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Trinh

@Trinhnomics

Apr 24

It is a marathon & not a sprint. Produce below costs & run losses & still produce & gain market share as your goods are much cheaper (selling below costs & hence running losses) & competition goes out of business.

Once you reach a critical mass of market share (monopoly) then the sector consolidates and u can raise prices.

These companies can survive because they are backed by state policy that want certain sectors to develop & not worry about profit margins.

This is why Chinese equities underperform Indian equities or American equities over a long period but China dominates global manufacturing.

Foreign companies find it cheaper to import products that are produced in China & resell at a much higher price & then in the process have high profit margins.

The issue here is that it vacuums out domestic industries as they cannot compete & eventually we are left with the US where it is.

It does not have the capacity to have self-sufficiency in strategy sectors required for defense.

This is the biggest flaw of globalisation, beyond of course the vacuuming out of industries.

Read 4 tweets

Trinh

@Trinhnomics

Apr 24

The EU trade deficit with China is basically what the US trade deficit with China used to be. And as the US markets increasingly shut out China, imports from China will rise as goods are produced at a cheap costs. If u look at China industrial profits, they have been terrible but product has continued to rise. Why? All about gaining market share, the long game.

Profit margins for exporting are higher than domestic as competition is fierce so there is a strong desire to export vs selling onshore for diminishing return.

All this sets up for an unsustainable global trade picture & I suppose the question is whether Europe or others are happier with cheaper goods (the key thesis for global trade) or having to erect barriers to trade (protectionism like EV tariffs they imposed) beyond what they already have.

I was asked a question recently when I went on Fox on whether the global trade system is fair.

The thing is it is not about fairness. China is fighting with a state-led approach using the savings & will of 1.4bn industrious people to become self sufficient sector by sector.

It is not a listed firm in the US that cares about quarterly earnings. They operate at a loss for a long time and still churn out production because the state implicitly & explicitly supports by promoting that sector via capital, land, and subsidies.

So the question is not fairness but that this is not the WTO designed trade system. Countries that are smaller & weaker and also firms, no matter how big, cannot compete with state-level competition.

Read 5 tweets

Trinh

@Trinhnomics

Apr 22

I'm going on Fox News at 240pm EST for the Charles Payne show to discuss tariffs impact on the US and Asia. Today, the US slapped anti-dumping duties on Southeast Asian solar with varying rates but they are essentially embargos on the import from the region, especially from Cambodia, Laos and Vietnam, and slightly less so Malaysia.

This is a result of the Biden administration probe that started a year ago that was initiated by a South Korean Hanwha Qcells, Arizona-based First Solar Inc and several smaller producers. South Korea is one of the countries that deployed a lot of capital to the US after the US imposed tariffs on solar on China a decade ago and recently Biden introduced industrial policy the IRA.

As the US gave Southeast Asia exemptions, about 70% imports came from the region. But now with anti-dumping duties, that is essentially done for US markets. But note that most of these exports are by Chinese producers that committed capital to arbitrage tariffs. They already started to halt production last year as the anti-dumping duty probe started.

Note that this is an interesting study because it is a bipartisan issue of using antidumping duties/tariffs to protect a domestic industry or foreign companies that have invested capital in the US (Korea's solar). Meaning, it raises costs and ultimately is targeting Chinese solar. Much of Cambodian solar is Chinese. Is this a big loss for the region? Well, even for companies that are not Chinese, the tariffs are a reminder that the costs of allowing Chinese investment leads to also domestic solar companies in Vietnam being smacked with tariffs.

While it is just solar, it raises the question of two issues: Where is Chinese solar moving next to avoid tariffs to the US? If that's not possible, then that means it will need to sell to wherever it can (Europe!).

For the Southeast Asians, the impact is two folds.

First, of course, selling solar to the US is done. But more importantly one should ask what is the real impact? If they were just merely rerouting exports, then not so much as the value add is not really Southeast Asia but rather Chinese.

That being said, not being able to sell to the US means that this particular sector faces risks itself onshore as it faces both more fierce Chinese imports (they were likely Chinese imports anyway) and any hope of moving up the value chain is now very difficult. This is especially the case of Vietnam.

And finally, it raises the costs of allowing rerouting/Chinese investment to arbitrage tariffs, especially in strategic sectors the US care about for the domestic sector because it risks having all producers having essentially no trade w/ the US on solar in particular. A cautionary tale so to speak ahead of negotiations w/ the US on reciprocal tariffs.

Read 7 tweets

Trinh

@Trinhnomics

Apr 15

Let's talk about Trump tariffs. They are up, it's a question of whether how much, to whom, which sector rather than whether.

I want to clarify a simple fact that needs to be nailed home - trade and investment go together. Tariffs are a friction to trade & if you just take the idea that tariffs are going up (we'll discuss soon the details) then INVESTMENT IS GOING TO BE RESHUFFLED.

Half of global FDI is US driven. Global investment will be reshuffled. Okay, let's talk about first w/ who is LEAST TARGETED & we got to who is MOST.

Trump trade authorities come from 3 sources:
1) International Emergency Economics Power Act (IEEPA) to give the president the power to declare a national emergency & impose tariffs.

He did this w/ fentanyl for Mexico & Canada + Reciprocal tariffs.

2) Section 232 Tariffs that basically gives the Secretary of Commerce (Lutnick) the power to do a COMPREHENSIVE investitations to determine sectors that undermine US national security

3) Section 301 Tariffs - Basically to target a specific country, this one is a China tariff one and the power goes under USTR.

If power is given to the president and one can say whether he's abusing power or not or there's too much power concentrated in one (designed as such to address areas that Congress is too slow), can it be taken away?

Yes, but not by the Supreme Court because it would say that this is a political issue & to be solved politically.

So it would take Congress. But while there is something going on, this is very unlikely. Congress is too, well, I don't mean to say anything negative but you know what Mark Twain said about Congress, to deal with this.

So we are stuck w/ tariffs & unless tariffs call the house to fall down, tariffs are here.

Let's talk then big picture vs going down on Trump cards/flip flip because I think the chaos is by design & not an accident.

Okay, who hasn't been tariffed? Mexico and Canada but specifically only USMCA content.

Read 15 tweets

Trinh

@Trinhnomics

Apr 14

The questions is what is Trump's team plan for getting these materials for the US now that we are on track for a Cold War.

If globalization didn't consider the strategic aspect of production, as in offshored so much that you no longer have what you need for production and blind faith in a globalized worth that has few if not just 1 supplier, then what is the game plan for deglobalization?

Interestingly:

a) Japanese companies have more than a year of supply as they experienced this with China in 2010 when China used rare-earth as leverage in geopolitics;
b) American companies have LITTLE OR NO INVENTORY;
c) The only US mine - Mountain Pass - not commercially viable until end of the year.

So I guess they will have to buy it via third market that will mark this stuff up. Tariff arbitrage is a new industry.

Btw, the export controls aren't just for the US - they are tightening it for any country, including Japan and Germany.

So China is also weaponizing its supply chain chokehold for the global economy. The question is what is everyone doing about it to break it.

Read 4 tweets

Trinh

@Trinhnomics

Apr 11

Made in China is essentially done in the US if tariffs stay where they are. For final goods, it's just a one-off shift in price & transitory. That to me is so shocking if you think about it.

But what about intermediates? That's about half of total imports. Because it impacts production in the US and will cause supply shocks & won't be transitory.

Trump Team on Reciprocal Tariff Day or "Building Leverage Day" or playing all his cards at once:

I'll smack everyone with tariffs because I am #1 in importing. If you have a trade deficit, you get a tariff.

Actually, on second thought, I'll also tariff my net customer Australia who buys more from us and has zero tariff.

Take that! How do you like Liberation Day!!! Winning.

Everyone is shocked, sad that the #1 customer of merchandise trade (btw, the US has NET SURPLUS IN SERVICES, which means it rips everyone off in services but oh well) decided to punish so most just laid low & hope for the best.

China retaliated.

What is interesting is that most haven't played their cards because they don't want to. They want to continue to sell. But if they are pushed to not sell, well, they will think of what "leverage" do they have.

Let's think. Using Trump's Team logic, let's name a few leverage others have:

US SURPLUS IN SERVICES - that's the EU strategy in case talks fail to knee cap US tech. But it's not in the EU interest to do this but they will do it if they feel they are pushed.

Read 10 tweets

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