China hits back at US tariffs

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Duties show Beijing unfazed by Washington’s pressure

China on Monday struck back at US tariffs on Chinese goods, announcing duties of between 5 percent to 25 percent on more than 5,100 products from the US worth tens of billions of dollars.

The measured but firm response from Chinese officials highlighted China's defiance toward maximum pressure from US officials amid a fresh escalation in the trade war, while also seeking to avoid a full-fledged trade war with the US, analysts said.

China will impose an additional tariff of 25 percent on 2,493 items such as liquefied natural gas and 20 percent on 1,078 items, including fruits and chemicals, starting June 1, the Customs Tariff Commission under the State Council, China's cabinet, said in a statement Monday night.

China will also impose an additional tariff of 10 percent on 974 items, such as vegetables and seafood, and 5 percent on 595 items, including smaller planes, according to the statement. In total, the tariffs cover 5,140 US products worth $60 billion.

The statement said that China's measures were in response to the US' decision to raise tariffs on $200 billion in Chinese goods.

"The aforementioned US action has led to an escalation in China-US trade frictions and is against a consensus reached by the two sides to address trade differences through consultations," it said, adding it hurts both sides' interests.

Following China's tariffs, US stocks tumbled on Monday, with the Dow Jones Industrial Average losing 2.17 percent shortly after market opening. Shares of major US companies which rely on Chinese markets also nosedived, with machinery maker Caterpillar stocks down 4.54 percent and aircraftmaker Boeing shares down 3.38 percent.

Firm response

"I think the response is firm but measured," said Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies in Beijing, pointing out that the measures were specifically aimed at responding to the US action.

The US on Friday raised duties on $200 billion in Chinese goods to 25 percent from the 10 percent imposed since September 2018, to which China responded with tariffs on $60 billion in US goods.

"While the Chinese tariffs cover less US products than the US tariffs do on Chinese goods, it is sufficient to show that China is not going to back down from pressure," Huo said.

China's response comes about an hour after US President Donald Trump warned China against retaliating on Monday. "China should not retaliate - will only get worse!" Trump tweeted, while repeating false accusations against China.

The Chinese tariffs also followed fresh threats from US officials to impose tariffs on $325 billion in Chinese goods with details expected to be announced on Monday US time.

"Since the US has resumed the trade war, we should hit back hard… to show the Americans that they will not gain anything from their tough approach," He Weiwen, a former senior Chinese trade official, told the Global Times. "But we should also not close the door to talks."

Door open

Though China was forced to impose the tariffs, it also did so in a way that avoided a further escalation and left room for negotiations, said Song Guoyou, director of Fudan University's Center for Economic Diplomacy.

"The country still left some room in the hope that bilateral trade tensions would not further escalate, and that there would be possible future talks with the US," Song said.

Chinese and US officials concluded the 11th round of negotiations in Washington on Friday without reaching any deal. There were no plans for future talks as of press time on Monday.

But in light of the drastic turn of events in the trade talks, China has prepared for all scenarios, officials and analysts said.

"The Chinese side will never succumb to external pressure and we have the resolve and ability to safeguard our legitimate rights and interests," Geng Shuang, a spokesperson for the Chinese Foreign Ministry, told a routine press briefing on Monday.

"Again, we hope the US side could work with China and meet China halfway to address each other's reasonable concerns based on mutual respect and equal terms," he said.

But if the US wants to further escalate the trade war, China will respond in kind and there are many other tools it could take to inflict pain on the US economy, including targeting US financial markets, analyst noted.

Stay focused

However, while fighting back is necessary, it is also equally important for China not to lose focus in carrying out stated reform and opening-up efforts aimed at ensuring long-term growth for the Chinese economy, analysts said.

"We need to commit to our policies because we must keep things at home in good shape. That goes without saying," Huo said, noting that China should continue its reform and opening-up efforts.

Continuing reform and opening-up measures will not only help cope with pressure from the US, but could also ensure long-term growth for the Chinese economy, analysts said.

In the short term, though, China needs to properly evaluate the potential damage of the trade war on Chinese companies and workers and take necessary measures to help them weather the impact.

Yu Yongding, a senior research fellow at the Chinese Academy of Social Sciences, said that given China's deep role in the global value chain, it is hard to evaluate the impact on the Chinese economy, but China needs to prepare for the worst.

"In any case, the Chinese economy will be able to withstand the impact, and China's monetary and fiscal policies still have room," he said at a seminar in Beijing on Saturday.

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World markets plunged further on Tuesday following heavy losses on Wall Street after China delivered a swift rebuff to Donald Trump by imposing retaliatory tariffs on $60bn of US imports. Beijing ignored warnings from Trump about the dangers of escalating the trade conflict and ..

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The Chinese side is obviously more realistic while the US is falsifying. This will, to a large extent, influence how the two countries digest the trade war impacts.
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US hits China with higher tariffs, raising stakes in trade talks

Punitive duties on US$200bil in goods raises stakes in trade talks. 

https://youtu.be/82NLXvMtn64

Chinese Vice Premier Liu He arrives at the the Office of the United States Trade Representative for negotiations on a trade deal

The United States pulled the trigger Friday on a steep increase in tariffs on Chinese products and Beijing immediately vowed to hit back, turning up the heat before a second day of trade negotiations.

President Donald Trump got a briefing from his trade negotiators after the first day of talks with the Chinese side on Thursday, but made no move to hold off on the tariffs -- dashing hopes there might be a last-minute reprieve as the negotiations continued.

Minutes after the US increased punitive duties on $200 billion in imports from 10 to 25 percent, the Chinese commerce ministry said it "deeply regrets" the move and repeated its pledge to take "necessary countermeasures", without elaborating.

Locked in a trade dispute for more than a year, officials from the world's two biggest economies returned to the bargaining table late Thursday, led by Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.

Since last year, the two sides have exchanged tariffs on more than $360 billion in two-way trade, gutting US agricultural exports to China and weighing on both countries' manufacturing sectors.

Trump began the standoff because of complaints about unfair Chinese trade practices.

The US team met with Trump late Thursday night to brief him and "agreed to continue discussions" on Friday, the White House said in a statement.



AFP / Jonathan WALTER US-China trade

Lighthizer and Mnuchin met the Chinese delegation for about 90 minutes Thursday evening and they had a working dinner with Liu.

"We hope the US and the Chinese side can meet each other halfway and work hard together to resolve existing problems through cooperation and consultation," the Chinese commerce ministry said in a statement.

Despite optimism from officials in recent weeks that the talks were moving towards a deal, tensions reignited this week after Trump angrily accused China of trying to backpedal on its commitments.

"They took many, many parts of that deal and they renegotiated. You can't do that," Trump said on Thursday.

But he held out hopes of salvaging a deal.

"It's possible to do it," Trump said. "I did get last night a very beautiful letter from President Xi (Jinping)."

At the same time, he said he would be happy to keep tariffs in place. And he has threatened to extend the tough duties to all Chinese goods.

Michael Taylor, a managing director for Moody's Investors Service, said the tariff hike "further raises tensions" between the two countries.

"While we believe that a trade deal will eventually be reached between the US and China, the risk of a complete breakdown in trade talks has certainly increased," Taylor said.

- Tariffs increase -

The renewed tensions roiled global stock markets this week and unnerved exporters, though Chinese shares led gains across most Asian and European markets on Friday.

AFP / ANDREW CABALLERO-REYNOLDS US Trade Representative Robert Lighthizer (L) and Treasury Secretary Steven Mnuchin wait to greet Chinese Vice Premier Liu He for trade talks

Liu said on his arrival in Washington that the prospects for the talks were "promising," but warned that raising tariffs would be "harmful to both sides," and called instead for cooperation.

"I hope to engage in rational and candid exchanges with the US side," he told Chinese state media.

"Of course, China believes raising tariffs in the current situation is not a solution to the problem, but harmful to China, to the United States and to the whole world."

The higher duty rates will hit a vast array of Chinese-made electrical equipment, machinery, auto parts and furniture.

But due to a quirk in the implementation of the higher tariffs, products already on ships headed for US ports before midnight will only pay the 10 percent rate, US Customs and Border Protection explained.

That could effectively provide a grace period for the sides to avert serious escalation.

AFP / Andrew Caballero-Reynolds An anti-China protester (C) yells at a pro-China demonstrator outside the Office of the United States Trade Representative as US and Chinese officials hold tariff negotiations in Washington

"While we are disappointed that the stakes have been raised, we nevertheless support the ongoing effort by both sides to reach agreement on a strong, enforceable deal that resolves the fundamental, structural issues our members have long faced in China," said business lobby the American Chamber of Commerce in China.

The US is pressing China to change its policies on protections for intellectual property, massive subsidies for state-owned firms, and reduce the yawning trade deficit.

Derek Scissors, a China expert at the American Enterprise Institute, said the two sides had clashed over how much of the final trade agreement should be enshrined in a public document, something Beijing has long resisted.

"What the Chinese step-back primarily says is they don't want to publicly acknowledge that their existing laws, especially on IP, are flawed," he told AFP.

Washington is counting on the strong US economy to be able to withstand the impact of higher costs from the import duties and retaliation better than China, which has seen its growth slow.

A Chinese central bank advisor told state-run Financial News that Trump's tariff hike and Chinese retaliation would lower economic growth by 0.3 percentage points.

It is "within a controllable range", the advisor Ma Jun saidA.

By AFP / ANDREW CABALLERO-REYNOLDS


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Chinese Vice Premier Liu He (left) shakes hands with US Trade Representative Robert Lighthizer (center) alongside US Treasury Secretary Steven Mnuchin as Liu arrives at the Office of the US Trade Representative for trade negotiations in Washington DC, Friday. Photo: AP

After months of truce, the trade war between China and the US escalated on Friday, after the US shrugged off widespread warnings and moved to hike tariffs on Chinese goods, drawing a firm response from China, which vowed to retaliate.

Though Chinese and US officials are continuing talks, the renewed tensions between the world's two largest economies significantly complicated ongoing negotiations, dimmed the prospects of any potential trade agreement and stoked fear that a full-fledged trade war could still break out. And the US is to blame for the risky turn of events, Chinese officials and analysts stressed.

After days of repeated threats, US officials on Friday noon (Beijing Time) increased an existing 10 percent tariff on $200 billion in Chinese goods to 25 percent, breaking a truce reached by the leaders of the two countries in December 2018 and highlighting the unreliable and unpredictable nature of the US administration.

Minutes after the US tariff hike took effect, China struck back. In a statement, the Chinese Ministry of Commerce (MOFCOM) said that China "will have to take necessary countermeasures," while still urging the US to meet China halfway in ongoing negotiations in Washington.

Even as tensions escalated, officials pushed through with the 11th round of negotiations as they try to make a last-ditch effort to bring the months-long talks back on track for a trade agreement.

The Chinese delegation was seen arriving at the Office of the US Trade Representative at around 5 pm on Thursday US time and left about an hour and half later. The talks will continue on Friday morning, according to US media reports.

 "We are now at a very delicate place, where further negotiations have become significantly more difficult… the risk of a further escalation also increased," Song Guoyou, director of Fudan University's Center for Economic Diplomacy, told the Global Times on Friday. "We cannot allow this to become normal. That would be dangerous."

Forced retaliation

Chinese officials have repeatedly stressed that China does not want to fight a trade war, but Washington's aggressiveness and belligerence left them no other option but to fight back, analysts said.

"China will also have to make good on its own words, otherwise, it will be at a huge disadvantage to the US team at the negotiations," said He Weiwen, a former senior Chinese trade official, told the Global Times on Friday, referring to China's earlier vow to retaliate if the US went ahead with the tariff threat.

Though the MOFCOM on Friday did not say what countermeasures China will take and when it will implement them, there are many ways China can inflict pain on the US economy, according to analysts.

"The most direct countermeasure would be raising existing tariffs on US goods or imposing tariffs on more US products," Song said. "However, we cannot rule out other policy tools."

Song pointed out that with the overall trade relationship souring, US companies' operations and investments in China could also be impacted, given the rising anger among the Chinese public toward the US.

In the wake of renewed tensions, calls on Chinese social media to boycott US products rose, including US films, iPhones and computers. "Why retaliate? All we need to do is boycotting US products," one internet user said on Sina Weibo.

Chinese analysts also suggested that China could target the US financial system, the backbone of the US economy, including unloading China's holdings of US Treasury bonds.  Big US corporations and products, such as agricultural goods, will also likely encounter more scrutiny and resistance in China.

"Such an impact on US companies and industries will not be less severe than from the tariffs," Song said.

Many US business groups have expressed strong opposition to the  tariffs. On Wall Street, US stocks have also suffered losses in the past few days, as have stocks in major bourses across the world.

Complicated outlook

While it remains to be seen whether trade officials could still make a breakthrough at the talks, it is clear that the escalation complicates the talks and dims prospects for a deal, analysts said.

"I don't expect too much from this round of talks," a source in Washington  familiar with the talks told the Global Times on Friday, noting that US President Donald Trump had miscalculated.

"He initially wanted to show how he forced China into making concessions," the source, who spoke on condition of anonymity, said. "But that is like forcing China not to sign the deal quickly."

However, citing US eagerness, other observers have also argued that there is still a chance for the two sides to reach a deal.

"I think there is still a chance for the two countries to reach an agreement," Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics in Beijing, told the Global Times on Friday, noting that the two sides still appear eager to reach a deal, despite their tough rhetoric.

In what appears to be an attempt to leave room for talks, US officials offered a grace period for the tariff hike. Trump also said on Thursday that a deal is still "possible" this week and that he might speak to Chinese President Xi Jinping by phone, CNBC reported.

Asked about the phone call, Geng Shuang, a spokesperson for the Chinese Foreign Ministry, said on Friday that he was not aware of such a plan but the two leaders have maintained close contact.


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Key Points

In a speech at an economic forum in Beijing, Cook said Apple is less concerned with the short-term economic outlook because the tech giant makes investments looking ahead years or decades.

His remarks come as China and the U.S. prepare to meet again to resolve their trade dispute, which has roiled global markets, and as Apple is expected to announce that it is launching a video service.

Apple CEO Tim Cook said Saturday that he is “extremely bullish” about the global economy based on the amount of innovation underway, and urged China to continue to “open up” amid complaints from the U.S. and others that it is shutting foreign firms out of key high-tech industries.

In a speech at an economic forum in Beijing, Cook said Apple is less concerned with the short-term economic outlook because the tech giant makes investments looking ahead years or decades.

“In the long term, I’m extremely bullish. I think the key to the economy, unlocking its potential has always been innovation, and when I travel around the world, I’ve never seen innovation at a more feverish pace than I do today, so I’m extremely optimistic,” Cook told participants at the China Development Forum, a gathering of business leaders in Beijing.

His remarks come as China and the U.S. prepare to meet again to resolve their trade dispute, which has roiled global markets, and as Apple is expected to announce that it is launching a video service

The iPhone has long been Apple’s marquee product and main money maker, but sales are starting to decline. The company is pushing digital subscriptions as it searches for new growth.

Apple is one of many American companies now grappling with increasing Chinese consumer anxiety. China is a major market for Apple and other smartphone makers, accounting for one-third of the industry’s global handset shipments.

In other comments, Cook said the world was “facing greater challenges than ever before.”

“Climate change is threatening our planet, poverty and inequality hold citizens and nations back from their potential, basic health care remains out of reach for millions,” he said.

“At the same time ... we can have a healthy planet and a thriving economy. We can continue to lift millions of people out of poverty, and we can give everyone a chance to learn and thrive. To fulfill this potential, we must all work hand in hand, government, academic institutions and businesses like Apple,” Cook said.- CNBC


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Currency Traders on Front Line as Markets Stay Wary of U.S. Risk

The final week of 2018 could prove tumultuous for investors as holiday-thinned trading combines with a growing array of pressures on markets.

Traders in the $5.1 trillion-a-day currency market were among the first to respond to a partial U.S. government shutdown and a report that President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell. The dollar slipped against its Group-of-10 peers, while the yen, seen by many as a haven, gained for a seventh day.

Treasury futures climbed in early Asian hours before paring their advance. Cash bonds trading was shut in Asia due to a holiday in Japan, the first in a week that will see a number of closures across major markets.

Sentiment in global financial markets has already taken a beating with the S&P 500 Index just recording its worst week in seven years. Increased uncertainty over the leadership of the Fed could add to turmoil along with a partial shutdown of the U.S. government, although assurances from U.S. Treasury Steven Mnuchin about liquidity and the future of the central bank chief may ease some concerns.

The Treasuries yield curve last week moved closer than ever to its first post-crisis inversion and the rally in safer assets dragged the 10-year yield below 2.75 percent for the first time since April. However, given that much of the upheaval is emanating from the U.S., it is not entirely clear whether Treasuries, and also the U.S. dollar, will act as reliable havens should Powell’s leadership face a genuine threat.

Societe Generale SA’s head of U.S. rates strategy Subadra Rajappa said she thinks a change in Fed leadership is “extremely unlikely,” though she’s not ruling out the possibility of the president persuading Powell to “resign.”

“If it comes to that, given the backdrop of the recent government shutdown, investors might be less inclined to treat Treasuries as safe haven assets,” she said by email. “A change in Fed leadership will likely rattle the already-fragile financial markets and further tighten financial conditions.”

Market participants are generally of the view that Powell will not be fired, and senior administration officials say Trump recognizes he doesn’t have that authority. But even continued exploration of the possibility could make for a volatile week.

The market response to a material threat to the Fed’s independence would be complicated, according to Steve Englander, head of global G-10 FX research and North America macro strategy for Standard Chartered Bank. He said near-term uncertainty over the process and politics in a fluid situation would weigh on equity prices and bond yields. The dollar, he said, would likely face multiple opposing forces, but the “near-term response is likely negative on the risk that U.S. economic policy becomes more erratic.”

Kitchen Sink

The Bloomberg Dollar Index was up more than 4 percent in 2018 at the end of last week and is close to its highest level in a year and a half, while the Japanese yen surged around 2 percent last week versus the greenback.

Chris Rupkey, chief financial economist at MUFG Union Bank in New York, is among the few eyeing the strained relations between the president and the Fed chair with equanimity.

The stock market “has discounted everything but the kitchen sink, including the loss of a Fed Chair who hasn’t been in office for even a year yet,” he said by email.

Given that the Fed is already close to the end of its hiking cycle, the markets won’t melt down if Powell leaves office, according to Rupkey. “They already did,” he said.

Those on the front lines of this week’s opening trade say markets are on a knife edge.

Mind the Machines

“If equity markets fall further, they’re going to set off machine-based selling,” said Saed Abukarsh, the co-founder of Dubai-based hedge fund Ark Capital Management. “The other risk is that experienced traders are on holiday, so the ones left will be trigger happy with every new headline.”

“I can’t see buyers stepping into this market to stem off any selling pressure until January,” said Abukarsh. “So if you need to adjust your books for the year-end with any meaningful size, you’re going to have to pay for it.”

Trump’s two-year stock honeymoon ends with hunt for betrayer

https://youtu.be/co5RmV_AoUs width="640"

Nobody was happier to take credit for surging stocks than Donald Trump, who touted and tweeted each leg up. Now the bull is on life support and the search for its killer is on.

And while many on Wall Street share the president’s frustration with the man atop his markets enemies list, Federal Reserve Chairman Jerome Powell, they say Trump himself risks making things worse with too much aggression when equities are one bad session away from a bear market.

“You would think that after coming off of the worst week for the markets since the financial crisis in 2008, he would look to create some stability,” said Chuck Cumello, CEO of Essex Financial Services. “Instead we get the opposite, with this headline and more self-induced uncertainty. This coming from a president who when the market goes up views it as a barometer of his success.”

U.S. stock futures whipsawed Monday and were little changed after swinging from a 0.9 percent gain to a loss of the same magnitude. The equity market closes at 1 p.m. in New York ahead of the Christmas holiday.

Click here to see all of Trump’s tweets on the economy and markets.



Attempts by Treasury Secretary Steven Mnuchin to reassure markets that Powell wouldn’t be ousted appeared to have largely removed that as an immediate concern for traders, but the secretary’s tweet Sunday that he called top executives from the six largest U.S. banks to check on their liquidity and lending infrastructure added to anxiety.

To be sure, equities remain solidly higher since Trump took office. Even with its 17 percent drop over the last three months, the S&P 500 has risen 18 percent since Election Day. The Nasdaq Composite Index is up 25 percent with dividends. True, volatility has jumped to a 10-month high, but market turbulence was significantly worse for three long stretches under Barack Obama.

The S&P 500 slumped 7.1 percent last week and the Nasdaq Composite Index spiraled into a bear market. As of 2:31 p.m. in Hong Kong, futures on the S&P 500 were up 0.6 percent while Nasdaq 100 contracts added 0.5 percent.

While Trump seems to have found his villain in Powell, blame is a dubious concept in financial markets, as anyone who has tried to explain the current rout can attest.

Along with the Fed chairman, everything from rising bond yields, trade tariffs, falling bond yields, Brexit, tech valuations and Italian finances have been implicated in the downdraft that has erased $5 trillion from American equity values in three months.

Whatever’s behind it, nothing has been able to stop it. And while many on Wall Street credit the president for helping jump-start the market after taking office, they say he should look in the mirror to see another person creating stress for it right now.

“Trump was gloating how much good he had done for the economy and the market. Now he’s blaming Powell for the decline instead of himself,” said Rick Bensignor, founder of Bensignor Group and a former strategist for Morgan Stanley. “Half his key staff has been fired or quit. The markets are off for a variety of reasons, but most of them have Trump behind them.”

If Trump is bent on getting rid of Powell, there may be ways of doing it that don’t risk kicking a volatile market into hysteria, said Walter “Bucky” Hellwig, a senior vice president at BB&T Wealth Management in Birmingham, Alabama.

“It doesn’t have to be firing, it could be someone else taking Powell’s job. That could be a net positive for the markets,” Hellwig said. “A friendly change in the head of the Fed may cause some turbulence short-term but it may be offset with the markets repricing the risk associated with two rate hikes in 2019.”

For now, the turmoil shows no signs of letting up. In the Nasdaq 100, home to tech giants like Apple Inc. and Amazon.com, there have been 17 sessions with losses greater than 1.5 percent this quarter, the most since 2009. Small caps are down 26 percent from a record, while the Nasdaq Biotech Index has dropped at least 1 percent on seven straight days, the longest streak since its inception in 1993.

It’s been a long time since anyone in the U.S. has lived through this protracted a decline. Including Trump.

”It’s impossible to tease out what the proximate causes are,” said Kevin Caron, a senior portfolio manager at Washington Crossing Advisors. “The normal ebb and flow of financial markets are all part of the mix. It’s impossible just to point to the chairman as the only input.”

Credit: Bloomberg

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US IP hacking allegations reach new depths in whimsical thinking

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US IP hacking allegations reach new depths in whimsical thinking

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US Justice Department officials issued indictments on two Chinese nationals who allegedly stole, "in association with" the Chinese Ministry of State Security (MSS), vast amounts of confidential data from at least 45 US tech companies and government agencies over the past ten years.

Zhu Hua and Zhang Shilong were charged with three counts each of computer hacking, conspiracy to commit wire fraud, and aggravated identity theft. According to the indictment, the two men targeted and "stole hundreds of gigabytes of sensitive data" in aviation, space and satellite technology, manufacturing, pharmaceutical, and oil and gas exploration, as well as from communications and computer processing firms and maritime technology companies. The indictment also said the hackers stole personal information on more than 100,000 US Navy personnel.

The indictment claimed the two men were part of the hacking unit, and worked for a company called Huaying Haitai, in association with the Chinese MSS.

This most recent charge is part of the unprecedented prosecutorial efforts aimed at so-called "Chinese government-backed hacking," and serves as an accurate reflection of the escalated attacks against China that have been carried out by the US through legal mechanisms. The indictment refers to specific individuals, which is actually misleading as it suggests the US has evidence worthy of an indictment against China. But the logical fallacies tucked inside the allegations will not prevent outsiders from thinking that the move was nothing more than a carefully constructed effort motivated by political purposes.

It is unknown if the two Chinese nationals in question, and the company they worked for, have hacked anything at all, let alone US corporations and institutions. However, it is an over-exaggeration to say the alleged hackers are so "omnipotent" that they can pilfer anything they desire from key American sectors. Are they capable of doing so in the real world?

Supposing, as the US DoJ indictment states, that hackers could get whatever they wanted through internet channels, where one or two individuals could steal technology developed by thousands of researchers, then the world's most profitable sector would be the hacking industry. Computer hackers would have the ability to take down pirates and drug-trafficking enterprises, as well as the top companies in innovation. They would be immune to any kind of legislation. If this really were the case, the best hackers would undoubtedly come from the US and other Western countries as they are most developed in the world.

The US government initially claimed that China's hacking efforts have so far cost the US hundreds of billions of dollars annually, a preposterous claim from any vantage point. To begin with, and assuming China is so powerful that it has stolen technological information for over a decade that is supposedly worth over a trillion in intellectual property, as the US has indicated, then how is it that China still lags behind the US in so many fields, from chips to electric vehicles, and even aviation engines?

Since the US has been combating hackers for such an extended period, then how is it that some are able to do whatever they want? If American institutions had such fragile cyber systems, then nothing would be worth stealing.

The bias here is rooted in such strong cultural arrogance that some American elites are now convinced that China's rapid growth could not have happened without first stealing US technology. After failing to find such Chinese cyberspies, US officials amplified concerns by publicly claiming that Chinese scholars and college students in the US were indeed engaged in some level of espionage. Now, these same people whimsically believe that Chinese hackers have an important role on the internet when it comes to US intellectual property theft.

Nobody knows how many hackers are in China, but there isn't one Chinese citizen who believes that a few online game masters, who could also be cyber thieves, are the true pioneers behind China's technology modernization. After all, officials from China's security sector are not that stupid or naïve.

It would be farcical in nature to pair cybersecurity authorities with gaming experts, especially when taking into account the Chinese system. Security officials do not blithely categorize gaming experts, while disregarding Sino-US relations, accusing them of stealing critical foreign technology from a variety of industries, the way a burglar would break into a department store.

Those security officials simply do not exist, who are technology experts that can create a complex system serving the needs of companies in all industries while effectively manipulating would-be hackers with ease. There is not an entity on the planet that would take such a risk when network security is one of the most sensitive issues between China and the US.

The US allegations against China are practically hysterical all by themselves. This latest round shows the US attack on China has become more comprehensive, which could see more of China's government agencies getting involved. Actually, it is inevitable. Therefore, instead of adhering to a low profile strategy, China must face these provocations from the US and do more to safeguard national interests.

In recent months, the US has taken provocative action, like sanctioning senior-ranking PLA generals, ordering their allies to arrest Huawei executives, to prosecuting and extraditing so-called "Chinese spies," and signing Tibet-related bills.

China needs to reflect upon the previous passivity that it has shown and respond proactively. China is a country that loves peace and always pursues gentle action. However, now is the time for China to consider new countermeasures against nations who have done nothing but pour dirty water on the country's basins. - Global Times.

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When Will the U.S. Dollar Collapse?

https://youtu.be/N8IyDSrMY3w

By Kimberly Amadeo

Updated October 28, 2018

A dollar collapse is when the value of the U.S. dollar plummets. Anyone who holds dollar-denominated assets will sell them at any cost. That includes foreign governments who own U.S. Treasurys. It also affects foreign exchange futures traders. Last but not least are individual investors.

When the crash occurs, these parties will demand assets denominated in anything other than dollars. The collapse of the dollar means that everyone is trying to sell their dollar-denominated assets, and no one wants to buy them. This will drive the value of the dollar down to near zero. It makes hyperinflation look like a day in the park.

Two Conditions That Could Lead to the Dollar Collapse

Two conditions must be in place before the dollar could collapse. First, there must be an underlying weakness. As of 2017, the U.S. currency was fundamentally weak despite its 25 percent increase since 2014. The dollar declined 54.7 percent against the euro between 2002 and 2012. Why? The U.S. debt almost tripled during that period, from $6 trillion to $15 trillion. The debt is even worse now, at $21 trillion, making the debt-to-GDP ratio more than 100 percent. That increases the chance the United States will let the dollar's value slide as it would be easier to repay its debt with cheaper money.

Second, there must be a viable currency alternative for everyone to buy. The dollar's strength is based on its use as the world's reserve currency. The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard. As a global currency, the dollar is used for 43 percent of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions. As a result, 61 percent of these foreign currency reserves are in dollars.

Note:  The next most popular currency after the dollar is the euro. But it comprises less than 30 percent of central bank reserves. The eurozone debt crisis weakened the euro as a viable global currency.

China and others argue that a new currency should be created and used as the global currency. China's central banker Zhou Xiaochuan goes one step further. He claims that the yuan should replace the dollar to maintain China's economic growth. China is right to be alarmed at the dollar's drop in value. That's because it is the largest foreign holder of U.S. Treasury, so it just saw its investment deteriorate. The dollar's weakness makes it more difficult for China to control the yuan's value compared to the dollar.

Could bitcoin replace the dollar as the new world currency? It has many benefits. It's not controlled by any one country's central bank. It is created, managed, and spent online. It can also be used at brick-and-mortar stores that accept it. Its supply is finite. That appeals to those who would rather have a currency that's backed by something concrete, such as gold.

But there are big obstacles. First, its value is highly volatile. That's because there is no central bank to manage it. Second, it has become the coin of choice for illegal activities that lurk in the deep web. That makes it vulnerable to tampering by unknown forces.

Economic Event to Trigger the Collapse

These two situations make a collapse possible. But, it won’t occur without a third condition. That's a huge economic triggering event that destroys confidence in the dollar.

Altogether, foreign countries own more than $5 trillion in U.S. debt. If China, Japan or other major holders started dumping these holdings of Treasury notes on the secondary market, this could cause a panic leading to collapse. China owns $1 trillion in U.S. Treasury. That's because China pegs the yuan to the dollar. This keeps the prices of its exports to the United States relatively cheap. Japan also owns more than $1 trillion in Treasurys. It also wants to keep the yen low to stimulate exports to the United States.

Japan is trying to move out of a 15-year deflationary cycle. The 2011 earthquake and nuclear disaster didn't help.

Would China and Japan ever dump their dollars? Only if they saw their holdings declining in value too fast and they had another export market to replace the United States. The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, that would further depress the value of the dollar. That means their products, still priced in yuan and yen, will cost relatively more in the United States. Their economies would suffer. Right now, it's still in their best interest to hold onto their dollar reserves.

Note: China and Japan are aware of their vulnerability. They are selling more to other Asian countries that are gradually becoming wealthier. But the United States is still the best market (not now) in the world.

When Will the Dollar Collapse?

It's unlikely that it will collapse at all. That's because any of the countries who have the power to make that happen (China, Japan, and other foreign dollar holders) don't want it to occur. It's not in their best interest. Why bankrupt your best customer? Instead, the dollar will resume its gradual decline as these countries find other markets.

Effects of the Dollar Collapse

A sudden dollar collapse would create global economic turmoil. Investors would rush to other currencies, such as the euro, or other assets, such as gold and commodities. Demand for Treasurys would plummet, and interest rates would rise. U.S. import prices would skyrocket, causing inflation.

U.S. exports would be dirt cheap, given the economy a brief boost. In the long run, inflation, high interest rates, and volatility would strangle possible business growth. Unemployment would worsen, sending the United States back into recession or even a depression.

How to Protect Yourself

Protect yourself from a dollar collapse by first defending yourself from a gradual dollar decline.

Important:  Keep your assets well-diversified by holding foreign mutual funds, gold, and other commodities.

A dollar collapse would create global economic turmoil. To respond to this kind of uncertainty, you must be mobile. Keep your assets liquid, so you can shift them as needed. Make sure your job skills are transferable. Update your passport, in case things get so bad for so long that you need to move quickly to another country. These are just a few ways to protect yourself and survive a dollar collapse.

US Trade Deficit With China and Why It's So High

The Real Reason American Jobs Are Going to China 

By Kimberly Amadeo 

Updated November 21, 2018

The U.S. trade deficit with China was $375 billion in 2017. The trade deficit exists because U.S. exports to China were only $130 billion while imports from China were $506 billion.

The United States imported from China $77 billion in computers and accessories, $70 billion in cell phones, and $54 billion in apparel and footwear. A lot of these imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports.

In 2017, China imported from America $16 billion in commercial aircraft, $12 billion in soybeans, and $10 billion in autos. In 2018, China canceled its soybean imports after President Trump started a trade war. He imposed tariffs on Chinese steel exports and other goods. 

Current Trade Deficit

As of July 2018, the United States exported a total of $74.3 billion in goods to China. It imported $296.8 billion, according to the U.S. Census Bureau. As a result, the total trade deficit with China is $222.6 billion. A monthly breakdown is in the chart.

Monthly U.S. Trade Deficit With China From January to July 2018

NOTE: All figures are in millions of US$

Exports Imports Balance

US$211.1

Jul 18

US$202

Jan 18

US$205

Feb 18

US$210

Mar 18

US$210

Apr 18

US$214

May 18

US$213

Jun 18

US$211

Jul 18

Chart: The Balance Source: United States Census Bureau

Causes

China can produce many consumer goods at lower costs than other countries can. Americans, of course, want these goods for the lowest prices. How does China keep prices so low? Most economists agree that China's competitive pricing is a result of two factors:

1. A lower standard of living, which allows companies in China to pay lower wages to workers.
2. An exchange rate that is partially fixed to the dollar.

If the United States implemented trade protectionism, U.S. consumers would have to pay high prices for their "Made in America" goods. It’s unlikely that the trade deficit will change. Most people would rather pay as little as possible for computers, electronics, and clothing, even if it means other Americans lose their jobs.

China is the world's largest economy. It also has the world's biggest population. It must divide its production between almost 1.4 billion residents. A common way to measure standard of living is gross domestic product per capita. In 2017, China’s GDP per capita was $16,600. China's leaders are desperately trying to get the economy to grow faster to raise the country’s living standards. They remember Mao's Cultural Revolution all too well. They know that the Chinese people won't accept a lower standard of living forever.

China sets the value of its currency, the yuan, to equal the value of a basket of currencies that includes the dollar. In other words, China pegs its currency to the dollar using a modified fixed exchange rate. When the dollar loses value, China buys dollars through U.S. Treasurys to support it. In 2016, China began relaxing its peg. It wants market forces to have a greater impact on the yuan's value. As a result, the dollar to yuan conversion has been more volatile since then. China's influence on the dollar remains substantial.

Effect

China must buy so many U.S. Treasury notes that it is the largest lender to the U.S. government. Japan is the second largest. As of September 2018, the U.S. debt to China was $1.15 trillion. That's 18 percent of the total public debt owned by foreign countries.

Many are concerned that this gives China political leverage over U.S. fiscal policy. They worry about what would happen if China started selling its Treasury holdings. It would also be disastrous if China merely cut back on its Treasury purchases.

Why are they so worried? By buying Treasurys, China helped keep U.S. interest rates low. If China were to stop buying Treasurys, interest rates would rise. That could throw the United States into a recession. But this wouldn’t be in China's best interests, as U.S. shoppers would buy fewer Chinese exports. In fact, China is buying almost as many Treasurys as ever.

U.S. companies that can't compete with cheap Chinese goods must either lower their costs or go out of business. Many businesses reduce their costs by outsourcing jobs to China or India. Outsourcing adds to U.S. unemployment. Other industries have just dried up. U.S. manufacturing, as measured by the number of jobs, declined 34 percent between 1998 and 2010. As these industries declined, so has U.S. competitiveness in the global marketplace
.

What's Being Done

President Trump promised to lower the trade deficit with China. On March 1, 2018, he announced he would impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. On July 6, Trump's tariffs went into effect for $34 billion of Chinese imports. China canceled all import contracts for soybeans.

Trump's tariffs have raised the costs of imported steel, most of which is from China. Trump's move comes a month after he imposed tariffs and quotas on imported solar panels and washing machines. China has become a global leader in solar panel production. The tariffs depressed the stock market when they were announced.

The Trump administration is developing further anti-China protectionist measures, including more tariffs. It wants China to remove requirements that U.S. companies transfer technology to Chinese firms. China requires companies to do this to gain access to its market.

Trump also asked China to do more to raise its currency. He claims that China artificially undervalues the yuan by 15 percent to 40 percent. That was true in 2000. But former Treasury Secretary Hank Paulson initiated the U.S.-China Strategic Economic Dialogue in 2006. He convinced the People's Bank of China to strengthen the yuan's value against the dollar. It increased 2 to 3 percent annually between 2000 and 2013. U.S. Treasury Secretary Jack Lew continued the dialogue during the Obama administration.

The Trump administration continued the talks until they stalled in July 2018.

The dollar strengthened 25 percent between 2013 and 2015. It took the Chinese yuan up with it. China had to lower costs even more to compete with Southeast Asian companies. The PBOC tried unpegging the yuan from the dollar in 2015. The yuan immediately plummeted. That indicated that the yuan was overvalued. If the yuan were undervalued, as Trump claims, it would have risen instead.

Source: The Balance

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