Tariffs, trade war

I see supersonic planes failing because of emissions. Will probably be banned even if feasible as not fuel efficient.

  • The Biden administration plans next month to broaden curbs on U.S shipments to China of semiconductors used for artificial intelligence and chipmaking tools, several people familiar with the matter said.

  • The Commerce Department intends to publish new regulations based on restrictions communicated in letters earlier this year to three U.S. companies — KLA, Lam Research and Applied Materials, the people said, speaking on the condition of anonymity.

  • The letters, which the companies publicly acknowledged, forbade them from exporting chipmaking equipment to Chinese factories that produce advanced semiconductors with sub-14 nanometer processes unless the sellers obtain Commerce Department licenses.

Meanwhile, Xi leaves China for the first time since Covid started, and Russia says China supports Russia’s invasion of Ukraine.

Ironically Putin has weakened his position by partnering so tightly with China on a wide range of issues. Once Russia loses the natural gas leverage over EU, they will have to rely heavily on China. China appears to have the upper hand in the relationship. Now that Russia is less diversified, they are at Xi’s mercy in a sense. Of course Putin still has military control, question is how sustainable is his relationship.

I think we can expect further deterioration of whatever trade relations are left at this point.

Insight here is Xi is making efforts to build its own “Chinese NATO” alliance called the “Shanghai Cooperation Organization” to combat NATO, AUKUS, QUAD.

Xi’s new security alliance includes:

  • Russia

  • Kazakhstan

  • Kyrgyzstan

  • Tajikistan

  • Pakistan

  • Iran

  • Afghanistan

  • India — I am not clear if India is a member or was attending as a result of border tensions. It’s possible Modi might meet with Xi as well.

The meeting of the eight-nation Shanghai Cooperation Organization comes at a time when Putin is isolated abroad following his invasion of Ukraine.

In a sense this is a major blow to Putin’s power and plans of a Greater Russia, or somewhat restoration of USSR territories. His military failure in Ukraine, coupled with crushing sanctions which have made Russia heavily reliant on China for energy purchases and trade has drastically weakened Russia’s standing. China meanwhile has positioned itself as the top threat to the world.

Too little too late

I’ve been here on and off 40 years and I’ve never seen anything like this, where all of a sudden ideological decision-making is more important than economic decision-making.

Joerg Wuttke

PRESIDENT, EU CHAMBER OF COMMERCE IN CHINA

https://www.axios.com/2022/09/20/europe-turns-on-china

Lazy businesses and a total lack of proactive thinking/planning/execution. At the very least, they are finally waking up.

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The Federal Reserve made history on Wednesday, approving a third consecutive 75-basis-point hike

Consecutive 75-basis-point hikes - raising pressure on China. The how-low-can-you-go limbo continues as US and China wield the weight of their recessing economies against each other. US tries to lower consumer demand while China tries to lower export supplies. Who will break first?

Euro below parity. Next up: the pound. UKers better prepare to see it go below parity (to USD) in next 1-3 years.

With party Congress approaching, Xi’s faction continues to purge dissenters.

Little progress on tariffs… (by design)

Xi is expected to become more aggressive following the October meeting… eyes on Trade in the Taiwan Strait. Any disruption could throw Taiwan, Korea, Japan into turmoil.

China has taken a central role, with Russia targeted to lose most of its leverage by end of the year as countries drop reliance on Russian energy. Without energy and trade as leverage, Russia can only resort to use of force for leverage. And with their military blunders, Russia is leaning more and more towards using nuclear force.

Insight is that US is publicly stating that they want to “stop China from reaching the cutting edge industry”

This is a full on pivot of US strategy from Engagement to Containment.

We are in a Great Power conflict.

  • Leading chipmaking nations including the United States, South Korea and Japan are forming alliances, in part to secure their semiconductor supply chain and to stop China from reaching the cutting edge of the industry, analysts told CNBC.

  • The alliances underscore the importance of chips to economies and national security while at the same time highlighting a desire by countries to stem China’s advancement in the critical technology.

  • Still, there are some cracks beginning to appear between some of the partners, in particular South Korea and the United States.

Pound flash-crashed to intraday low of 1.0384. Now at 1.0556, but still down 2.8%.

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more like 1- 3 weeks. days is a bit of an exaggeration since your post was 5 days ago, but I can see the pound dipping below the 1:1 parity in the coming days. That would be a first. To my knowledge.

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I think it’s intentional as part of the economic warfare between China and the West. UK will announce further rate hikes as well to further dampen demand, countering Chinese export artificial supply shortages. Will see other countries follow the same plan. US has already sent a clear message to the Chinese with back to back rate hikes.

First sign that the US strategy to lower demand on Chinese goods is working

“The slowdown in external demand is the biggest uncertainty faced by China’s trade,” said Vice Commerce Minister Wang Shouwen during a press conference Tuesday in Beijing. “Our companies are reporting falling orders, as the demand from major markets is declining.”

https://www.bloomberg.com/news/articles/2022-09-27/china-warns-waning-global-demand-is-top-threat-to-trade

But still…who will tap out first, that’s the real questions.

“Sabotage”

“Act of War”

Will be interesting how this factors into ongoing tensions between East and West. Russia loses leverage in this move, meanwhile Europe is at the mercy of whoever can provide them with energy

https://www.washingtonpost.com/world/2022/09/28/nord-stream-russia-methane-leak-baltic-sea/

Cramer saying what we’ve known in this thread for a while already:

India to snatch more business from China as Xi pursues Zero Covid policy

CCP event to extend Xi’s reign expected Oct 16. Ahead of event, Xi stated that the country will experience very difficult times ahead. China has even asked for Economic performance data to be withheld until after the CCP event.

Chinese President Xi Jinping warns Communist Party to prepare for ‘great struggles’ ahead

In article published in a party journal, Xi says the country has ‘never been closer’ to completing national rejuvenation, but major challenges remain

Premier Li Keqiang calls for immediate action to help the economy as he warns of ‘ Chinese President Xi Jinping warns Communist Party to prepare for ‘great struggles’ ahead

OPEC+ accounces “deep supply cuts”

Energy prices will increase, thus increasing inflation, and with more Fed Rate hikes to come, we can expect a sustained suppression of demand. With lower demand probably at a global level, China can expect to lose more export business over the next year.

As for supply itself, China does import 90% of its energy needs, but this cannot be relied on solely as leverage due to potentially unknown Chinese energy supplies in the Xinjiang region. A deep supply cut in oil could negatively impact China. In my opinion this would be of secondary concern, and US should continue to use the weight of its recessing economy against China rather than focus sanctions on energy unless absolute certain that sanctions would actually be effective.

And as for US boosting oil drilling and refining, I don’t think that is likely because it goes against US interests in curbing consumer demand in the ongoing US-China Trade War.

A good article on other aspects of what’s going on in the oil sector.

But how exactly does OPEC plan on challenging the attractive yield on the US dollar? Simple: as Goldman writes,an OPEC cut, by reinforcing this level of backwardation, would further increase the carry offered by a long passive front-month rolling position in Brent futures, which already offers an annualized carry of 24%.

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…and panic at the White House…

White House launches last ditch effort to dissuade OPEC from cutting oil production to avoid a ‘total disaster’

By Alex Marquardt, Natasha Bertrand and Phil Mattingly, CNN

Updated: Tue, 04 Oct 2022 23:15:55 GMT

Source: CNN

The Biden administration has launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production, according to multiple sources familiar with the matter.

The push comes ahead of Wednesday’s crucial meeting of OPEC+, the international cartel of oil producers that is widely expected to announce a significant cut to output in an effort to raise oil prices. That in turn would cause US gasoline prices to rise at a precarious time for the Biden administration, just five weeks before the midterm elections.

For the past several days, President Joe Biden’s senior-most energy, economic and foreign policy officials have been enlisted to lobby their foreign counterparts in Middle Eastern allied countries including Kuwait, Saudi Arabia, and the UAE to vote against cutting oil production.

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The new restrictions, which will be fully implemented as soon as Oct. 21, go well beyond any previous measures by seeking to freeze China at a backward state of semiconductor development and cut Chinese companies off from U.S. industry expertise. “To put it mildly, [Chinese companies] are basically going back to the Stone Age,” Szeho Ng, managing director at China Renaissance

US-China War escalating on the Chip front

New Rules

  1. Adds certain advanced and high-performance computing chips and computer commodities that contain such chips to the Commerce Control List (CCL);
  1. Adds new license requirements for items destined for a supercomputer or semiconductor development or production end use in China;

  2. Expands the scope of the Export Administration Regulations (EAR) over certain foreign-produced advanced computing items and foreign-produced items for supercomputer end uses;

  3. Expands the scope of foreign-produced items subject to license requirements to twenty-eight existing entities on the Entity List that are located in China;

  4. Adds certain semiconductor manufacturing equipment and related items to the CCL;

  1. Adds new license requirements for items destined to a semiconductor fabrication “facility” in the PRC that fabricates ICs meeting specified. Licenses for facilities owned by PRC entities will face a “presumption of denial,” and facilities owned by multinationals will be decided on a case-by-case basis.

Thresholds are as follows:

Logic chips with non-planar transistor architectures (i.e., FinFET or GAAFET) of 16nm or 14nm, or below; DRAM memory chips of 18nm half-pitch or less; NAND flash memory chips with 128 layers or more.

  1. Restricts the ability of US persons to support the development, or production, of ICs at certain China-located semiconductor fabrication “facilities” without a license;

  2. Adds new license requirements to export items to develop or produce semiconductor manufacturing equipment and related items; and

  1. Establishes a Temporary General License (TGL) to minimize the short-term impact on the semiconductor supply chain by allowing specific, limited manufacturing activities related to items destined for use outside the PRC. The rule is effective in phases after being filed for Public Inspection with the Federal Register.

“This is the US salvo against China’s efforts to build its domestic tech capabilities,” said Patel, who estimates the restrictions could reduce global technology and industry trade by hundreds of billions of dollars. “It’s the US firing back, making clear they will fight back.”