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Trump Panics, Rushes Into Xi’s Arms

EconomyAug 15, 2019 01:49AM ET
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(Bloomberg Opinion) -- It only took a small taste of what a U.S. recession might be like for President Donald Trump to suggest that he wants a trade deal with China after all.

The Dow Jones Industrial Average plunged 800 points in its worst rout of the year after the gap between the two-year and 10-year Treasury yields turned negative for the first time since 2007. An inverted yield curve has preceded the last seven recessions in the U.S.

Ever sensitive to stock movements, the president tried to calm the markets after the close. Abandoning his hawkish trade rhetoric, Trump extended an olive branch to Chinese President Xi Jinping in a series of tweets, calling him a “great leader” and a “good man.” He ended his posts with “Personal meeting?,” without specifying whether he was proposing a summit.

The question is how Xi will respond to Trump’s overture. Who’s more desperate for a trade deal right now? 

Consider where China and the U.S. are in their respective business cycles. Since the trade war started, American consumers have sat tight and enjoyed their prosperity – just as Trump has boasted. China’s economy, by contrast, has been having a much tougher time. In the past year and a half, Beijing has had to deal with all sorts of credit issues that could escalate into a wider economic crisis.

Examples abound. Last year, regulators changed margin-financing rules as the stock market suffered one of the world’s worst routs. The declines stemmed partly from listed companies pledging shares as collateral to secure short-term bank financing. This spring, the People’s Bank of China undertook the  first commercial bank seizure in two decades and was forced to calm ensuing jitters in the interbank market. Meanwhile, Beijing has had to deal with periodic peer-to-peer lending crises and bond defaults by state-affiliated entities. 

That might sound bad, but it helps China now. If a fireman has to put out fires every day for a year, he gets more proficient. That’s where Beijing is now.

The same can’t be said of the U.S.. The slide in its sovereign long-term bond yields – a measure of investor confidence – has been fast and furious. Just two weeks ago, when Federal Reverse Chairman Jerome Powell described the U.S. rate cut as a “ mid-cycle adjustment,” the gap between the 2-year and 10-year bond yields was still 21 basis points. On Thursday morning in Asia, the 30-year yield, which more reflects traders’ view of the overall health of the economy rather than the depth of the current easing cycle, fell to a record low below 2%. 

To be sure, China’s economy is slowing: Industrial output growth is at its weakest since 2002. But digging deep into the data, the picture that emerges is of a government that’s measured and confident. For instance, some of the weakness in the July data reflected moves to rein in shadow financing and restart property deleveraging. If Beijing wants better-looking industrial output numbers, it just needs to reopen the liquidity taps – as we saw in the first quarter.

On Thursday, the PBOC was showing no signs of panic. The central bank rolled over 383 billion yuan ($54 billion) of medium-term facility loans with interest rates unchanged. While the world's largest central banks are racing toward zero rates, the PBOC has been sitting on the sidelines, saving its firepower for later.

China’s system has its advantages when it comes to economic management, as I’ve written. The ability of ministries to co-ordinate their policy responses means China can practice the ultimate in modern monetary theory, which is probably what the U.S. needs right now to restore its yield curve.

So while Trump may think his olive branch is a big deal, the message to Washington is: Don’t think you’ve got China on the ropes. Xi was panicking a year ago; he can afford to wait now. 

Trump Panics, Rushes Into Xi’s Arms
 

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Comments (20)
james mosqueda
james mosqueda Aug 27, 2019 6:21PM ET
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if all american company leave in china, and put there company in south easth asia .because of additional tarriffs. china will be fall soon.
Tanusree Mukherjee
Tanusree Mukherjee Aug 26, 2019 12:45AM ET
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Trump will continue adding tax on Chinese product. This is the beginning of  end of China.  I write it today, you will see it sooner or later. This is not going to end. America won't give you business unless you start buying American good too.
brad merck
brad merck Aug 26, 2019 12:45AM ET
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Lol
Alex Rodriguez
Alex Rodriguez Aug 17, 2019 5:26PM ET
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Xi is the man!
Lion King
Lion King Aug 15, 2019 5:40AM ET
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a normal hate report vs trump from Bloomberg , have you write reports about how china and EU steal US ?
Bill Chan
Bill Chan Aug 15, 2019 5:40AM ET
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Why you opposite… you forgot how US hack Germany President phone conversation?
Bill Chan
Bill Chan Aug 15, 2019 5:40AM ET
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US steal other country tech, send spy and ppl to interfere other countries matter
MAX KIMBEE
MAX KIMBEE Aug 15, 2019 5:40AM ET
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If you’re unable of separating your adoration of Trump from cold hard economic data of the global impact from his trade war, then your comment is somewhat redundant.
Bill Chan
Bill Chan Aug 15, 2019 4:52AM ET
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Don't trust Trumph, Xi must more crucial. otherwise ppl will laugh you winny the pooh
Tanusree Mukherjee
Tanusree Mukherjee Aug 15, 2019 3:24AM ET
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This is just matter of time when US companies will be forced to pull out business from China. EU will follow US as they follow US *****  China will lose in either way.
Bill Chan
Bill Chan Aug 15, 2019 3:24AM ET
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before China lose, US is not US anymore
David David
David9 Aug 15, 2019 3:24AM ET
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China is meat and butter of the world's economy. Without China the world's economy will crumble. When China Roars, worldwide market trembles, that is how powerful the China Roar is.
mesfin woldeyes
mesfin woldeyes Aug 15, 2019 2:59AM ET
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very interesting article!
Tar Jay
Tar Jay Aug 15, 2019 2:59AM ET
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It's artless propaganda...all desperate projecting and lies and drivel, nothing more.. #FreeHongKong
Tar Jay
Tar Jay Aug 15, 2019 2:35AM ET
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What is this nonsense 'article'??? China is falling apart, everyone knows it.  Trump is giving them a chance.  It is in fact Xi and the rest of the Commies that are at the crossroads---
Andre Yong
Andre Yong Aug 15, 2019 2:35AM ET
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Wake up. China is suffering but it's a communist regime with people who will withstand the pain. They believe that they have been insulted, bullied and attacked by Trump. on the other hand, Trump is a coward and the AMERICANS. just like the farmers are finding out to their expense, that Trump conned them
Tar Jay
Tar Jay Aug 15, 2019 2:35AM ET
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Andre Yong It is a fact that China  implemented massive tariffs on the USA in the first place.  Leveling the playing field is all Trump is doing, and the results reveal how Frail China is.. The world subsists upon the generosity and patience of the USA.  Think for a moment WHY you and I are NOT typing in Mandarin??  China labors under the delusion that it is some all-powerful dragon, when really it is nothing more than a wobbling jenga tower....oh, but look how Tall it is!!  If China has ANY dignity, pride, sense of self-preservation, it will drop the pathetic act that nobody is buying, anyway.  The lie must have been fun while it lasted, but now comes reality.  China failed.  The Commies Failed, AGAIN.  Wake up and shape up.  There's no way to propagandize your way out of this one, and a military option???  China only has ONE aircraft carrier.  This isn't a contest.  This is like boxing an elderly fool with memories of having once been Really good at Wing Chun.  The world's patience runs thin.
chip isbell
Chip Aug 15, 2019 2:35AM ET
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Andre Yong  You mean people that have no choice but to suffer pain at the feet of dictator for life Xi. China can sell more body parts on the black market to makeup and shortfalls.
roger skebelsky
roger skebelsky Aug 15, 2019 2:32AM ET
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Trump is a syncophantic despot who know nothing about global trade
Tanusree Mukherjee
Tanusree Mukherjee Aug 15, 2019 2:32AM ET
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What about you dummy? How many times did you or your father become US president? lol , never right.
Ephraim Shavit
Ephraim Shavit Aug 15, 2019 2:31AM ET
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America first!!!Even in a path of self destruction.
Mr KP
Mr KP Aug 15, 2019 2:20AM ET
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100% it's written by some with a name like Chun ,Chan, pang, li, xiang.......
Jason Zou
Jason Zou Aug 15, 2019 2:20AM ET
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Could be someone called KeePeeing.
paul chiu
paul chiu Aug 15, 2019 2:19AM ET
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another bitter piece from Mike Bloomberg, still lamenting not being president of the USA. thinking that he is the better man over Trump, forcing his news editors to write anti American nonsense like the above.
Oliver Rios
orios01 Aug 15, 2019 2:17AM ET
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silly trump why is he giving a handout/allowing xi to save face? if only trump would realize his true power to negotiate is a strong dollar. when they devalue they import inflation that creates instability like in Hong Kong and they export deflation. much like Japan in the 80s the dollar is likely to go unchecked until the world is on their knees via dollar denominated debt/the need for dollar FDI. when they're on their knees they'll agree to any terms so long as the dollar is devalued. just saying he could hold the world hostage if he were smart
Sean Livingstone
Sean Livingstone Aug 15, 2019 2:09AM ET
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Do not laugh at others cos one day others will laugh back at you.
chip isbell
Chip Aug 15, 2019 2:09AM ET
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Fortune cookie lol
Sean Livingstone
Sean Livingstone Aug 15, 2019 2:09AM ET
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chip isbell  Fortune cookie is used to bluff white people... real Asians don't have them. LOL
Sean Livingstone
Sean Livingstone Aug 15, 2019 2:09AM ET
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chip isbell  I was called a "Yellow Fever" when I was working in Europe. I told the guy Yellow Fever is now used to describe White men who have Asian women fetish.. LOL.. stop laughing at people if you don't want others to laugh at you.
Sunny Ang
SunnyNL Aug 15, 2019 2:03AM ET
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Hopefully Xi lets Trump sweat a little, i need lower prices before jumping in.
jeff ehr
jeffehr Aug 15, 2019 1:51AM ET
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this opinion sounds like coming from an undercover Xi' agent
jeff ehr
jeffehr Aug 15, 2019 1:46AM ET
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this sounds like it's coming from an undercover Xi' agent.
Tom Sam
Tom Sam Aug 15, 2019 1:46AM ET
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The truth is always called fake news
Jan Buyle
Jan Buyle Aug 15, 2019 1:38AM ET
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Trump is a joke... and not even a good one...
Eddie Lopez
Eddie Lopez Aug 15, 2019 1:32AM ET
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not yet. wait till election time is closer . then Trump will pull the Trump card out and make. deal with China. he wants to look good for the 2020 election
Jason Parker
Jason Parker Aug 15, 2019 1:32AM ET
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Ok, Eddie. Keep telling yourself that.
Sean Livingstone
Sean Livingstone Aug 15, 2019 1:32AM ET
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That will be too late. The yield curve already sound alarm. Either Powell gives in or Trump gives in.
David Hughes
David Hughes Aug 15, 2019 1:23AM ET
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Really?????
Vincent Sheu
ShaneS Aug 15, 2019 1:23AM ET
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Really. Trump's trade war is pushing China to reform at a much faster pace. He is making China great again. After one and a half years, Xi is prepared to fight a long term war. Trump can not, so he will have to do a lot more to get Xi to talk to him again.
Tar Jay
Tar Jay Aug 15, 2019 1:23AM ET
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Vincent Sheu China is falling apart in a tail spin.  Your propaganda is cute, though.
 
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