RaboBank: "Some In The Market Are Starting To Get The Real Reason Behind The Trade War" | WHAT REALLY HAPPENED

RaboBank: "Some In The Market Are Starting To Get The Real Reason Behind The Trade War"

The ‘play of the day’ above comes against a backdrop of markets trying to accentuate the positive in the latest US-China trade war deterioration. Indeed, Moody’s has declared a trade deal will still be done and a Bloomberg survey of US economists shows around two thirds think a deal will be signed by year-end, a fifth by 2020, and only 13% don’t see a deal for at least five years. Field Marshall, please take these men and women out and have them shot, there’s a good chap.

The rhetoric from China has turned starkly, aggressively nationalist. The Global Times is calling for a “People’s War”, a 1930’s Mao reference to repelling Japanese imperialism; “trade war” now fills Chinese media, having been largely absent for months; and Tuesday’s People’s Daily mouthpiece posted an image of the Chinese flag with “Talk – fine! Fight – we’ll be there! Bully us – delusion!” superimposed on it. US President Trump is also not backing down in a further set of trade-related tweets, again stating tariff revenues will support ‘patriot’ farmers and adding: “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!”

A huge fiscal deficit; trade tariffs; a rapid increase in military expenditure; ‘Patriot’ farmers; and a political call for lower interest rates for a national struggle. It all sounds very Chinese, doesn’t it? But that shouldn’t be a surprise. Last year’s ‘The Rise and Fall and Rise of the Great Powers (and Great Currencies)’ argued the historical lessons of the economics of past power struggles are that one must have low borrowing costs, spend a lot on a large military, and be mercantilist if your enemy is. True, one also needs to be economically vibrant, and that isn’t assured with mercantilism, militarism and large fiscal deficits. Yet real free trade, pacifism, and austerity is *ruinous* for Great Power. Which is why the EU is not a Great Power but a Great Whinger.

Some in the markets are starting to get this.