Talks of a possible trade war continue.
At first, the mere possibility of a trade war was shocking. Now as the weeks go by, investors have become used to the tit-for-tat comments between two economic superpowers.
It’s not clear that a winner has emerged. It’s not even clear if America and China will follow through on many proposed taxes.
What we know, however, is that Trump is willing to reconsider his impulsive decisions.
On Friday, the US said they were willing to rethink their tax plans on Chinese imported goods. The original plan was to tax US$50 billion worth of Chinese imports.
Now, those taxes might wait in limbo…possibly indefinitely.
Former US trade representative Wendy Cutler firmly believes there will be changes ahead, stating:
‘They’re going to spend some time looking at the comments [from their meeting with Beijing] that have been received because while I think the administration has tried very hard to come up a tariff list that will hurt China more than the United States, I think a number of these comments will reveal that US businesses with US workers will be affected.’
Might it be that China is far stronger than America initially thought? Already China has said they will not bow to American pressure. As reported by South China Morning Post:
‘A Chinese government official close to the high-level trade talks with America said on Wednesday that Washington should not set any preconditions for negotiations, adding that China had sufficient strength to fight to the end if a trade war broke out.’
This is not to say the whole matter is just for show. I wouldn’t be surprised if Trump goes ahead taxing many goods on his original list.
The question is, how will China respond?
How do you stop ‘Made in China 2025’?
If a trade war did actually break out, it would be terrible. Terrible for the people of China and terrible for the people of America.
I decided to ask Selva Freigedo what she thought. Selva heads Global Investor, a service that brings readers the best ideas and investment opportunities from our global network of experts.
She believes both sides have an interest in reaching an agreement. But if things take a turn for the worse, an escalating trade war could kick inflation up a few notches.
Fast rising inflation wouldn’t just hurt those holding cash. It could force central bankers to lift interest rates far sooner than originally expected.
In such a scenario, corporate earnings and higher interest rates could push down stock prices globally.
You might have heard it before: the US couldn’t care less about free trade. All they want to do is hamper China’s fast growing tech industry.
It’s why the US has blocked China from buying US telecom and semiconductor firms. It’s also why they’ve tried to limit the amount of US technology heading to China.
It’s as if Trump and team are deliberately trying to stunt China’s ‘Made in China 2025’ plan. Essentially China has the idea to compete in advanced manufacturing…like everyone else.
Advanced manufacturing means high incomes and developed nation status. Right now China is competing with countries like Mexico, Brazil and Taiwan producing clothes, shoes and consumer electronics.
The aim is to venture into 3D printing, advanced materials, nanotechnologies and robotics. Such production would put them in direct competition with countries like the US. As reported by The Washington Post:
‘China’s continued economic development will bring the country increasingly into direct competition with the United States, which is why Trump has explicitly stated the proposed U.S. tariffs are designed to impede the Made in China 2025 program. But this strategy is unlikely to be effective and risks undermining rather than boosting U.S. manufacturing.’
But it might already be too late for Trump. China’s massive growing tech scene is already kicking goals and it doesn’t look to be slowing down. According to one of American’s big four banks, Citigroup:
‘Among the 10 industries, China is best positioned competitively in communication equipment, advanced railway equipment, aerospace, new energy vehicles and shipbuilding.’
What Citi forgot to include was China’s thriving fintech (financial technology) industry. And it’s in this industry I believe you could make a fortune.
You won’t catch this hare
It wasn’t long ago that China was playing catch up when it came to credit cards. The country didn’t get their first card until 1985.
A Goldman Sachs report shows that each Chinese person had 3.6 debit cards on average. But only a third have a credit card.
Author David Wolman explains that China has leapfrogged us here in the West. Less developed countries like China had ‘minimal obstacles preventing the implementation and adoption of a superior system,’ Wolman writes.
That superior system is mobile payments.
Take a look at China’s mobile transitional growth.
Source: Walk the Chat
That tiny slither you see beside each large bar…that’s North America’s mobile transactional value. China saw more than US$12 trillion in mobile payments last year. It is a colossal figure likely to grow in 2018 and beyond.
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Editor, Money Morning