Sunday, January 22, 2017

Jim Rickards: Rocky Road Ahead for Trump, China?

Jim Rickards offered some new thoughts on problems he sees ahead for Trump and China as soon as Trump takes office. Jim had just returned from a trip to China. His comments are presented in this article in The Daily Reckoning. Below are a couple of excerpts from the article.

“He (Trump) is going to call for an end to subsidies to major Chinese industries such as steel. He’s going to demand a strong yuan to make up for years of an undervalued yuan. And he’s going to ask for help with the North Korean nuclear problem, the South China Sea disputes and an end to Chinese hacking and theft of intellectual property.

“If China does not meet Trump halfway on most of these issues, Trump is prepared to impose tariffs, border adjustment taxes and other penalties on Chinese imports to the U.S. Trump has also indicated he’s willing to put the ‘One China’ policy on the table and improve U.S. relations with Taiwan.”

The problem is that Trump will make demands Chinese leaders can’t possibly meet — even halfway.

“China cannot end subsidies, because  . . . ."

. . . . .

“This is a slow-motion train wreck. Trump will make demands, China will refuse to strike a deal, Trump will impose tariffs and taxes, China will retaliate by devaluing its currency, and matters will escalate into a full-scale trade and currency war."

Click here to read the full article in The Daily Reckoning

Added note: Jim Rickards recently did a 2 hour webinar discussing China as part of a promotion for his newsletter. Jim revealed some important information in this webinar along with a bold prediction. While some of the information would be proprietary in nature and intended for those who signed up for the webinar, I can say he did predict that a significant currency event will happen in 2017, perhaps soon after Trump takes office. 

He went on to say it was possible that this event could be significant enough to trigger the kind of major crisis he has talked about for some time. He did not make a prediction that it will be the trigger, but in response to a listener question said it was possible it could be the trigger (along with a number of other potential triggers). Based on his comments, I will follow this event closely during 2017 to see how it plays out.

Added note: Some of the information Jim talked about in his webinar is covered in this recent discussion available online here. (text transcript here)

Also, one of the potential trouble spots Jim has talked about recently that could emerge between Trump and China is the One China policy that China insists upon. China confirms that in this BRICSPOST article virtually as soon as Trump takes office. They warn that any challenge to the One China policy would be "playing with fire." 

I cannot emphasize strongly enough how important it is to stay alert to the interaction between China and Trump based on Jim Rickards comments and the fact that we can see it playing out right in front of our eyes. Trump tends to go public with his comments and China appears ready to reply in public immediately. What starts out as something like a Twitter PR battle could lead to a more serious situation so we need to watch it closely.

Additional added notes (1-23-17): China Daily - Trump Speech Spurs Worry

CNBC - Trump is "Always Negotiating"  - this is the counterpoint that Trump supporters will mention. The idea is that people should not worry about dramatic statements Trump makes because he is "always negotiating" and everyone knows he will eventually compromise. It will be interesting to see if this style that Trump has used in the business world will work for him the same way in the geopolitical world. China will be a good test case for us to follow. Jim Rickards is saying that Trump expects China to compromise with him, but is asking them to make concessions where they cannot compromise so the potential for a miscalculation by either or both sides is in play.

Stephen Roach in Project Syndicate - agrees that China will fight back against Trump - sees the potential for much higher inflation as an end result. No mention of using a yuan currency devaluation as a weapon.

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