The Art of (Trade) War

Know when to fight and when not to fight…Know how to deceive the enemy…Know your strengths and weaknesses.

These ancient Chinese words are more than 2500 years old. They’re right out of Sun Tzu’s book The Art of War.

Over 13 chapters, Sun Tzu pens everything he knows about war and how to win in battle.

Deception is one of the most important strategies in war, he writes.

Attack when you seem unable. Attack him where he is unprepared. Appear where you are not expected.

I don’t think Trump is up late at night reading Sun Tzu’s play book.

But he’s fairing pretty well at trade warfare.

Consider the arrest of a Huawei executive and the founder’s daughter.

Was this something China was expecting? Probably not. Does it give Trump an extra bargaining chip? Absolutely.

In fact, it almost looks as if China is ready to throw in the towel.

Almost…

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An increase in US purchases won’t solve the trade war

One of the beefs Trump has with China is their lack of US purchases.

American businesses buy tonnes of cheap manufactured goods from China. The least they could do is return the favour.

One of those favours is to buy US soybeans.

China is the world’s largest buyer of soybeans. They crush them up to feed livestock and for cooking oils.

And by buying US soybeans, it keeps a tiny population of US farmers in business.

As a side note, the US government also gives these farmers subsidies on top of that.

This is taxpayers’ money going towards a dying industry because a group of farmers are too stubborn to do anything else.

Whatever happened to the free market? Whatever happened to letting competition and the free enterprise weed out the uncompetitive?

No, instead we just take a whole bunch of money and give it to segment of the population, turning them into a loyal voter base.

Anyway…

Chinese businesses could buy soybeans from other nations, Brazil for example. And when the government put a tax on US soybeans that’s exactly what Chinese businesses did.

They bought a whole lot more soybeans from Brazil because they were cheaper.

But according to Reuters, US soybeans are back on the menu…

China on Wednesday made its first major purchases of U.S. soybeans since President Donald Trump and his Chinese counterpart Xi Jinping struck a trade war truce earlier this month, providing some relief to U.S. farmers who have struggled to find buyers for their record-large harvest. Trump told Reuters in an interview on Tuesday the Chinese were already buying a “tremendous amount” of U.S. soybeans and would also soon cut tariffs on U.S. autos.

The purchase of over 1.5 million tonnes of beans is the most concrete evidence yet that China is making good on pledges the U.S. government said Xi made when the two leaders met on Dec. 1 and agreed to a 90-day detente to negotiate a trade deal.

Chinese officials are even advising against tech researchers from making trips to the US.

It’s possible these high-tech individuals have sensitive information. Information China doesn’t want the US to know about. Alternatively it might also reduce the risk of tech theft accusations.

Maybe China just wants their people back. From the Financial Times:

President Trump said trade talks were moving along…and he would consider intervening in the Huawei chief financial officer case if it meant helping to secure a trade deal.

But a couple of soybean purchases and a few missed flights probably isn’t going to put an end to all this.

And by this I don’t mean the trade war.

I’m talking about the rivalry between the US and China.

How long will this rivalry last?

I would love to tell you when this trade war ends.

But the truth is I have no idea.

What I am certain of, and I think this is even more important, are the differences between the US and China.

The US is more capitalist than China. And China likes to plan their society.

For some silly reason, neither wants the other to be number one. Whether that relates to technology or economic supremacy.

There can only be one top dog. And both are vying for that spot.

It might not be all that hard to get over this whole trade situation. 2019 could be the year the US and China come to an agreement.

Stocks will rise.

But the rivalry will remain.

As long as there’s nothing else for markets to fret about, expect politics to dominate stocks prices in the short-term.

The dance continues,

Harje Ronngard,
Editor, Money Morning

PS: In this free report, economy expert reveals four ways you could cash in on the global infrastructure boom. Download now.


Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and Gold & Commodities Stock Trader, and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


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