[glossary_parse]White House National Trade Council and Office of Trade and Manufacturing Policy Director Peter Navarro spoke about the U.S.-China trade relationship. He released a report from the Office of Trade and Manufacturing Policy outlining the secret war that China has been waging against the United States.
Ricardian Model Definition
The United States sends about $550 billion to China every year in the form of a trade deficit. David Ricardo, the father of Free Trade, is rolling over in his grave at the perversion of his free trade model. Chronic trade deficits are NOT a part of Ricardian Free Trade. In comparative advantage, each country has products that they can make at a cheaper price than another country. Brazil may be able to make better coffee beans because of its climate than say Africa. But Africa may have more textiles and clothing producers than Brazil. Brazil can trade its coffee beans for African made textiles and clothing and both countries benefit from the trade. For Brazil to produce textiles and clothing it needs cotton and other materials which would be costly. Likewise, Africa to try and create an environment to grow coffee beans, using water which is scarce in the country, would also be costly. Instead, these countries can come together and engage in reciprocal trade in which both countries benefit. That is the Ricardian model of free trade.
I’ve been writing about this for years as long time readers know. I put forth the macroeconomics case for Trumpnomics back on July 23, 2016 in an articled entitled Powerful Economics Case For Trumponomics. On September 4, 2017, I published this article entitled Economic War With China? I published this article back on September 22, 2016 entitled Mexico Devalues Peso To Dominate Auto Production In North America. On October 20, 2016, I published this article entitled Clintons NAFTA Helped Mexico At The Expense Of US Workers.
What we have today is not free trade. China is a communist country attempting to become the most powerful in the world by cheating and stealing from other countries. That is economic warfare and has nothing to do with the Ricardian Free Trade model.
European Union Trade
China is not the only country guilty of engaging in economic warfare against the US. China at $550 billion (2017 trade deficit) is about 50% of the total chronic trade deficits we have with countries. The US has a trade deficit of $150 billion (2017) with the European Union (EU). The EU is about 20% of the total chronic trade deficit we have each year. We also have a trade deficit with Japan and Mexico which is about 18% of the total chronic trade deficit.
Germany engages in economic warfare against the US by selling us 3 cars for every 1 car we sell to them. Germany maintains this lopsided trade in automobiles by having a tariff against US automobiles that is 400% higher than the tariff we have on German automobiles.
Our closest trading partner Japan takes advantage of the US as well. Japan sells us 100 cars for every 1 car we sell in Japan. That’s incredible. How does this chronic trade deficit happen each year with Japan? Japan doesn’t have tariffs on their autos, do they? No. Japan has devalued the Yen currency to make their cars cheaper than US built cars.
WTO Is Corrupt
You may be wondering how the WTO allowed these chronic trade deficits to occur. It’s the same reason the FBI cleared Hillary Clinton and has pursued President Trump on Russia collusion. Like the FBI, the WTO has become corrupted by power and greed. For example, the WTO has the MFN (Most Favored Nation) rule which says that any given country has to charge the lowest tariffs to any one country that they charge to everybody else. So if we set 2.5% tariffs on autos, that’s what we have to set for everybody but if China sets 25% to everybody, that’s ok according to WTO rules. The EU can get away with 10%. This is the corrupt global trading order that has nothing to do with fair trade. If the WTO maintained fair trade between countries, China would have been kicked out of the organization decades ago when they began cheating and creating chronic trade deficits with other countries.
Made In China 2025
China has released a road-map to how they will dominate the technology sector by 2025. China will subsidize technology companies (again something that is against WTO rules) to make China a leader in artificial intelligence, integrated circuits, 5G mobile telecommunications, aircraft engines, and new energy vehicles and new materials. The Chinese government will subsidize these industries with the goal of giving China the comparative advantage across virtually all of the technology sector. This is why Google (building AI facility with the governments help inside China) and Tesla (building a gigafactory with the governments help inside China) are creating significant operations in China because the Chinese government will help subsidize and build the factories these companies need, with the goal of ultimately taking the technology from these US companies by 2025. China’s government will funnel billions of dollars (and use covert military actions in cyberspace) into developing and acquiring advanced technologies in fields such as artificial intelligence, robotics and biopharmaceuticals. It calls for Chinese companies to control 70 percent of the domestic market in such key sectors by the year 2025.
Ask yourself this, do you think China gives a hockey-stick about free trade? They don’t even care about free speech. Wake up bro.
China’s Economic Aggression
Please fill free to download this PDF: china-categories-of-economic-aggression. This report comes from the Pentagon with help from the CIA on what China is doing to gain comparative advantage across entire industries and sectors.
This PDF is from a presentation Dr. Peter Navarro gave at the Hudson Institute in Washington a couple of weeks ago, and aired on CSPAN. As stock traders you need to have your eyes wide open as to what’s going on so you can make the correct trading decisions. This is generally not material that you are going to see on left-leaning CNBC or other mainstream media outlets.
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