SK

China devalues currency to lower prices to counter new Trump tariffs. But doesn't help. Here is why. . . .

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(edited)

China thinks they counter Trump's new 10% tariff on additional $300 Billion.  

But it really doesn't help China in long-term. 

Read "Axiom" post.  One of the benefits of manufacturing overseas is avoiding Corporate Income Tax thru transfer of product (paper transaction only) thru intermediary subsidiaries domiciled in a no tax country. Thru transfer pricing you move all your profits to that offshore domiciled Corporation with zero corporate tax. The company then completes the tax avoidance when this subsidiary  sells to the US company at the full price you sell to retailer. US based Company makes zero. Company pays no US Corp Income Tax.  This works great when no tariffs . . . But with tariffs a company ( like Nike USA or Apple USA) now pay the tariff at the full transfer price (which is the same as the selling price to retailer) . Ouch !

 .  .  .  . 

So to Minimize or eliminate paying U.S. Income Tax , Companies now have MAXIMIZED the affect of new tariffs placed on China.

In the Axiom post. If Nike China Ltd sold the Air Jordans to Nike USA at cost to manufacture, $6, they would pay 10% tariff X $6 = $0.60 , but would pay US Corporate income tax 20% X $94 = $18.80.

US tax haven intermediary that sells the Air Jordans to Nike USA at $100 who in turn sells to retailer for $100 = NO US CORP INC TAX . . .   However NOW with 10% tariff applied to $100 transfer price = $10 pd tariff.

The tariff is paid on the "transaction" price coming into US. 

 

 .  .  .  So these companies now take a 10% or 25 % hit on both their US Revenue and US Profit.

Apple wanted a waiver on tariffs. These Chinese subsidiaries should complain to China not Trump.

India threatened tariff on iPhones, then Apple built mega factory in India. India is a big market for Apple . . . but so is U.S. 

Companies mfg in China selling to US will continue to flee China to avoid tariffs.

Chinese Communist Party and Communist Secretary General Xi Jinping losers.

Trump wins

The currency devaluation is a problem. It is also illegal according to WTO regulations.  China trying to get countries to put pressure on US.  IF DEVALUE TOO MUCH, CAPITAL WILL FLEE CHINA JUST LIKE MANUFACTURERS. 

China letting yuan devalue smells of desperation on their part.

Countries SHOULD condem China's  games,  not blame US. They should work with US . China's trade practices are a menace to all.

THINK ABOUT WHAT IS HSPPENING.

China is devaluing their currency trying to hurt US and all industrial countries !  YOU HAVE TO ASK WHY !

It's because US won't let them (1)  force technology transfer, (2) steal technology, (3) illegally subsidise their industries, (4) dump steel on foriegn markets, (5) predatory pricing and marketing (6) etc.  .  etc . . etc

How dare the US ask for China to abide by WTO regulations. .  .  .  .  NOT.

It does reduce prices of goods sold in US, makes China's mfg products competitive . . . but China's primary problem is manufacturing companies leaving China.

The 25% and 10% tariffs will accelerate the exodus of mfg from China, as well as, provide Billions to support US farmers whom are being victimized by the government, the CCP (Chinese Communist Party.)

ADVANTAGE TRUMP.

Edited by SKEP
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9 hours ago, SKEP said:

Companies selling to US will continue to flee China. 

Great time to be Vietnamese perhaps. This stuff isn't come back home. A lot of it was already leaving for other lower cost regions. We are accelerating that. 

And while I am all for managing technology transfers, we'll been fools for some time, it can't be a USA alone thing protecting technology transfers. Must of the rest of the west also have to support our play or we over time accelerate our decline. Siemens instead of GE is not what I call a win. We need to compete by competing. And we can't isolate China on our own. 

China isn't this mythical big bad beast. I deal with Chinese companies every day, and they cooperate with each other very poorly. We can and will out execute. 

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(edited)

On 8/5/2019 at 4:06 PM, John Foote said:

Great time to be Vietnamese perhaps. This stuff isn't come back home. A lot of it was already leaving for other lower cost regions. We are accelerating that. 

And while I am all for managing technology transfers, we'll been fools for some time, it can't be a USA alone thing protecting technology transfers. Must of the rest of the west also have to support our play or we over time accelerate our decline. Siemens instead of GE is not what I call a win. We need to compete by competing. And we can't isolate China on our own. 

China isn't this mythical big bad beast. I deal with Chinese companies every day, and they cooperate with each other very poorly. We can and will out execute. 

 The US Tariffs will work.

Tariffs working. 

Just relax . Nothing to get worked up about .  .  .  .  .  unless you are China.

TPP countries have to be loving this. 

Nice if U.S. "allies" joined in . . . but don't count on it. 

Hopefully, others will join publicly or quietly to resist China's Hegemony.

As usual, others expect U.S. to do all the heavy lifting. 

Most do not understand how important this is. It's important on many fronts. In addition to economic power, China has substantialy grown there military and use it to bully small neighbors. Even building bases on previously designated international waters. What's next. 

Winning is not bringing the manufacturing back to US.

Winning is moving manufacturing to anywhere . . .  but China.

Hopefully countries will realize what China's belt and road initiative is all about and resist taking the bait. 

Edited by SKEP
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20 hours ago, SKEP said:

Winning is moving manufacturing to anywhere . . .  but China.

Spend some time in Southeast Asia. There is no shortage of countries and peoples whose fundamental worry is China, not from an invasion basis, but being completely dominated by them. There is no shortage of shared interests in that regard. 

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46 minutes ago, John Foote said:

Spend some time in Southeast Asia. There is no shortage of countries and peoples whose fundamental worry is China, not from an invasion basis, but being completely dominated by them. There is no shortage of shared interests in that regard. 

So you agree with me ?

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21 hours ago, SKEP said:

Winning is not bringing the manufacturing back to US.

Winning is moving manufacturing to anywhere . . .  but China.

 

59 minutes ago, John Foote said:

Spend some time in Southeast Asia. There is no shortage of countries and peoples whose fundamental worry is China, not from an invasion basis, but being completely dominated by them. There is no shortage of shared interests in that regard. 

 

image_8e44d5dd-dea1-4e90-97b5-a2d2074a8a0720190807_021651.jpg

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On 8/5/2019 at 4:47 AM, SKEP said:

ADVANTAGE TRUMP.

 

Meh,  trade war is now also a currency war.  Watch the USD lose value.

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Formula for rich to get richer via messing crap up:

Step 1) move money into gold. (note gold is way up) https://goldprice.org/gold-price-canada.html

Step 2) create chaos in international markets, suppress share prices, devalue currency.

Step 3) Convert gold back into money.

Step 4) Buy devalued shares.

Step 5) Stop all the nonsense you started and watch everything rebound.  No net benefit to country required - you profit.

 

 

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1 hour ago, Enthalpic said:

Meh,  trade war is now also a currency war.  Watch the USD lose value.

I really don't see the US Dollar "lose value" in exchange rate to the Canadian Dollar.  You think the USA is in turmoil?  Hey, take a look around you in Canada! (You still have to figure out how to unravel all the damage that Kathleen Wynne has inflicted on Ontario, and by spill-over, the Liberals onto Alberta.  Let me know when that gets sorted out.  Should be a while.)

When Detroit sets up an auto plant in Canada, then I think you will just start to turn the corner.  And I don't see that happening in my lifetime. Cheers.

Who knows, maybe Caterpillar will move that rail locomotive operation Electro-Motive Diesel back into the plant they abandoned in London, Ontario.  You think?

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1 minute ago, Jan van Eck said:

I really don't see the US Dollar "lose value" in exchange rate to the Canadian Dollar.  You think the USA is in turmoil?  Hey, take a look around you in Canada!

Our economies are too intertwined so just tracks the US for the most part.

I never really followed the Ontario crap... and I liked the NDP in Alberta.

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7 hours ago, Enthalpic said:

Our economies are too intertwined so just tracks the US for the most part.

Not in currency exchange rates.  At one point the Loonie was valued at $1.085.   Then it dropped to somewhere around 0.66. That is quite a spread.  Remember, those currencies float.

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(edited)

On ‎8‎/‎6‎/‎2019 at 1:31 AM, SKEP said:

US tariffs carries a lot of influence .  The US Tariffs will work.

They might just try to hold out till election and hope Biden wins.

Nice if U.S. "allies" joined in . . . but don't count on it. 

Hopefully, others will join publicly or quietly to resist China's Hegemony.

Most do not understand how important this is. It's important on many fronts. In addition to economic power, China has substantialy grown there military and use it to bully small neighbors. Even building bases on previously designated international waters. What's next. 

Winning is not bringing the manufacturing back to US.

Winning is moving manufacturing to anywhere . . .  but China.

Hopefully countries will realize what China's belt and road initiative is all about and resist taking the bait. 

 

Edited by JR EWING
wrong location

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I think nearly every country is under US sanction, why would the US expect popular support for their little war on china. Some people forget that China has a massive internal economy, and that 500billion in exports to the US is how much of the total exports of an economy of 17trillion.

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1 hour ago, JR EWING said:

I think nearly every country is under US sanction, why would the US expect popular support for their little war on china. Some people forget that China has a massive internal economy, and that 500billion in exports to the US is how much of the total exports of an economy of 17trillion.

China started your "little war" with US.  The US just never realized it or our leaders were afraid to act, afraid to rock the boat. 

China's huge internal economy. Great. develop that. 

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(edited)

10 hours ago, JR EWING said:

I think nearly every country is under US sanction, why would the US expect popular support for their little war on china.

US doesn't expect popular support for their sacrifice they make while trying to level the trading playing field. 

Most countries are too caught up in themselves to realize the benefit of working for a common cause for the good of all. 

Plus their is some "schadenfreude" out their.

I do think their are a lot of countries quietly rooting for Trump's success re China. It's in their best interest.

Countries like Germany probably  want some guarentees re no cars/carparts tariffs for public support.

Germany assembles BMW and Mercedes in US.  The car parts are mfg in Germany.  Parts are sold to US entity at full retail so NO US Income Tax paid. 

Edited by SKEP
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I'm curious to find out if China had very high tariffs on US goods before the trade war. I can't seem to find anything of the sort and the information I did find says the trade average weighted tariff was under 5% in 2015 but maybe I've missed the information or it's buried deeper.

Or is the whole deal with this trade war a perspective by some in the US that China should stay in it's "little corner" so to say, while the US maintains its dominant global position forever? This is what it looks like from where I'm standing based on what I have seen of this back and forth over the past two years although I haven't followed it closely.

Now, I'm no big fan of some of what goes on in China like their human rights track record and their sometimes very stubborn perspective of what belongs to them regardless of current borders but I don't think that the idea of them staying where they are and not interacting with anyone in the US sphere of influence is going to work regardless. The impression I get is that many people with predominantly republican political orientations feel they can't compete with China without using the current global dominance of the US to hammer them into the ground if at all possible and while they still can. I sincerely hope that is not the case because if it is then the US has probably already lost it's dominant position.

Everyone is watching, the question is how long their patience will last. If are guessing about what the various developed nations are secretly thinking as a whole at the higher levels of power, I'd say the top thought is probably a hope that the current US administration won't survive past 2020 and that the damage in relations can be repaired after that. I'm not so sure it'll be as easy after another 4 years of the abusive chaos this administration and in particular the current US president has been and continues to spread both at home and abroad.

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The real significance of the Yuan move is "we're not going to negotiate with Trump anymore."

I'm wondering how long it will take before this message will sink in to Trump and his supporters.  

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The basic problem is that China is always tries to gobble the entire cake when they enter any sector.

The world has been suffering for years and kept silent till the courageous Trump came.

The whole world is supporting Trump on this ...(silently).

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5 hours ago, SKEP said:

US doesn't expect popular support for their sacrifice they make while trying to level the trading playing field. 

 

Who is the "US?"  Democratic governments are generally based on popular support... not a post-election dictatorship.

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7 hours ago, Enthalpic said:

Who is the "US?"  Democratic governments are generally based on popular support... not a post-election dictatorship.

We are a Constitutional Republic not a democratic government based on popular support.  We have a representative government.  The dictatorship talking point is born of political animus from a biased media that has rejected the will of the people who justly elected a representative that They don't like.  I guess I could simplify it by saying; evil hates freedom for humans, as clearly displayed by Every socialist government throughout history.

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On 8/6/2019 at 1:56 PM, Enthalpic said:

Meh,  trade war is now also a currency war.  Watch the USD lose value.

Assuming that happens, wouldn't it benefit US manufacturing?  I.e. the wealthy bankers might lose money, but wouldn't the heartland benefit? 

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On 8/7/2019 at 2:36 PM, Zhong Lu said:

The real significance of the Yuan move is "we're not going to negotiate with Trump anymore."

I'm wondering how long it will take before this message will sink in to Trump and his supporters.  

Probably not long given that most of them consider that the best outcome. 

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On 8/5/2019 at 7:47 AM, SKEP said:

China thinks they counter Trump's new 10% tariff on additional $300 Billion.  

But it really doesn't help China in long-term. 

Read "Axiom" post.  One of the benefits of manufacturing overseas is avoiding Corporate Income Tax thru transfer of product (paper transaction only) thru intermediary subsidiaries domiciled in a no tax country. Thru transfer pricing you move all your profits to that offshore domiciled Corporation with zero corporate tax. The company then completes the tax avoidance when this subsidiary  sells to the US company at the full price you sell to retailer. US based Company makes zero. Company pays no US Corp Income Tax.  This works great when no tariffs . . . But with tariffs a company ( like Nike USA or Apple USA) now pay the tariff at the full transfer price (which is the same as the selling price to retailer) . Ouch !

 .  .  .  . 

So to Minimize or eliminate paying U.S. Income Tax , Companies now have MAXIMIZED the affect of new tariffs placed on China.

In the Axiom post. If Nike China Ltd sold the Air Jordans to Nike USA at cost to manufacture, $6, they would pay 10% tariff X $6 = $0.60 , but would pay US Corporate income tax 20% X $94 = $18.80.

US tax haven intermediary that sells the Air Jordans to Nike USA at $100 who in turn sells to retailer for $100 = NO US CORP INC TAX . . .   However NOW with 10% tariff applied to $100 transfer price = $10 pd tariff.

The tariff is paid on the "transaction" price coming into US. 

 

 .  .  .  So these companies now take a 10% or 25 % hit on both their US Revenue and US Profit.

Apple wanted a waiver on tariffs. These Chinese subsidiaries should complain to China not Trump.

India threatened tariff on iPhones, then Apple built mega factory in India. India is a big market for Apple . . . but so is U.S. 

Companies selling to US will continue to flee China. 

Chinese Communist Party and Communist Secretary General Xi Jinping losers.

Trump wins

The currency devaluation is a problem. It is also illegal according to WTO regulations.  China trying to get countries to put pressure on US.  IF DEVALUE TOO MUCH, CAPITAL WILL FLEE CHINA JUST LIKE MANUFACTURERS. 

Countries SHOULD condem China's  games,  not blame US. They should work with US . China's trade practices are a menace to all.

THINK ABOUT WHAT IS HSPPENING.

China is devaluing their currency trying to hurt US and all industrial countries !  YOU HAVE TO ASK WHY !

It's because US won't let them (1)  force technology transfer, (2) steal technology, (3) illegally subsidise their industries, (4) dump steel on foriegn markets, (5) predatory pricing and marketing (6) etc.  .  etc . . etc

How dare the US ask for China to abide by WTO regulations. .  .  .  .  NOT.

It does reduce prices of goods sold in US, makes China's mfg products competitive . . . but China's primary problem is manufacturing companies leaving China.

The 25% and 10% tariffs will accelerate the exodus of mfg from China, as well as, provide Billions to support US farmers whom are being victimized by the government, the CCP (Chinese Communist Party.)

ADVANTAGE TRUMP.

 

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  • Roberto
  • São Paulo, Brazil
  • VALE STOCKS INVESTOR
  • 20 YEARS in market

I'm very sorry americans will pay more cents in Nike products. I'm a stock market investor and lost thousands of dollars because of Tweeter. And what about people (should we call them of "human beings"?) who has no food? They are not worry about foot. I am a capitalist, and don't agree with China's government, but Trump has been a stupid who rules by Tweeter. Is America a democracy? I hope american citizen can make Trump think better before press the "send key".

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Here in Brazil we are trying to fix 16 years of turbulences caused for a socialist government (Workers Party). Ex president Lula is in jail and we are fighting hard against corruption. Lots of american companies went away cause bribe was necessary.

And it's sad American Investment Funds  had US$ billions in Brazilian stocks for 16 years (when a corrupt comunist party was in power) and now, because of a tweet, they sold (just in a week) more than US$ 10 billions in Brazilian stocks.

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