Trinh Profile picture
Aug 26, 2019 โ€ข 12 tweets โ€ข 4 min read โ€ข Read on X
Good morning ๐ŸŒง๏ธ๐ŸŒช๏ธ. A typhoon passed through ๐Ÿ‡ญ๐Ÿ‡ฐ& it's gloomy outside, just like the mood of markets after:
a) JPO said hedgy words "act as approprioate"
b) Carney speech on the dollar & digital $
c) China raising tariffs to 30% from 25% on 75bn
d) Trump raised 300bn tariffs to 15%
Facts of tariffs so far:
a) China imports from the US roughly 120bn & tariffed 110bn so got 10bn left & so to ESCALATE it needs to raise the level as volume limited
b) That happened w/ 75bn raising by 5% so items like US crude went from 25% to 30%
c) US imported ~550bn & so far
Events leading to today:
June '18: ๐Ÿ‡บ๐Ÿ‡ธ25% tariffs on 34b; ๐Ÿ‡จ๐Ÿ‡ณ retaliates w/ 25% on 34
Aug '18: ๐Ÿ‡บ๐Ÿ‡ธ25% on 16b; ๐Ÿ‡จ๐Ÿ‡ณ same
Sept '18: ๐Ÿ‡บ๐Ÿ‡ธ10% on 200b that'll be raised to 25% (1 Jan)
๐Ÿ‡จ๐Ÿ‡ณ retaliates w/ 5% on 60b
Truce
May '19: ๐Ÿ‡บ๐Ÿ‡ธ raises 10% to 25% on 200b
June '19: ๐Ÿ‡จ๐Ÿ‡ณ raises 5-25% on 60bn
Not yet tariffed by both sides but WILL starting 1 September 2019, yes this Sunday:
a) ๐Ÿ‡บ๐Ÿ‡ธ tariffs on the remaining (see chart ๐Ÿ‘‡๐Ÿป) 300bn by 10% that later exempt 156bn (mostly consumer goods till 15 December)
b) China retaliates w/ raising 5% on existing tariffs of 75bn so +5% ๐Ÿ‘‡๐Ÿป
๐Ÿ‘‡๐Ÿป:
c) ๐Ÿ‡บ๐Ÿ‡ธ Raising 5% on existing to 250bn to 30% on 1 October 2019.

By 1 October 2019: China tariffs on the US ranging from 10-30% of 110bn of goods & the US got 30% on 250bn of goods & 15% on 300bn of goods (w/ 156bn delayed til 15 Dec)

Basically all of trade b/n US&China ๐Ÿ‘‡๐Ÿป๐Ÿ‘‡๐Ÿป
d) By 15 December, unless there are efforts to delay tariffs, there will massive front-loading for fear of this happening & guess what?

WE WILL HAVE TARIFFS ON ALMOST ALL OF US CHINA TRADE.

But that never ends there. Watch investment.
70th anniversary of the People's Republic of China led by the CCP is on, wait for it:

1 October 2019, which is the same date that the 25% of 250bn goes to 30% & obvs a month before on 1 September 15% on 144bn (156bn to be applied on 15 December 19.

About that September talk๐Ÿ˜ฌ..
As a recap: Notice that the "bark" much stronger than "bites" to manage expectations & actions always surprise u w/ lower magnitude but trend is escalation.

Meaning, worst case scenario now new normal & u rejoice when it escalates but less than "bark"๐Ÿ‘ˆ๐Ÿป

As in the 10% to 15% of 144bn of goods on 1 September 19 (15% on 156bn of consumer goods 15 December) & 25% to 30% for 250bn of mostly intermediate goods on 1 October may not be realized, which u'll rejoice but only b/c ur expectations are managed. Don't forget that norms change
Trump: Non-committal in China tariff delay. Told you. He just puts it out there so you price the WORST & then takes a bit away & then when it happens you will think it is GOOD NEWS.

True story. This is what happened since late Jan 2018. SPX futures up 1% vs -1% this morning.
Do you know what happens after every escalation so far for trade-war? Deescalation by both China & the USA (yep, true story), albeit short-term reprieve until it escalates again, kind of like a dance to get to know each other's limit...

Same script still plays to buy time๐Ÿ‘ˆ๐Ÿป
#Breaking Mofcom's Gao (de-escalating): Trade escalation not good for ๐Ÿ‡จ๐Ÿ‡ณ, ๐Ÿ‡บ๐Ÿ‡ธ; ๐Ÿ‡บ๐Ÿ‡ธ & ๐Ÿ‡จ๐Ÿ‡ณ in effective contact; ๐Ÿ‡จ๐Ÿ‡ณwon't discriminate against foreign firms; Won't crack down on foreign firms; discussing ๐Ÿ‡บ๐Ÿ‡ธ visits in Sept; ๐Ÿ‡จ๐Ÿ‡ณ has ample tools to respond but thinks should discuss removal

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More from @Trinhnomics

Apr 3
This is a thread on Trump's latest barrage of tariffs:
1) What are they?
2) Who is most impacted?
3) And what are the Asian economies going to do about it, short-term and medium term?

@sharp_writing
asia.nikkei.com/Opinion/Vietnaโ€ฆ
Trump reciprocal tariffs are not about "cheating" and differential in "tariff rates" or "non-tariff" barriers. They are simply benchmarked using outcome & calculation using bilateral trade balance divided by US exports divided by 2. Yep, basically, trade balance. So?
a) Everyone gets 10% at the minimum - so Australia, which has a trade-surplus and an ally, whelp, gets 10%; Trump team high-fiving each other on this win.
b) And then there's the mid range of 20s - Yes, Japan + Malaysia, South Korea and India. SK is supposedly having an FTA with the US or free-trade and there's no tariff barrier between the two but you know, who cares, let's slap this one because they somehow "cheat" and "rip us off" because, well, we import Korean stuff like cars and ships and makeup.
c) Indonesia, Taiwan and Thailand get slapped with 30s ish level and it doesn't really make sense but whatever. Oh, interestingly, semiconductor is exempt, which is like more than 50% of Taiwan's export to the US so I mean, why be so mean unless they are exempting it to tax later.
d) China gets 54% or actually part of the 30s - 34% to be precise and with 20% that means it's 54% and not sure if this is on top of what other tariffs. Anyway, we know they are hawkish on China so Vietnam is interesting because, little Vietnam has been a good trade partner but gets slapped anyway with 46%. Yep, 46%.

Link to research:
research.natixis.com/Site/en/publicโ€ฆImage
So remember that they just want to come across to the home base pretty hawkish and so if you read their tariff levels for some countries, it doesn't make sense. But the base loves it. Make America Great Again.

Poor Bangladesh, Cambodia, Laos, and Myanmar all get pretty high level. In fact, super targeted.

Remember that the US is supposedly nice and trying to help these countries develop. Nah. Forget that. Give them a ton of tariffs to make it hurt. We dismantle USAID, we don't give out support and we now will take away your ability to sell your cheap labor to improve your livelihood so that, well, Americans can pay more for tshirts and socks.

Vietnam, the US bombed heavily during the Vietnam War, and now they have picked themselves up selling things cheaply made and things have improved a bit but let's just make it hurt. 46%.

Trump is waging an all-out trade-war on Asia. Southeast Asia. I feel really bad for Myanmar that got hit pretty big after the earthquake. Look how hard they hit these competitors to the mighty USA. Look at Cambodia, Laos etc. Bangladesh!

1. Cambodia - 49%
2. Laos - 48%
3. Madagascar - 47%
4. Vietnam - 46%
5. Myanmar (Burma) - 44%
6. Sri Lanka - 44%
7. Bangladesh - 37%
8. Serbia - 37%
9. Botswana - 37%
10. Thailand - 36%
11. China - 34%
12. Taiwan - 32%
13. Indonesia - 32%
14. Switzerland - 31%
15. South Africa - 30%
16. Pakistan - 29%
17. Tunisia - 28%
18. Kazakhstan - 27%
19. India - 26%
20. South Korea - 25%
21. Japan - 24%
22. Malaysia - 24%
23. Cรดte d'Ivoire - 21%
24. European Union - 20%
25. Jordan - 20%
26. Nicaragua - 18%
27. Philippines - 17%

whitehouse.gov/presidential-aโ€ฆ
Read 15 tweets
Apr 1
At the Asia Society to listen to Asiaโ€™s view of Trump 2.0. Will share later ideas shared! Image
China:

Highly popular in China as he is entertaining as he has made China great again. His pressure has pushed China reforms forward. China has become more resilient and less reliant against the US. Chinese indigenous tech is decent & confidence domestically is highest ever. External pressure has rallied stakeholders around the central leadership for advancing tech & expanding domestic demand. Exports will not be a key driver & infra ROI down. China has benefited from Trump pressure.

Trump has a good story teller for China as Trump has helped the China story. The Chinese is projecting stability in a more volatile world & saying that China is open for business while the door is closing by the US.

DowJones & SPX down while China is up. Nasdaq down & HSI up. All thanks to Trump.
Middle East:

Everything Trump does in the Middle East is for Trump to focus to China. Trump puts on the table risky strategies. He wants to bully Iran to the table. Bombing Yemen is an example.

No one takes Trump seriously. What he says versus what he does. What he says is the maximum. Example is Palestine. The best strategy is to wait him out & Iran strategy is waiting him out & Iran has no leverage except time.

Time showed his hand of not having time. In a hurry.

People are convinced that Trump is going to collapse in six months. So give him something but not in a hurry to give him a good deal.

Considerations. Trump is willing to negotiate with Russian directly. He is willing to play outside US foreign policy. His handling of Zelenskyy is like a loan shark makes it difficult for Iranians to respond to him.

For Iranians, it is not what he tells them but what he does to others. For him to have wins quickly, he would have to pay the price.

He canโ€™t give Iran what he wants with Israel. The Middle East problem wonโ€™t be solved easily.
Read 16 tweets
Mar 31
Trump "Liberation Day" is coming & if it is anything to go by like other tariff days, it won't feel "liberating." Why? Because he is front-loading bad news.

It sounds crazy but I have given it some thoughts and here are what I think his short-term objectives. Image
First, we know he has 20% tariffs on China on top of others so we are now got a lot of friction to trade with China, which the Trump administration sees as its #1 security threat.

But isn't happy with this friction to trade and investment and keen to close loop holes. Remember that Biden also increased tons of investment and tariff curbs with China.

How to close it is the question? It requires others to do it. Who are the others? The easiest is Mexico and Canada as they have USMCA, which Trump agreed in 2020 (previously NAFTA).Image
There are clues to what Trump wants from Canada and Mexico in the latest 25% AUTO tariff.

Why? There are exemptions to USMCA for US content and also the implementation of tariff is contingent on them figuring out how this 25% tariff is going to work.

Meaning, USMCA essentially is still in force but only exemptions in USMCA.

But Trump isn't happy w/ current USMCA. Wants change.
Read 11 tweets
Mar 27
I have a thread that I was going to make about auto tariffs but instead, I decided to just read/listen. The Peterson Institute has a good paper on modeling 25% tariff on the EU I am listening to this one by Paul Krugman because, well, he's a free trader and a great trade economist. And most importantly, he's old enough to have some historical perspective. Interesting to listen to him (I am a student of Fukuyama as well) because I think what's interesting is that people of his generation couldn't imagine the world we are in today in the 1980s when they recommended the policies they did.

tradetalkspodcast.com/podcast/206-paโ€ฆ
If you don't like listening, here's the transcript: tradetalkspodcast.com/wp-content/uplโ€ฆ
So basically, Paul Krugman is a big free trader that thinks there is no reason for industrial policy (IP). Why? He thinks that we are not good at picking champions so just let trade be free.

Anyway, upon reflecting on 2025 vs 1987 when he was peak free trading, he sees a few mistakes of his free trade/total globalization idea:

1) Did not see strategic argument to trade, as in, if u free trade everything away, like the US and many countries have, and produce nothing, and the country that is dominant decides to INVADE, well, that's a vulnerability. In the 1980s, he spent ZERO time thinking about risks of free trade and was a free trade maximalist. Now he thinks that was arrogant (I said this not him - he wouldn't say that about himself) to perceive ZERO RISK.
2) Negative externality of globalization and the need to harness political capture for good will. Basically IP is needed to push a world in a certain place, which means, well, free trade got downside.
3) Downside of globalization is that industries are concentrated so losses are felt acutely in areas that lose jobs.

But he goes on to say free trade is best and IP is not good. Anyway and then he goes on to talk about virtues of IP. Haha!
Read 7 tweets
Mar 20
Let's go to the last part of the Miran's paper, which is currencies (Chapter 4 & 5).

Remember that his articulation of all the ills of the US trade imbalance is about the USD as a reserve currency & also the security support the US has to do (two burdens) that has grown, dwarfing the US economy RELATIVE size.

So let's talk about it. But before we even talk about, we have to go through a bit of economics history, if that is okay with you. We'll keep it pretty brief.
Triffin was a famous guy. He famously testified before Congress in 1959 & predicted the collapse of the Bretton Wood system, which happened in 1971 when the US broke away from the gold-dollar link.

What did he say? Well, simply, that as a gold-dollar reserve currency, the US would have to expand its liabilities as fast as required for global trade. But since it's backed by gold, which grows SLOWER than global trade, then we got a problem as lower rates would cause a run on the gold stock or dollar liabilities > gold stock.

And if the US didn't accumulate fast liabilities, well, global liquidity would shrink as US rates would go to high and cause global deflation.

If you want to learn more about it, see the paper below. The author btw isn't a fan of Triffin so says he got a bunch of stuff wrong and whatever he got right, it was probably not by design but accident.

Either way, he predicted that & got very famous obvs. What else did he predict?

bis.org/publ/work684.pโ€ฆImage
Btw, the key reason the BIS author said Triffin was wrong/flukey is that dude didn't account for Euro dollar or USD outside the US (note at the time it was mostly Europe that held that hence the name & also the EUR was not even conceived although Charles de Gaulle was already pissed off about the dollar privilege & coined "exorbitant privilege phrase) so his timing of the "crash" was off. Either way, he was right for something and maybe it would have been different but either way, 1971, Nixon called the dollar-gold thing off.

Anyway, Triffin and went on to modify things because now we are no longer a USD-gold FX but just well, USD fiat currency.

So he now has a current account version of Triffin (btw, there's also a fiscal Triffin too). Let's talk about his current account idea.

He basically says this, well, as reserve FX or KING DOLLAR, the USD liquidity or USD liabilities will need to grow at the rate of global growth, which would lead to persistent current account DEFICIT.

Well, voila, the US did run since 1980s current account deficits (see graph from Miran's note).

Why? Well, it strengthens the USD and makes imports cheaper than exports + other countries' mercantilitic policy that makes them devalue their FX relative to their trade position.

BIS provides a bunch of counter arguments of why Triffin was off so read that but I won't summarize because, well, the point is to read the Miran paper and not why Triffin might be right for the wrong reasons.

Btw, the whole Triffin thing is about eventually, that things would become unsustainable.

But of course, BIS paper disagrees and say, well, FX would readjust and rates would adjust.Image
Image
Read 15 tweets
Mar 19
Okay, let's talk about Trump end game. To do that, let's read Stephen Miran's "A User's Guide to Restructuring the Global Trading System" together.

Note that there's a disclaimer that this is not a policy advocacy but catalog of tools available for them to "reshape the global trading system."
hudsonbaycapital.com/documents/FG/hโ€ฆ
Trump has been talking about global trade & how he thinks the US trade deficit is unfair since the 1980s (see his Oprah interviews) so this is beef he carries and he has the power to do it.

Trump 1.0 was a test case and Trump 2.0 is going to go full steroid on what he views as the current world order not working for the US. It may work for u, but not for him & his team is going to change it. Here's how Miran is laying it out.
First, the root of all US problems & its imbalances lies in the overvalued dollar. Yes, others lament its "exorbitant privilege" (a French FM said it) but here Trump team & also corroborated by many economists, including @michaelxpettis that while it is good for US FINANCIAL SECTORS, terrible for MAINSTREET. So basically Wall Street gains at the expense of the VACUUMING out of US industrial base.
Read 22 tweets

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