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I don’t see any off-ramp. There is going to have to be a lot of pain before anybody backs away. The trade hawks around Trump seem to think that China’s economy is now so wobbly that sanctions will push the country over the edge, and the Chinese will coming begging for mercy. They seem to have no idea what it would mean for the global financial system if they did succeed in taking down China.
The flattening- and by some global measures, inverting- bond yield curve suggests that the market thinks that momentum could be fragile. Inflation is a potential concern, which is one thing tariffs could help fuel. It’s something that, in the worst case scenario, could bring this cycle to an early end.
What Jack Ma says is correct – within limits. He’s correct that you go to a country and have to play by their rules and government regulations. You have a choice as a business to gauge whether the opportunity is really worth it. Some will decide that it is and others will stay away.
The private wealth products are now thoroughly embedded in the heart of China’s financial system and play a key role in rolling over non-performing debt. Investors believe they will be paid regardless of whether the investment performs or not. If investors can lose their money, they will stop funding these sorts of assets. Is China willing to accept what that means?
House Republicans have finally introduced their long-awaited tax bill, kicking the legislative process into high gear. Several of the bill’s provisions – cutting the corporate tax rate from 35% to 20%, allowing immediate write-offs of capital investments – could boost after-tax corporate earnings in future years. But the complex package faced mixed reviews, even from generally supportive business groups.
In the past, China was unwilling to negotiate about intellectual property theft. However, Trump will need to decide, after the investigation ends, if he wants to seek trade restrictions. Sanctions have caused China to react with similar measures in the past.
Key question: is this really about moving the needle on these economic issues, or are they just bargaining chips to move the needle when it comes to North Korea?
Source: August 10th, 2016, CNBC
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