Will Trump Ignite A Full-Blown Trade War With China?

Will Trump Ignite A Full-Blown Trade War With China? - Boxing Gloves 2


Donald Trump has repeatedly accused China of manipulating global financial markets to gain a trade advantage over U.S. industries.


The President-elect says China is intentionally weakening its currency, the yuan, thereby making U.S. dollars relatively stronger and Chinese goods appear artificially cheaper. This illusion of cheap Chinese goods hurts U.S. industries, so the theory goes, and American jobs suffer as a result.


Here's a tiny taste of Trump's China theory:


"Look at what China is doing to our country ... They are devaluing their currency and we have nobody in our government to fight them ... They are using our country as a piggy bank to rebuild China."


It's a neat theory that plays well in the Rust Belt (i.e. Trump's core constituency) but upon closer inspection of the facts reveals a more complicated truth.

Not Just China: America's Trade Issues Run much Deeper


First, the facts. As Hedgeye Senior Macro analyst Darius Dale writes in today's Early Look, China is the U.S.'s third largest export market, following Canada and Mexico. In 2015, the U.S. and China exchanged a total of $599 billion goods and services, with China netting a $367 billion surplus advantage (in other words, China exported $483 billion to the U.S.; U.S. exported $116 billion to China).


So far so good for Trump's theory.


But here's where it gets a little murky. The U.S. ran trade deficits with 100 other countries last year, Dale points out, so it's odd to single out China as the bad actor on global trade. 


"To the naked eye of a less-informed populist like Trump, the U.S.’s disadvantage comes across as the result of bad trade deals and unfair trade policies on the behalf of the Chinese government. From our vantage point, that’s only half true at best.


Specifically, the U.S. doesn’t have a series of bilateral issues with China and other key trading partners; in 2015 it ran trade deficits with 101 countries. One hundred and one. The broad-based nature of our bilateral trade deficits is not likely to be the result of “bad deals” or “unfair practices” as Trump and his national trade team have repeatedly suggested."



So what are we missing here? The U.S. consistently consumes more than it saves. Plain and simple. As you can see in the Chart of the Day below, U.S. Gross National Savings less Investments as a percentage of GDP (in short, the amount of money Americans save each year) has been negative for the past 35 years. This mirrors the U.S.'s Current Account Balance as a percentage of GDP (essentially the net trade balance, or exports minus imports, versus the broader U.S. economy).


There you have it. 


Will Trump Ignite A Full-Blown Trade War With China? - Chart of the Day 12 29 16

Why Trump's Misconceptions Matter


Facts don't always filter into policy. That's the risk. Trump's rhetoric plays well among his core constituency so there's a considerable amount of risk to investors who blindly dismiss the possibilities of a full-blown U.S.-China trade war. Trump's pick for director of the National Trade Council, Peter Navarro, is no salve. He literally wrote the book on combating Chinese trade and the country's increasing militarism. (see "Death by China" and "The Coming China Wars.") In other words, this is a risk worth watching.


More to come.


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more