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Authored by Ray Dalio via LinkedIn,

Politics is playing a bigger role in influencing the markets than is typical, and I (and others) am still trying to figure out where Donald Trump is taking us, especially as it regards trade and other wars.  Besides prompting me to think hard and dig deep into what’s now happening, it is leading me to delve deeper into past trade and military wars to see their effects on economies and markets. 

I will pass along my findings when I complete the examination.  In the meantime, I will share some of my ruminations for the little that they are worth. 

Since Donald Trump sounds more willing to enter into a trade war than any president since Herbert Hoover, and since starting a trade war is like throwing rocks in the gears of the world economy, his recent moves are naturally scary to the markets. 

However, thus far what he has actually done is modest and appears significantly politically motivated, so what we are seeing could be a negotiation tactic and a political move that needn’t mean a trade war is likely.  

Also, as expected, the Chinese response to his move was modest, so thus far we have seen a lot of threatening without much damage, which is understandable ahead of midterm elections.  If this is the negotiating that I expect, the next move will be toward some trade agreements that will look like victories for Trump, so tensions will subside and the markets will like it.  

That’s the most likely scenario.  I would consider that scenario to be broken if there is any new worsening in trade relations with China from here.  

We will find out soon enough.

At the same time, I can’t help but wonder if the trade war is part of a bigger impending conflict.  

The analogy with the late 1930s continues to echo in my head – i.e., the confluence of wealth gaps and economic stress leading to moves to populism of both the left (communism) and the right (fascism), accompanied by the shifts in the world order from a dominant power coming out of the Great War to a rising power rivaling that dominant power (if you don’t know about this dynamic, read up on Thucydides’s Trap), all leading to military conflicts.  

During such times, chaotic democracy and laissez-faire commerce tend to give way to more directed authoritarianism and “state capitalism” (i.e., government redirecting “business” activities into the service of the country’s interests and away from the service of the shareholders’ interests).  It is notable that Donald Trump, at the same time as his tariffs were announced, changed key leaders from moderates to hardliners, who are more inclined to believe that broader conflicts are likely/warranted.  One could conjecture that some of Donald Trump’s recent interventions in the economy – e.g., his executive order that prevented Broadcom from buying Qualcomm, protectionism to assure domestic production capabilities, and limiting of Chinese purchases of technology and other key resource companies – are all straws in the wind pointing in that direction.

We are certainly in a period in which the world order is transitioning from being U.S.-dominated to being multipolar (so Thucydides’s Trap is worth considering), wealth gaps are large and rising, and populism, nationalism, and militarism also appear to be rising – and these factors will likely play larger roles in affecting economies and markets (e.g., populism in Mexico as manifest in the upcoming July election could have a bigger effect on Mexico’s economy and markets than anything else).  

At such times, I believe that it is especially important to keep one’s portfolio liquid (to be flexible) and diversified (to not have concentrated risks).

*  *  *

Dalio’s comments echo Eric Peters’ view that throughout history, great nations and empires fail when they surrender their institutions to an individual. The Chinese know this. Why’d they do it?

Is Beijing preparing for instability? Chinese banks have $40trln balance sheets (50% of global GDP, 3x Chinese GDP). US banks hold $17tlrn balance sheets (less than 1x US GDP).

Might China be preparing for internal economic instability? Or perhaps it’s that the West is in deep political disarray, fractured, fighting itself.

The unipolar American world order is crumbling, the US relinquishing leadership. Such transitions have historically produced periods of profound global risks, opportunities – Beijing knows this.  

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Despite the interviews and the full-page ads, Zuckerberg and his pals are losing once again as investors continue to aggressively unfriend the social network…

Despite a yuuge rebound in the Nasdaq today, Facebook is tumbling almost 3%…

 

To its lowest since July 2017…

 

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Authored by Tsvetana Paraskova via OilPrice.com,

The latest gas dispute between Russia and Ukraine flared up just as most of Europe was gripped by Arctic cold and just before the spy poisoning scandal in which the UK accused Moscow of poisoning a former double agent in England by a military-grade nerve agent of a type developed by Russia.

Russia’s gas giant Gazprom, which delivers around one-third of Europe’s gas, uses the Ukrainian gas system as a key route for its gas supplies. While European Union institutions want to reduce European dependence on Russian gas, Russia wants to cut its dependence on the Ukrainian transit route for its supplies to the EU by building pipelines to bypass Ukraine.

Yet, according to Ukraine, Russia will need the Ukrainian route to ship gas to Europe even after 2019, when the current transit agreement expires, the chief executive of Ukraine’s national company Naftogaz, Andriy Kobolyev, told Bloomberg in an interview this week.

“Gazprom will not be able to cope without the Ukrainian gas transportation system after 2019, so they will need to sign a new contract with us,” Kobolyev told Bloomberg, noting that Russia uses gas supplies to advance its political goals.

“Russia is totally unwilling to separate gas and politics — from their perspective it’s the same and gas plays a very important instrument in achieving a wider geopolitical agenda,” Kobolyev said.

The gas companies of Russia and Ukraine have been locked in bitter disputes for more than a decade, and the relations were further strained by the 2014 Russian annexation of Crimea.

At the end of February, the Stockholm arbitration court ruled in favor of Naftogaz in the payment dispute with Gazprom, ordering the Russian company to pay Naftogaz US$2.56 billion for failing to supply Ukraine with the agreed amount of natural gas over a period of several years and also for failing to pay the full transit fees for the gas it did pump in that direction. After the ruling, Naftogaz said that it expects payment. Gazprom, on the other hand, said the court decision was unfair and applied double standards, and said it would start a procedure to terminate the transit contract and the gas supply contract with Ukraine.

By the end of this month, Gazprom and Naftogaz will meet to discuss the differences, and the transit deal and the payment ordered by the court will be the key topics of discussion.

According to London-based consultancy Energy Aspects, Gazprom won’t be able to replace the entire Ukrainian transit volumes with other routes, even if it were to build the Nord Stream 2 offshore pipeline to Germany, so the Russian company’s plan to cancel the transit deal is possibly a negotiating tool.

“So the threat to cancel the transit contracts should be seen as gaining leverage to renegotiate a more favorable transit deal,” Energy Aspects said in a note last week, quoted by Bloomberg.   

While Russia and Ukraine are locked in the transit deal dispute, Gazprom boosted its gas supplies to Europe to record levels, taking advantage of the cold snap at the end of February and early March.

The Russian giant also wants to build the Nord Stream 2 pipeline to twin the existing Nord Stream pipeline between Russia and Germany via the Baltic Sea. This project bypasses Ukraine, but the EU – especially Poland and the Baltic states – and U.S. lawmakers oppose it, as it would further increase Europe’s dependence on Russian gas.

Last week, a group of bipartisan U.S. Senators sent a letter to Treasury Secretary Steven Mnuchin and Deputy Secretary of State John Sullivan, urging the U.S. Administration “to utilize all of the tools at its disposal to prevent its construction.”

“Nord Stream II, which follows the route of the Nord Stream I pipeline from Russia across the Baltic Sea to Germany, will make American allies and partners in Europe more susceptible to Moscow’s coercion and malign influence. The pipeline would be a step backwards in the diversification of Europe’s energy sources, suppliers and routes,” the Senators wrote.

In Europe, the Energy Committee at the European Parliament approved on Wednesday draft amendments to the EU rules to state that all gas pipelines from third countries into the EU must comply fully with EU gas market rules on EU territory, including Nord Stream 2 that was specifically mentioned in the press release. These EU gas market rules include third-party access, transparency requirements, fair tariffs, and a proper separation of the supply chain from production to distribution of gas, while Nord Stream 2 is far from complying with those.

“Far too often, gas supply has been used as a political weapon. We cannot ‘disarm’ the impure intentions of others but we can arm ourselves with full legal clarity and consistency of existing legislation,” said Jerzy Buzek, a Polish politician Member of the European Parliament and chair of the Energy Committee.

We have yet to see how the EU will handle Nord Stream 2, because Germany – the project’s key beneficiary – is not opposed to it. But the latest Russia-Ukraine gas spat, like in all their previous disputes, is not just a bilateral dispute about transit fees.

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The S&P 500 bounced perfectly – to the tick – off its 200-day moving average…

And The Dow is now up 500 points from Friday’s close, erasing the losses and inching back into the green from Thursday.

The question is – what happens next?

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Authored by Economic Prism’s MN Gordon, annotated by Acting-Man’s Pater Tenebrarum,

Son of the Imperial City

What are the chances of Federal Reserve Chairman Jerome Powell being wrong?  The chances he’ll be wrong on the economy’s growth prospects, the direction of the federal funds rate, and inflation itself?  Our guess is his chances of being wrong are quite high.

The new central planner-in-chief. Central banks are facing a special case of the socialist calculation problem pertaining to the financial system. Like the comrades in the former Eastern Bloc, who tried to adjust their plans based on prices they were able to observe in the capitalist West, their best bet is to simply follow market rates. Unfortunately market rates – especially at the short end of the yield curve – are subject to an observer-participant feedback loop with the Fed, so the dilemma cannot be entirely avoided. The   ritual pouring over reams of “data” may feel like a sensible activity, but ultimately it cannot solve the problem either. [PT]

What you see, unfolding before your very eyes, is a great exercise in futility.  To this endeavor, the Federal Reserve has claimed central authority of the command center.  The federal funds rate, the Fed’s balance sheet, economic stagnation, massive asset bubbles, and the limits of central planners are the topics of focus.  Where to begin?

Powell got into the central banking business through uncommon means.  To his credit, he’s not an economist.  This is a great improvement over former Fed Chair, and intellectual ditherer, Janet Yellen.  Like President Trump, we didn’t have the patience for her egghead PhD economist act.

Powell, on the other hand, is a lawyer turned investment banker.  He didn’t spend his formative college years being indoctrinated at the church of Keynes.  But that doesn’t mean his brain hasn’t been equally softened over.  For Powell received an indoctrination of another sort – one that began the moment he inhaled his first breath.

You see, Powell is a son of the Washington D.C. Imperial City.  He was born and raised in D.C. and has lived nearly his entire life there.  He knows how the nation’s capital works.  Namely, that ever expanding debt levels are needed to keep the banks of the Potomac River firm enough to support its giant command and control money suck operation.

Money sucking operation on the banks of the Potomac [PT]

Singleness of Purpose

Several years ago, as visiting scholar at the Bipartisan Policy Center, a D.C. think tank, Powell tirelessly worked for an annual salary of $1.  Behind the scenes, he labored with a singleness of purpose to persuade members of Congress – one-by-one – to raise the debt ceiling.

President Obama rewarded Powell with a nomination to the Federal Reserve Board of Governors.  President Trump, an ardent proponent of debt without limits, took a quick liking to Powell.  He cut Yellen loose the first chance he got.

Powell is the perfect Fed Chairman at the imperfect time.  Not since Alan Greenspan has there been a Fed Chairman that truly understands the purpose of their job. Ben Bernanke and Yellen, in the interim, were true believers in the power of monetary policy.  They actually believed their policies were improving the world.  Clearly, they missed the point altogether.

Powell, on the other hand, like Greenspan, understands that Fed policy serves one primary and one secondary purpose.  The primary purpose is to keep the gravy train flowing to the Fed’s member banks.  The secondary purpose is to keep the gravy train flowing to Washington.  The Fed attains both of these ends through similar means: by extracting maximum tribute from dollar holders across the planet.

Plain and simple, central bank fiat money creation, multiplied by commercial banks through fractional-reserve banking, propagates financial and economic chaos. Long periods of money supply expansion and debt over-extension punctuated by abrupt, episodic contractions, has the effect of whipsawing the efforts of both the dollar savers and debtors to get ahead.

A mountain of money – has it made us richer? Only some of us. Money printing cannot create an iota of real wealth, but among other pernicious effects, it certainly leads to a redistribution of existing wealth from later to earlier receivers. [PT]

What Fed Chair Powell Forgot to Mention

Presently, Fed policy is transition from the long money supply expansion period to the abrupt, rug-yank period of contraction.  This is when those who levered up their lifestyle – from jumbo mortgage home buyers, faux-wealth pretenders, and retail zombies – are bankrupted.  Shortly after, the ultra-wealthy swoop in to scoop up the wreckage at a discount, which further concentrates wealth during the subsequent money expansion period.

To this end, Powell was on point at his first press conference as Fed Chairman on Wednesday.  Following the two-day FOMC meeting, he announced the Fed will raise the federal funds rate 25 basis points – 0.25 percent – to a range of 1.5 to 1.75 percent.  Then, following several utterances on inflation, unemployment, and the economy, Powell concluded his press conference opening remarks with the following words:

“Finally, I’ll note that our program for reducing our balance sheet, which began in October, is proceeding smoothly.  Barring a very significant and unexpected weakening in the outlook, we do not intend to alter this program.  As we’ve said, changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy.  As always, the Committee would be prepared to use its full range of tools if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.”

Say what? Powell manages to confuse the punters into selling. [PT]

What Powell forgot to mention, yet is acutely aware of, is that the Fed’s quantitative tightening balance sheet reduction efforts will be flooding the bond market with massive amounts of government debt.  Who’s going to buy this debt?  And, on top of that, who’s going to fund the Treasury’s $1 trillion deficit?

Obviously, someone will buy U.S. Treasuries.  But at what price, and what yield?We suspect this massive influx of government debt for sale will be bought at a much lower price and a much higher yield.  We also suspect these mechanics will mount as the year progresses and will, eventually, prick the many cheap credit asset bubbles that distort today’s economy.

Then, when the economy begins shrinking or the market crashes, whichever comes first, Powell and the Fed, as buyers of last resort, will flood the financial system with an abundance of cheap credit, and transmit greater and greater economic disparities.

Quite frankly, this is getting old.

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President Trump has reportedly ordered the expulsion of 60 Russians from the United States on Monday, including 12 people identified as Russian intelligence officers who have been stationed at the United Nations in New York, in response to Russia’s alleged poisoning of a former Russian spy in Britain.

As The New York Times reports, the expulsion order, announced by administration officials, also closes the Russian consulate in Seattle.

The Russians and their families have seven days to leave the United States, according to officials.

The expulsions are the toughest action taken against the Kremlin by President Trump, who has been criticized for not being firm enough with President Vladimir V. Putin of Russia.

In a call with reporters, senior White House officials said that the move was to root out Russians actively engaging in intelligence operations against the country, and to show that the United States would stand with NATO allies.

The officials said that the closure of the consulate in Seattle was ordered because of its proximity to a U.S. naval base.

Worst. Putin Puppet. Ever.

The expulsion of 60 diplomats is the most sweeping since the Reagan administration ordered 55 diplomats out of the country in 1986.

As The Washington Post reports, a senior administration official, who was only authorized to discuss the actions on the condition of anonymity, commented:

“This was a reckless attempt by the government to murder a British citizens and his daughter on British soil with a nerve agent,”

“It cannot go unanswered.”

The actions, which could prompt retaliatory strikes against U.S. diplomats in Russia, come in contrast to President Trump’s efforts to foster a warm relationship with Russian President Vladimir Putin. In a phone call to Putin last week, Trump rejected the counsel of his national security advisers and congratulated Putin on his reelection victory.

Deep State 1 – 0 Trump.

“To the Russian government, we say, when you attack our friend you will face serious consequences,” said a senior administration official.

“As we have continually stressed to Moscow, the door to dialogue is open.” But, this official continued, Russia must “cease its recklessly aggressive behavior.”

So far today, the number of Russian diplomats being expelled:

• US – 60

• France – 4

• Germany – 4

• Poland – 4

• Latvia – 1

And follows Britain’s expulsion of 23 Russian diplomats last week.

This follows Bloomberg’s reports that at least 10 European nations are taking action. Meanwhile President Donald Trump is preparing to kick out dozens of Russian diplomats. Russia is poised to respond in kind.

Last week EU leaders declared in a statement that it was “highly likely” there was “no plausible alternative explanation” other than Russia being to blame. We are following developments here. The timestamps are in Brussels time.

Germany Expels 4 Russian Diplomats: Suddeutsche

Germany plans to expel four Russian diplomats in response to an alleged chemical-agent attack in the U.K., Sueddeutsche Zeitung reported. The four are officials with intelligence backgrounds to be expelled out of solidarity with U.K. as well as for lack of cooperation from Russian authorities, Sueddeutsche says, without saying where it obtained the information.

Getting close to announcements, as Tusk Tweets

Tune in: “At 15:00 (Brussels time) Statement by President Tusk on EU member states coordinated response to the Salisbury attack.” This came through by text message from the EU.

News conferences are being organized at the same time in different countries, such as the Czech Republic.

Russia Says EU Shows ‘Perverted’ U.K. Solidarity

The Kremlin is not impressed with the EU. The countries planning to expel Russian diplomats in support of the U.K. are “like loyal subjects giving political support to London,” Russian Foreign Ministry spokeswoman Maria Zakharova said on Facebook.

Bild Says Germany Looking at Expulsions

Germany is considering expulsion of Russian diplomats, Bild newspaper reported, citing an unidentified German official: “There are plans to expel Russian diplomats from Germany. But this should be a joint decision among a number of EU member states.”

Russia to Face Penalties From At Least 10 Countries

As many as 10 European Union countries will take a coordinated action in response to Russia’s chemical attack in the U.K. earlier this month, according to two people with knowledge of the decision.

*A detailed announcement will be made at 3 p.m., according to the two people, who asked not to be identified discussing private decisions

Russia Warns of Tit-for-Tat Retaliation

Russia warned that it won’t take any expulsions lying down. The Kremlin hasn’t had any official information on reported U.S. plans to expel diplomats and will act reciprocally if such actions take place, Vladimir Putin’s spokesman told reporters on a conference call.

Germany Says Wait on Russia Response

Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, to reporters in Berlin on Russia measures: “We’ll report to you when there’s something to report.”

Poland, Baltic Countries to Hold News Conferences

Poland’s security agency detained a man working at the country’s energy ministry suspected of spying for Russia. Russia’s ambassador has been summoned to the foreign ministry in Warsaw for talks and Poland’s Foreign Minister Jacek Czaputowicz is due to hold a news conference at 3 p.m. in Warsaw.

Baltic countries will hold their own press conference at 4:10 p.m. local time to announce their reaction to the chemical weapons attack in the U.K., the Latvian foreign ministry said on Twitter.

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US equity futures have rebounded overnight, Treasury yields are higher – back above 2.80% into the recent range, and gold has limped lower as markets step back from the brink.

However, as former fund manager Richard Breslow notes “it’s difficult to figure out just what outcome the market is hoping for…”

Via Bloomberg,

The news flow, at the margin, is certainly calmer and more compos mentis than we left things on Friday. Yet, for the first time that I can recall from previous and similar episodes, rather than palpable relief, there seems to be something more akin to disappointment.

Once again, the 200-day moving average proved its significance as a line-in-the-sand support area for the S&P 500 future. But way back in February when we had a double-bottom against this technical measure, there were celebrations on the Street.

The following couple of weeks saw a very tradable bounce. Today, however, one of the first pieces I read had a headline that included, “Black Monday Deferred.” And it seems to reflect the mood out there.

Now why should this be so? Certainly, unless one has an overly developed need to experience schadenfreude, why is there no joy in Mudville, more deep-breaths being exhaled? The reason would appear to be that many investors now assume that these episodes are something they will be expected to get used to. Nothing has actually been settled. Last week traders had girded their loins and were prepared for battle. Now they realize that the contest may only just be beginning. And for a market infused with years of enforced calm and repressed volatility, it’s a daunting and exhausting prospect to contemplate.

And to make matters worse, investors just can’t figure out whether Sod’s law means we’re in for a really rough second quarter or this thing is going to take right off again, leaving everyone’s benchmarks again out of reach. Tough thing to decide when there is simultaneously great conviction being outwardly expressed and utter lack of self-confidence inwardly felt.

If there is one question that no one seems to be able to answer regarding a whole slew of enormous issues, it is, “What will this mean?” On more issues than we can count, things can go in very different directions, with potentially enormous consequences.

Put the stock market aside for a moment and think about Treasuries. They aren’t in stasis. They are frozen. You can’t afford to sell them and buying them is distasteful. Now expand that to the dollar, emerging markets and metals and you realize the quandary.

We live in an environment where things up and down the line are being made up on the fly. As a trader, that is the new normal. It won’t get any friendlier, but it will be a more interesting time.

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Authored by Charles Hugh Smith via OfTwoMinds blog,

So perhaps the dominant wing of the Deep State is finally willing to cut a deal with Trump.

To many observers, the appointment of John Bolton as national security advisor is the functional equivalent of appointing the Anti-Christ–or maybe worse. Indeed, these observers would, when comparing the two, find grudging favor with the Anti-Christ.

Bolton is a founding member of the neoliberal, neoconservative, neo-colonial interventionist Globalist wing of the Deep State. The antipathy he inspires is partly due to the enjoyment he takes in wielding power. (Note that the Anti-Christ is not a victim–he enjoys being the Anti-Christ.)

This wing of the Deep State, unquestionably in charge until the election of Donald Trump, finds Trump, well, interesting. Trump can congratulate Vladdy Putin on his shoo-in re-election one day and eject a bunch of Russian diplomats the next.

This sort of non-linear, non-ideologically pure “policy” (or lack thereof) discombobulates the Deep State, which is accustomed to presidents rubber-stamping their agenda and supporting their narrative.

They’re having a tough time controlling Trump, as it’s difficult to read how best to play him: is Trump a master of the Crazy Ivan or is he just winging it? Assuming the latter leaves those acting on that premise vulnerable to a Crazy Ivan once Trump has extracted whatever value he sought from the person or policy.

So how do we decrypt the appointment of Bolton? Here are two possibilities:

1. Trump appointed bete noire Bolton to do the dirty work of cleaning house and ridding the National Security Council and staff of any loyalists to previous presidents or cliques. This Bolton seems prepared to do with both alacrity and relish. This appointment also throws a bone to those demanding a harsher, more interventionist foreign policy.

Once Bolton has cleaned house and disrupted or fired the status quo holdovers from the Obama administration, he’ll be fired like everyone else. Crazy Ivan!

2. The neo-liberal /neo-conservative /neo-colonial wing of the Deep State has given up trying to evict Trump from the White House or manage him. Both of these strategies carry high risks and the assessment has likely been made that both have not just failed, they’re increasingly counter-productive, eroding the legitimacy of those pushing them.

So perhaps the dominant wing of the Deep State is finally willing to cut a deal with Trump: Trump appoints Bolton, whom the Deep State views as the adult supervising the playground, and in return, the Mueller investigation goes away and the Clintons will finally lose the protection of the security agencies. (They’ve become enormous liabilities anyway, and there’s no benefit to the high cost of continuing to protecting them.)

If Trump is just winging it, the Deep State might finally re-exert some of the control it has lost in the White House and desperately needs to re-consolidate. But if Trump is actually adept at the Crazy Ivan, this deal plays right into his hands: the security services lower the moat gate, letting the wolves in to ravage Castle Clinton, Bolton cleans house and Mueller wraps up his hunt for obstruction of justice and accepts retirement.

Once these goods have been delivered, Trump fires Bolton and the neo-cons in the Deep State get nothing except another lesson in Crazy Ivan.

It will be interesting to see how this plays out. I will be greatly surprised if Bolton lasts a year.

Of related interest:

The Dollar and the Deep State (February 24, 2014)

Is the Deep State Fracturing into Disunity? (March 14, 2014)

Is the Deep State at War–With Itself? (December 14, 2016)

Does a Rogue Deep State Have Trump’s Back? (January 18, 2017)

*  *  *

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Global stocks are moving higher Monday morning suggesting fears of a trade war are fading modestly following several encouraging developments over the weekend… however, the dollar index is extending losses, raising doubts that Mnuchin’s hoped-for compromise can be realized…

 

Chinese Premier Li Keqiang told foreign guests at the China Development Forum that there would be “no winner” in a trade war between the world’s two largest economies.

Regarding existing trade imbalance, China and the U.S. should seek balance by growing trade volume:
“Closing the door on others also blocks one’s own path,”

Li was cited as claiming that “Made in China 2025” is promoted in an open environment.

Li promised that China will open up further, learn advanced technology and management experience from foreign countries, and strengthen cooperation in technological services, and perhaps most importantly for Trump, China will strengthen intellectual property protection and will not force foreign companies to transfer technology.

So – in summary – China says “sorry… we’ll fix it… we promise” – sounds like Zuck?

Here’s a summary of the rest of this weekend’s trade news, courtesy of Ransquawk.

Over the weekend, US Trump administration reportedly sent letter from US Treasury Secretary Mnuchin and Trade Representative Lighthizer to China seeking reduction of China tariffs on US autos, more access to China’s financial sector & more purchases of US semiconductors, while there were separate reports that US & China are said to be discussing access to Chinese markets. (WSJ)

China Ambassador to US stated China is looking into all options in response to US tariffs including lowering Treasury purchases, while the Ambassador reiterated China doesn’t want a trade war but is ready to respond if situation escalates. In addition, there were separate comments from former Vice Commerce Minister Wei that China may look at adding tariffs on airplanes and computer chips from US.
(China Daily)

In recent reports, China is to finalize rules on greater foreign ownership of securities firms by May as part of efforts in the trade negotiations with US and has offered to purchase more semiconductors from the US, diverting purchases from South Korea. (FT) South Korea Trade Ministry said agreed in principle with US on a revised FTA and that US agreed to exempt South Korea from steel tariffs.

Finally, we note that Trade War architect Peter Navarro is being interviewed on Bloomberg Radio and noted that “we are free-traders,” adding that the global system needs fixing.

Navarro also pointed out that Trump wants a $100 billion cut in the 2018 US-China trade gap – that’s over 25%!

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