“Retaliation Is Imminent”: Here Are China’s “Nuclear” Trade War Options

Friday, May 24, 2019
By Paul Martin

by Tyler Durden
Fri, 05/24/2019

Almost exactly one year ago, when the US-China trade war was still in its early stages and when conventional wisdom (wrong, as it usually is) dictated that the two sides would never escalate to the “tech cold war” stage we have now as it is in “nobody’s interest” to launch an all-out trade war, we listed what were Beijing’s five at the time “nuclear” retaliation options; these included currency depreciation, sales of US Treasurys, blocking of US services, curbing of oil shipments and a rare-earth metal export ban, crippling US supply chains.

Fast forward to today, when the trade skirmish has escalated into a full-blown tech war, with the US constantly ratcheting up measures against China with the blacklisting of Huawei Technologies and discussion of similar bans for other Chinese tech firms, such as drone and video surveillance equipment makers, while China’s President Xi inspected a rare earth factory on 20 May in Jiangxi province, and called for the nation to embark on a “new Long March and start all over again” (Jiangxi is where the Communist Party’s Red Army started the Long March in 1934), striking a nationalist tone and sending the message that China is prepared for hardship in the face of a worsening external environment.

What is becoming increasingly clear, is that neither Trump nor China are likely to make further concessions unless one side blinks, or from Beijing’s standpoint, the US offers compromises which is certainly unlikely unless the market tumbles, something we pointed out earlier this week…

… and Deutsche Bank echoed today, when Jim Reid said that “Falling asset prices might be the only way for markets to get the [trade war] resolution they desperately want.” Of course, for now stocks refuse to sell off, paradoxically on the expectation that once they do, Trump will fold and stocks will soar (yet without stocks first tumbling, Trump will never fold). As such, Barclays writes this morning that “the latest developments suggest a Standoff scenario is materializing and the Escalation scenario is becoming increasingly likely.”

The Rest…HERE

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