil. 

US Tariffs on Now $500 Billion will keep the farmers whole.

Edited by SKEP
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(edited)

On 8/3/2019 at 8:19 PM, James Regan said:

If it’s not China it will have to be a Vietnam etc, unless the USA will work for $10 a week you will have the same problem.

5G is also a big problem for the States.

Not as simple as bring these jobs home, unfortunately International companies are “all in” with China and its supply chain...

Winning isn't just moving manufacturing back to US.

Winning is moving  manufacturing anywhere but China.

This is War .  .  .  .  Economic War 

Edited by SKEP
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(edited)

I read the above, truly excellent notes with an understanding--which I have to get pounded into me from time to time--that everyone comes at a problem largely as a product of their upbringing. I was brought up on a small family farm. Long before any oil or gas was discovered on that farm, I remember the desperation we felt when tariffs were instigated. I maintain even today that the glaring Achilles' Heel in this whole trade war is the American farmer. Not the huge ones, the corporations, but the family farm of a thousand acres or less. True, the Rust Belt can be re-energized. Silicon Valley can take the pain. But this thesis that we are going to garner billions from the Chinese and deploy the long overdue cache where it's needed most--the American farmers--is simply flawed. I didn't know tariffs from tutus, but I have coffee with a Nobel Prize winner in economics. He tells me that nobody wins in a trade war, and confirmed my suspicion that the most vulnerable falls first and hardest.

More germane to this website, I think American oil and gas are suffering mightily from the trade war, and it's on course to get worse. It's one thing to be angry about the Chinese purloining our intellectual property, or even to exhibit the typical machismo about winning a battle to prove a point, but think about this for a moment, how long will it take the Chinese to steal some other country's technology and make it better? And how long will it take an eager Saudi Arabia or Russia to fill China's orders for crude oil and LNG? After all, Brazil has already taken over as China's primary soybean supplier. 

What is the end game here, to harm China or protect our industrial/export/high tech community? And as a nation with a long globalist history, are we now of adequate "nationalistic" mindset to hunker down and have a closed society? After all, we're out of the Transpacific Trade Agreement. I'm not being preachy here, just asking questions of a bright, animated board. Me? Well, call me Chicken Little but I think we were doing really well when we didn't trust the Chinese, knew full well that they were stealing from us, even tried to dump crap steel products on us, but we watched them with a wary eye and they watched us the same way--the same way, coincidentally, that we watch Putin and MbS and lots of other suspect characters.

My father taught me that the true worth of a man is to take care of the most vulnerable amongst us: children, those born with a disability, the less-than-brilliant. Farmers usually don't fit into any of those categories but by the very nature of the game, and the largesse of the riches of our land, they are able to over-produce and feed the world. This makes them vulnerable as well. Increasingly, shale oil is doing the same thing to the bulk of drillers and wildcatters. Maybe it's just as it has always been: In any society, no matter whether imperialistic or democratic, there will be winners and losers. I badgered my Nobel Prize winning friend on this point. He stayed the course, repeating like a mantra that in no trade war heretofore has there been a true winner and a single loser, only losers--at least two of them. I believe him. After all, he won the Nobel Prize for writing the equation for the Sharpe Ratio, the strongest capitalistic tool in the history of the world. This ratio measures risks of any asset class.

Soybeans just got too risky to grow. Soon, unless we mind our step, crude oil and natural gas will fall out of the ratio too. I'm probably a wuss but let's declare a victory and call a truce. Our deal: stop stealing the innards of the iPhone, buy our soybeans and hydrocarbons once again, have another bowl of chocolate ice cream at Mar Lago.   

Edited by Tom Kirkman
Moderator edit, added paragraphs to break up a wall of text
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(edited)

On 8/4/2019 at 3:57 PM, Gerry Maddoux said:

I read the above, truly excellent notes with an understanding--which I have to get pounded into me from time to time--that everyone comes at a problem largely as a product of their upbringing. I was brought up on a small family farm. Long before any oil or gas was discovered on that farm, I remember the desperation we felt when tariffs were instigated. I maintain even today that the glaring Achilles' Heel in this whole trade war is the American farmer. Not the huge ones, the corporations, but the family farm of a thousand acres or less. True, the Rust Belt can be re-energized. Silicon Valley can take the pain. But this thesis that we are going to garner billions from the Chinese and deploy the long overdue cache where it's needed most--the American farmers--is simply flawed. I didn't know tariffs from tutus, but I have coffee with a Nobel Prize winner in economics. He tells me that nobody wins in a trade war, and confirmed my suspicion that the most vulnerable falls first and hardest.

More germane to this website, I think American oil and gas are suffering mightily from the trade war, and it's on course to get worse. It's one thing to be angry about the Chinese purloining our intellectual property, or even to exhibit the typical machismo about winning a battle to prove a point, but think about this for a moment, how long will it take the Chinese to steal some other country's technology and make it better? And how long will it take an eager Saudi Arabia or Russia to fill China's orders for crude oil and LNG? After all, Brazil has already taken over as China's primary soybean supplier. 

What is the end game here, to harm China or protect our industrial/export/high tech community? And as a nation with a long globalist history, are we now of adequate "nationalistic" mindset to hunker down and have a closed society? After all, we're out of the Transpacific Trade Agreement. I'm not being preachy here, just asking questions of a bright, animated board. Me? Well, call me Chicken Little but I think we were doing really well when we didn't trust the Chinese, knew full well that they were stealing from us, even tried to dump crap steel products on us, but we watched them with a wary eye and they watched us the same way--the same way, coincidentally, that we watch Putin and MbS and lots of other suspect characters.

My father taught me that the true worth of a man is to take care of the most vulnerable amongst us: children, those born with a disability, the less-than-brilliant. Farmers usually don't fit into any of those categories but by the very nature of the game, and the largesse of the riches of our land, they are able to over-produce and feed the world. This makes them vulnerable as well. Increasingly, shale oil is doing the same thing to the bulk of drillers and wildcatters. Maybe it's just as it has always been: In any society, no matter whether imperialistic or democratic, there will be winners and losers. I badgered my Nobel Prize winning friend on this point. He stayed the course, repeating like a mantra that in no trade war heretofore has there been a true winner and a single loser, only losers--at least two of them. I believe him. After all, he won the Nobel Prize for writing the equation for the Sharpe Ratio, the strongest capitalistic tool in the history of the world. This ratio measures risks of any asset class.

Soybeans just got too risky to grow. Soon, unless we mind our step, crude oil and natural gas will fall out of the ratio too. I'm probably a wuss but let's declare a victory and call a truce. Our deal: stop stealing the innards of the iPhone, buy our soybeans and hydrocarbons once again, have another bowl of chocolate ice cream at Mar Lago.   

Brazil became #1 exporter of soybeans before Trump was elected. 

China buys US oil thru commodities trading house Trafigura.  Rest of Asia buys US oil and will buy more when export capacity increases. 

The abusive, predatory win at all cost tactics of China are more dangerous than you understand. 

US Tariffs are simply doing what all other industrial nations do now.  

China and the world scream "Free Trade"  now that US wants to level the playing field. 

It's like NATO. Europe loves NATO when US pays for it, does the fighting  for it and sacrifices the soldiers lives for it. But balks when US asked them to put a little skin in the game.

US Presidents established a bad precedent in the past.  They always caved. They needed to please.  I think they had father abandonment issues or mommy issues.

The price of soybeans will continue down.  Can't stop that.

The price of oil and gas will continue down. Can't stop that.

The cost of doing nothing will hurt US in spades down the road. 

Unfortunately, the farmers will pay the price.  Actually, the Federal  farmers relief program should cover some of the damage.

Give it a chance.  Trump is holding the better hand.  This will work out. With the new 25% tariffs and the new 10% tariffs will provide plenty for farm relief.

Some companies will balk . . . but are they reallyUS companies if they bailed on US for slave labor wages and avoidance of corporate income tax.

NO MACHISOMO

NO PROVING A POINT

JUST A LITTLE COMMON SENSE

Cave and the Chinese Communist Party will eat US Lunch.

 

 

Edited by SKEP
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This trade war isn’t anything new. China has been an active participant for decades. The only difference now is that Trump has finally forced the US to realize that we have been in an economic war with China for a long time.

We keep hearing the worn out saying that there are no winners to a trade war. Well one thing is for sure. Ignoring a trade war that you are currently in will definitely not place you on the winning side of the war.

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On 8/2/2019 at 9:05 AM, James Regan said:

These tariffs should not be understood as tarriffis as such, they are TAXES being placed on goods at the US Borders or Freeport’s (zones of agreement or cooperation) and will directly affect the US consumer which in turn will affect the distributor or manufacturer. Less capital to employ or develop products and most certainly no “special offer” prices.

Trump is Taxing the US Consumer...

Nike etc will never relocate to the USA...

Nike is an interesting example. To sell a $100 pair of sneakers they probably pay $15 to have them made in China. 

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Okay, the US could have done nothing, lived with the serious trade imbalance, let the status quo remain in effect....and the WORLD would have been happy.

Trump is the only politician, trained as a businessman, in recent history to seriously try to address this situation.

Apparently people think that this exercise should come with no cost or pain. It won't. If Americans will not suck it up, show some backbone, and do what it takes to rectify the situation, then they deserve to suffer the huge trade imbalance, loss of jobs and industries relocating overseas until the American economy is simply a service industry. Their choice.

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