Early Warning for 10 August 2018

Good morning. Here’s your Early Warning for Friday, 10 August 2018. (All times Eastern.)

The following excerpt is from yesterday’s Strategic Intelligence report, but it bears mentioning here since it will affect the U.S. economy:

The U.S. has imposed tariffs on $34 billion worth of Chinese goods, and the Chinese have responded in kind. President Trump says he has tariffs on another $16 billion ready to be implemented on 23 August, and the Chinese have expressed their willingness to match that on the same day. But the Trump administration still has $456 billion of Chinese goods on which to impose tariffs, compared to China’s $90 billion in U.S. goods. In other words, because China exports more to the U.S. than they import, President Trump has the upper hand in the near term of the trade war and wants to force China to the negotiating table. President Trump has threatened to put tariffs on all $506 billion worth of Chinese goods coming into the U.S. market, which would harm China’s export-driven economy. “The trade war has made China more humble,” said one professor at a Chinese university in Beijing, noting that the trade war is starting to cause some domestic stress. But China has some powerful options to pursue, too, and the domestic stress on Chinese premier Xi Jinping — now Chinese ruler for life — may force him to take stronger countermeasures.

In an op-ed this week, the editorial board of China’s Global Times pointed out that U.S. economic advisor Larry Kudlow had previously warned that China might target U.S. companies in China directly. Specifically, Kudlow said, “There is a lot they can do to damage our companies in China.” Continuing that line of thinking, the editorial board points out that “The Chinese market is key to the survival of many big American companies and American farmers” and that “China is prepared for a protracted war”.

Take particular note of this section:

“Throughout history, the US arrogantly initiated many wars that eventually ended up hurting itself. Washington’s arrogance this time is up against a major power. When others believed that the US was just playing tricks with trade, the White House thought it could strike down China. But the US’ ability doesn’t match its ambition.

China has time to fight to the end. Time will prove that the US eventually makes a fool of itself.” [source]

Meanwhile, over at China’s People Daily — the official outlet for the Chinese Communist Party — one writer asks: “Why has the California-based company [Apple] enjoyed remarkable success in China, while some Chinese companies have experienced big losses amid a growing trade conflict”? The writer explains, as if to threaten, that the Chinese may target the largest corporation in the world: “China is by far the most important overseas market for the US-based Apple, leaving it exposed if Chinese people make it a target of anger and nationalist sentiment.” [source]

And that brings us full circle to something else I pointed out last week: the Obama administration did virtually nothing to curb trade imbalances with China because of incorrect thinking that China would democratize once it became wealthy, but also because large, left-leaning corporations like Starbucks and Apple wanted greater access to the Chinese market — a prospect Obama couldn’t shy away from during his low growth, “non-recovery” economic recovery.

The People’s Daily usually toes the line of the Chinese Communist Party, so it begs the question if this is not a foreshadowing of a Chinese response of hurting U.S. companies. If China demands that U.S.-based multinational corporations operating in China share their profits — “the company needs to do more to share the economic cake with local Chinese people” — then China could indirectly target the U.S. stock market by lowering the profit margins and growth potential for U.S. companies like Apple, General Motors, KFC/Yum Brands, Adidas, Nike, Intel, Coca-Cola, and others.

As of today, the Shanghai CE Composite Index is down 15% for the year, compared to the U.S. S&P 500 which is up nearly 7 percent and nearing another all-time high. It’s one option that the White House has to be expecting.


White House

The President is still at Trump National Golf Club in Bedminster, NJ, and has no publicly scheduled events.


State Department

Secretary of State department officials have no significant publicly scheduled events.


Defense Department

Defense Secretary Mattis has no publicly scheduled events.

Vice Chairman of the Joint Chiefs of Staff Air Force Gen. Paul J. Selva discusses nuclear deterrence, missile defense and space paths forward at an Air Force Association event.

The Carl Vinson (CVN-70) was last reported in the eastern Pacific.

The John Stennis (CVN-74) was last reported back in port at San Diego.

The Ronald Reagan (CVN-76) departed port in Yokosuka, Japan to avoid a typhoon.

Conflict requiring a Carrier Strike Group does not appear imminent.


Congress

Significant House Activity:

  • Nothing significant to report.

Significant Senate Activity:

  • Nothing significant to report.

* Reporting will appear in the Strategic Intelligence Summary or National Intelligence Bulletin.


Economy/Finance

– Here’s a timeline of tariffs to be implemented. As stated above, another round of tariffs will go into effect for the U.S. and China on 23 August unless the Trump administration reaches a deal before then.

 

 


Weather

The National Hurricane Center reports that Hurricane Debbie has fizzled out. Nothing significant to report.

Drought conditions persist across much of the Southwest.

 


What I’m Looking at this Morning

Russia likens U.S. sanctions to economic war

Russia, China prepare for strategic talks

“White civil rights” rally to take place on Sunday


Notable Quotable

“I would not like to comment on talks about future sanctions, but I can say one thing: If some ban on banks’ operations or on their use of one or another currency follows, it would be possible to clearly call it a declaration of economic war. And it would be necessary, it would be needed to react to this war economically, politically, or, if needed, by other means. And our American friends need to understand this.” – Russian Prime Minister Dmitry Medvedev

 

Samuel Culper is a former military intelligence NCO and contract Intelligence analyst. He spent three years in Iraq and Afghanistan and is now the intelligence and warfare researcher at Forward Observer.

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