Views from Shanghai: On Coming Tariffs and Trade Wars? Seems Inevitable But Let's Hope Not

Indeed, starting with Bank of Japan’s surprise interest policty shift, our spinning globe keeps changing even with China on holiday this week. Here’s a set of fresh views and commentary on China and other global affairs to ponder for the coming days. Lately I’ve received several inquiries about commenting and remind you to simply register if you’d like to add your comments.

1. Deliberately Under Pricing Goods? It was suggested in a recent article at www.rickackerman.com, one of the most intelligent places to go for views on the global economy and investment markets, that “….Chinese (for one) are deliberately under pricing goods in order to put our manufacturers out of business.”…

For what it is worth, I find this is rarely a topic of discussion or concern amongst foreign expat manager community hobnobbing here in Shanghai, including the monthly American Consulate Briefing each month here in Shanghai, and I’ve never seen the topic written about in any monthly biz magazine. It just doesn’t seem in anyone’s mind space while continued lack of ease/transparency/restrictions on WFOE’s to do business, and rising labor costs remain today’s top concerns for businesses in China.

2. Trade wars are coming and I’m afraid its going to get ugly. The Chinese are holding the strong hand and as I have stated from the beginning, they are not going to back down, they are going to play every strength they have for further dominance, strength and expansion in every possible way they can. If the U.S. can become the world’s superpower in a span of 50 years, so can they and let’s ask why not?…or at least even up the field as an equal player. What will U.S./Euroblock/China GDP’s be in 10 years; much more equal than now for certain. Rick posed the question in response to my earlier published article on whether China’s riches can save the world from a meltdown Can China’s Miracle Keep The West Afloat?. Maybe yes, maybe no, probably yes, and definitely enough to at least weather the storm for themselves and rise to further global economic power. That’s the future new reality coming like a locomotive like it or not. This is all part of my eternal reminder that China is so rich with cash, assets and home equity; You can’t imagine and that is fatal flaw in the “Chanos” type of bubble warning analysis on China found out there.

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3. Wine Tariffs – the wine biz is booming here in China, as most industries. The import tariffs are outrageous. We pay USD $15 for the cheap wines…the very drinkable Trader Joe’s cheap wines, the french bordeauxs and california merlots and australians and chileans for USD $5-8. Here, if we find a good drinkable bottle of wine for 120rmb we do an email blitz to tell all our mates…that’s USD $18 a bottle! Funny that Italian food imports are much cheaper than Australian, American…. imported italian canned plum tomatoes, canneloni beans, imported Italian pastas, are only in the USD $2 range…but American brand breakfast cereals and impulse gotta have snacks like Doritos are USD $10-$12. Go figure, maybe they still have a soft spot for Marco Polo.

4. Auto Tariffs – If you own a new BMW or Audi or Mercedes, people want to know if its “only” a domestic made $60,000 auto or an imported one which currently has a luxury import auto tariff of 50% plus.

5. China’s Riches Continue – I’ll pose the question again to help the world understand the America-China reality of today: If the average American had much, much less debt, much, much more home equity and much more cash in the bank, when your house went down in value by 30% would you freak out? No. Would it cause a daisy chain financial crisis? No. That’s China; regardless of isolated property bubble markets and other corruption based financial and government games which certainly occur here as flagrantly as any other country.

6. U.S. Equity Market and Currency Games – amazing how we hit the top of the channel for the last two weeks on feedings of supposedly good news, and now? Somebody knows whether its time to make an upside breakout, no way jose, once again it doesn’t happen for whatever mysterious reason, and once again the feeding of negative news starts being announced as the market’s heading back down the channel…and regarding the price of crude oil…don’t get me started. Good grief.

7. In the face of weakening recovery, the Bank of Japan just announced comprehensive monetary easing while acknowledging that this is an “extraordinary measure” for a central bank to encourage a decline in risk premiums, according to an article at MarketWatch.

Is it a global web of coordinated, cooperative effort or a financial circus on the brink? The most complex, dangerous financial and trade and wars seem fresh on the global horizon as the shifting global economic landscape continues to play out.

Mario Cavolo
Shanghai

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