Forcing China to talk As I said, the day Jim sent that email through — secretly taunting me about losing the pool game! — we’d just finished an hour-long Skype interview. On Tuesday this week, Jim and I arranged an exclusive interview for subscribers of Strategic Intelligence Australia. And in this interview, we left no stone unturned. We talked trade wars, currency wars, financial warfare, secret happenings in the gold market…and how ‘the Reserve Bank of Australia is the most confused central bank in the world’. One of the key topics we focused on was the Chinese trade war. As Jim pointed out, while it will have some effect on the US, any fallout will have a much bigger impact on Australia. And the trade war isn’t about tariffs. Rather, the tariffs were a way of forcing China to the table. US$50 billion in the hole... You see, China has prospered on the back of intellectual property theft for decades. China hasn’t ‘stolen’ intellectual property so to speak, although there are some links to cyber theft. Instead, China has a complex legal web that coerces companies to provide full technology patent details when manufacturing products in China. Plus, it forces businesses to switch to state-owned technology and supported Chinese products. This has given China a technological edge, even though the Chinese aren’t innovation leaders themselves. This process allows Chinese firms to piggyback off others’ creativity and innovations, and create cheaper products for consumers. Meaning, China has been able to flood the market with cheap knockoffs because of its disregard for intellectual property rights. US Trade Representative Robert Lighthizer estimates this has cost US companies US$50 billion. That’s what kicked off the ‘official’ tariff war at the start of 2018. At the beginning of February, a Chinese team of delegates arrived in Washington. The Chinese needed to reassure Lighthizer that recently passed legislation would end forced technology transfers. ‘It’s going to get worse’ So, what was the outcome of that meeting? Not much. In fact, so little progress was made that, as Jim told me during our interview, a team of US delegates is heading to China this week to discuss the trade war. What does Jim predict from this follow-up meeting? His exact words were: ‘Very unlikely they’ll get this resolved. I would say that the most likely scenario is that they’ll extend the deadline. So we’ll come up to March 1st, they’ll agree, give it another 30 days, not necessarily 90 days. Beginning at that point, only 30 days.’ He added: ‘There’s a tentative summit meeting between President Xi and President Trump at the end of March.’ The thing to remember here is that President Trump isn’t backing down. This tough China stance isn’t Trump posturing. As Jim told me, ‘Trump doesn’t back down; he doubles down.’ ‘This is serious. This is an opening shot, but it will escalate. It will get a lot worse. Eventually the intellectual property theft issue is going to come to the fore. ‘That’s turning out to be a lot more important than import subsidies and the trade deficit. ‘And this war’s going to go on for a very long time. It’s going to get worse.’ This is only a snippet of my hour-long call with Jim. However, the point for Aussie investors is that the trade war is far from over. Trump has made it clear he won’t budge on intellectual property theft. This means that not only will the trade war last for much longer than we think, a reduction in trade will drastically reduce China’s growth. And that could blindside the Aussie economy. Until next time, | | Shae Russell, Editor, The Daily Reckoning Australia |
PS: Like I said, the full interview between Jim and I is only for Strategic Intelligence Australia subscribers. They will receive the interview in full next week. Want to listen to Jim’s only Australian interview this month? Click here to find out how. |