China Publicly Blinks in the US-Sino Trade War.

Despite vociferous protests from government instructed media to the contrary, the Chinese domestic economy has ceased to grow. Economic data reporting 5.9% GDP growth is purely fiction, in the view of this economist. Compilations of data from publicly traded companies, in all sectors available, and individual sector reports, indicate that the Chinese economy looks to be in an actual recession. A recession represents negative economic growth; the difference between what the government of China reports and a negative growth rate is an incredibly wide gulf indeed.

In large part, the Chinese recession is self-inflicted. China had an opportunity to cement a trade deal with America; Xi Jinping misjudged the determination of the current republican administration in completely rewriting a 160 page agreement after both parties had settled on a new set of trade terms. Scuttling a wide ranging and far reaching deal, even on somewhat reduced terms, did the Chinese no good at all in their quest to supplant America as the #1 economy on the planet.

For global corporations, when faced with a choice of losing access to the American markets, which are the largest, by far, on the planet, or losing access to the Chinese markets, which are likely a full 25% smaller than reported by the Chinese media, and that might require another 30 years to grow to the size of America, there is no choice at all; businesses will side with America. Google has recently elected to move its entire manufacturing platform from China to relocate in Vietnam. As the trade war persists, many other companies will likely follow.

The longer China digs in, the worse things will be for its economy, both in the short term and the long term. China continues to hope that the developed world will provide the same favorable market access to Chinese goods as they do other emerging market economies. That just isn’t true any longer, and the American republican government seems steadfast in its resolve. Hopes by some Chinese hardliners that they can simply run out the clock on the current administration is a risky bet as more and more Americans are coming to understand the need for a comprehensive deal and that the American economy is not being harmed to the extent of the Chinese economy. In fact, given the significant drop in the yuan over the past year, and taking into account manufacturing discounts being granted by Chinese producers, a growing number of imports to America are now cheaper than they were a year ago.

China has already lost the trade war; some just have not acknowledged the facts at this time. A recent public announcement by China to NOT retaliate to the newest round of American tariffs represents the “tap-out” sidelined equity capital has been seeking.

According to Larry Kudlow, the American governments top economic advisor on Chinese trade, the ratio of pain in China to America under the current trade war is roughly 6-1; for every dollar America forgoes under the current tariff war, China loses six. Such in imbalance is far too large for even the most hard-headed of Chinese government leaders to ignore. Short of going nuclear, in trade terms, which would represent outright expropriation of American business interests in China, Xi Jinping has run out of options, ammunition and global support.

The leader of the Chinese economy, Xi Jinping, ignored perhaps the most important idiom of battle; “never bring a knife to a gunfight”. China misplayed this dispute completely. The actual (reduced) size of their economy was outed, the weakness of Chinese manufacturing was revealed, the lack of a substantial domestic market for consumer goods was indicated and the state of Chinese total indebtedness were more widely understood by the public. The American economy, in sharp contrast, looked just fine. It is time for China to concede.

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