Published On: Sat, Oct 13th, 2018

Trump targeting China is no coincidence, and no passing fad

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What’s the strategy and what does it mean

I don’t think it’s a coincidence that the acceleration in equity market declines started on October 4. The heavy selling started almost immediately after Pence delivered his comments at 11 am ET.

“As President Trump said just this week, in his words, ‘We rebuilt China’ over the last 25 years,” Pence said.

Yes, US corporations have invested in China but it certainly wasn’t altruistic. Instead, it was a way to earn massive profits as China’s economy roared.

If anything, it was China investing in the US as Beijing accumulated a horde of Treasuries. Certainly that was used to keep the yuan from rallying and manipulate the currency lower but at this point, it’s tough to make the argument that the Chinese currency is overvalued.

In an op-ed today, in the People’s Daily, the Central Propaganda Department’s Theory Bureau called Pence’s comment “a huge joke”. Official news agency Xinhau ran at least 8 nationalistic opinion pieces hitting back at the speech.

It’s clear that the comments mark a watershed in the relationship — a shift from quiet antagonism to open hostility.

The WSJ confirms the shift today in a report that also coincided with a dip in equity markets.

“Interviews with senior White House officials and others in government
make clear that recent volleys in what appears a new Cold War aren’t the
exception to President Trump’s China policy. They are exactly what the
administration wants,” the WSJ reports, in an article hinting at a new cold war.

There’s also a hint of more to come. The report says “more information would be declassified from the intelligence community’s
study on China’s influence on U.S. elections and cyberspace.”

For investors, the takeaway is that the battle lines are drawn and this will be a long-term battle — or one for at least as long as Trump is in the White House.

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