For readers with a good memory, what were the two things I was really ticked off at about Trump in February 2017? One was not going after Hillary Clinton for criminal conduct, and the other was not labeling China a currency manipulator.
I blasted Trump on the Saturday Show back in early 2017 for saying that on day one of his Presidency, he was going to label China a currency manipulator, and then not following through with that promise.
But today was a monumental day when the U.S. Treasury finally labeled China a currency manipulator after the Chinese central bank devalued the yuan. The dumbest thing I heard was on CNBC today when the host said trade wars push up the U.S. dollar and down the yuan. The yuan is not a free-floating currency. It’s price is manipulated by the communist government every day that its value is set. The Chinese have NEVER allowed their currency to freely trade relative to the U.S. dollar so describing the yuan as naturally falling relative to the U.S. dollar because of 10% tariffs on another $300+ billion of Chinese imports is absurd.
President Trump told everyone who would listen that China was paying for the tariffs by devaluing its currency. What China is doing is buying U.S. dollars with yuans to push the value of the dollar up, and its own currency down. This increased spending by China to devalue it currency in the wake of increased tariffs is what tariffs are costing China.
Please take a few minutes to watch the educational video below on currency manipulation and then I’ll explain to you my prediction of what’s coming next from the U.S. Treasury and how this will impact stock traders:
Countervailing Currency Intervention Coming Soon
The U.S. Treasury will likely enact countervailing currency intervention against China. The way this works is that the U.S. will start buying an equal amount of China’s yuan (equal to the amount of U.S. dollars they are buying to push our currency up) effectively neutralizing China’s purchase of U.S. dollars to push its currency down. The first phase of enacting countervailing currency intervention is for the U.S. to declare a country a currency manipulator and then lodge a complaint with the W.T.O.
China can try to get other countries to buy U.S. dollars and sell yuans which would effectively help their currency war against the U.S. China can do this by engaging in a cruel and bloody crack-down on Hong Kong. A brutal communist style crush of the uprising in Hong Kong would invite condemnation and would result in many big institutional investors dumping China’s yuan which would aid their currency devaluation ambitions. Would China engage in a bloody crack-down in Hong Kong to devalue its currency? We do know that China is massing troops on the border with Hong Kong and China released a propaganda video to Hong Kong protesters to strike fear in the populace:
Meanwhile, the word on the street is that China is massing thousands of troops on the border that are getting ready to move into Hong Kong.
In addition to the currency move, Beijing said that Chinese companies had suspended purchases of U.S. agricultural products, and that the government has not ruled out putting tariffs on U.S. farm goods purchased after August 3, 2019.
After many years of giving China Most Favored Nation trading status and helping China become the second most powerful country on the planet, does China’s leadership feel grateful to America for the millions of manufacturing jobs we sacrificed at the Chinese alter of growth? No because China has always considered the U.S. an ideological enemy of which they needed to overcome. Remember, democracy and communism are at opposite ends of the ideological spectrum. The Chinese have been planning to overtake America for decades. We just woke up to the battle when President Trump was elected. China’s unwillingness to even deal with us on a fair trade basis where trade between both the U.S. and China are roughly equal, shows China’s true hostile intentions towards America. The message is clear: China doesn’t want fair trade deals, they want global domination and are willing to burn down the world to get it.
The Federal Reserve’s next policy decision is scheduled for September 18, 2019 and I think Mr. Powell, who doesn’t know what he’s doing, will ultimately have to eat his “midterm correction” words. It’s increasingly looking like the July rate cut is only the first in a series of cuts that will be needed to forestall an outright economic recession in the U.S.