‘Blow For Blow’: U.S.-China Trade Spat Devolves Into Name-Calling…

By Heisenberg

…As Chocolate Cake Diplomacy Faces Biggest Test Yet

Well, it looks like Donald Trump’s “great friendship” with Xi Jinping (forged as it was, not in fire, but over “the most beautiful piece of chocolate cake you’ve ever seen”), is going to be put to the test over the next couple of weeks.

On Friday, in the official statement that accompanied the announcement of his decision to move ahead with tariffs on Chinese goods despite the trade truce Steve Mnuchin struck with Chinese Vice Premier Liu He last month, Trump said the following:

My great friendship with President Xi of China and our country’s relationship with China are both very important to me.

Kind words for one’s “rapist”:

Xi, according to Bloomberg, is now set to go “blow for blow” with Trump on trade – and hopefully that means something different than it means when Trump goes “blow for blow” with Russian hookers.

Here’s what Eurasia Group’s Michael Hirson expects, as summarized by Bloomberg:

Watch for Beijing to ramp up threats of informal retaliation against U.S. businesses in China, Hirson says, adding that it’s likely American firms will see some delays in various approvals in coming days. Tougher measures such as disruptive regulatory actions would follow, especially if Trump appears headed towards a second round of tariffs, he said.

For its part, Chinese state media was aggressive in their efforts to paint the Trump administration as an instigator and a bully over the weekend. Here are some fun excerpts from Xinhua:

Hours after the U.S. administration fired the first shot on Friday, China announced additional tariffs on U.S. goods that are of the same scale and intensity and due to take effect on the same date.

China’s countermeasure is responsive, passive and reciprocal.

The U.S. announcement of imposing additional tariffs on 50 billion U.S. dollars worth of Chinese goods follows months of shuttle diplomacy between Washington and Beijing.

China has shown utmost sincerity in rounds of negotiations with plans to meaningfully increase purchases of U.S. goods and services, to meet demands of Chinese people for higher living standards and help the United States to boost employment.

The U.S. side also admitted meaningful progress and important consensus were made in the past rounds of talks, as the two sides vowed not to launch a trade war.

But consensus has soon proved to be short-lived after the U.S. side demonstrated flip-flops with an obvious intention to escalate the trade spat.

China does not want the trade war, but facing a capricious Washington, China has no choice but to fight back vigorously in defense of its national interests, the trend of globalization and the world’s multilateral trading system.

And nobody likes a “capricious” motherfucker, right? Right.

All jokes aside, that last bit about China couching its retaliatory measures in terms of a defense of globalization and multilateralism is important and speaks to a lot of the points I made over the weekend in “Sunset“.

Trump is, wittingly or unwittingly, undermining Western hegemony and in an irony of ironies, he’s opening the door for China to take protectionist measures in the name of defending free trade. That’s the kind of absurd outcome Trump has accidentally engineered here, and although he most assuredly thinks he’s strengthening America’s hand, he’s doing exactly the opposite.

And I don’t mean that in the kind of vague sense that commentators and U.S. allies usually mean it. I mean he is literally eroding America’s ability to effectively negotiate with partners with his schizophrenic approach and he is simultaneously allowing Beijing to credibly present itself as the last line of defense for globalization and multilateralism, a perverse turn of events befitting of a world where Donald Trump is the President of the United States.

As for markets, risk assets aren’t liking this, although with Hong Kong and China on vacation Monday, we won’t get a “clean” read on things until tomorrow.

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