Trump Threatens China With A Big Fine: So What? All Mouth, No Action?

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Posted: Jan 18, 2018 9:30 AM
Trump Threatens China With A Big Fine: So What? All Mouth, No Action?

Trump is bashing China once again. This time, Trump is proposing a big "fine" over an alleged theft of intellectual property

Trump threatened to "fine" China, something he cannot even do. I believe he means retaliate with tariffs in his ongoing dispute with China over trade imbalances.

Reuters reports Trump Considers Big 'Fine' Over China Intellectual Property Theft.

"In an interview with Reuters, Trump and his economic adviser Gary Cohn said China had forced U.S. companies to transfer their intellectual property to China as a cost of doing business there.

'We have a very big intellectual property potential fine going, which is going to come out soon,' Trump said in the interview.

Trump said he would be announcing some kind of action against China over trade and said he would discuss the issue during his State of the Union address on Jan. 30.

Asked about the potential for a trade war depending on potential U.S. action over steel, aluminum and solar panels, Trump said he hoped a trade war would not ensue.

'I don’t think so, I hope not. But if there is, there is,' he said.

The president also said he and Chinese President Xi Jinping had not discussed China’s plans with regard to purchases of U.S. Treasury bonds.

'We never talked about it. They have to do what they do,' he said."

One Line Rings True

There is one line in the story that makes sense: "They have to do what they do.”

As long as China runs trade surpluses with the US, it will accumulate treasuries or other US assets. Since the US will not let China buy Boeing or other US companies it buys treasuries.

China also uses accumulated treasures as a mechanism to stop capital flight (China sometimes sells treasuries to prop up the Renminbi).

All Mouth, No Action, So Far

So far, Trump has been all mouth, no action. That applies to both China and Mexico.

Nonetheless, the possibility of a major trade war is very real. No one will win a trade war.

Global risks from equity bubbles, junk bond bubbles, trade wars, currency wars, and central bank tightenings are very high and rising.

I suspect it all blows at once. When? I don't know.