China responds to US higher tariffs by imposing her own tariffs. Market down big, Intel, AMD, Nvidia all down.
AMD is down around 10% off its peak this year, or 29 on 4/4/19.
Intel is down 24% off its peak of 59 around mid-April. The 59 was rather undeserved, by the way.
Nvidia is down 17% off its peak of 191 on 4/24/19. The 191 was also quite unjustified.
AMD is holding up quite nicely.
Lots of comments on the internet show that many feel China will collapse soon from the US tariffs unless she agrees quickly to Trump’s demand. The Chinese vice premier Liu He had said something about enduring the darkness before seeing daylight at dawn. Reading editorials from Global Times (the most hawkish Chinese media) and Xinhuanet, I gather that the Chinese will dig in and not hastily sign a trade agreement which is unfavorable to her, akin to the unequal treaties China was forced to sign in the 1800’s.
Furthermore, the US had unilaterally pulled out of many significant treaties/agreements recently, the INF treaty, the Paris Agreement, the Iran nuclear deal, to name a few. Even if China signs a trade agreement, what’s to prevent the US from imposing more tariffs at her whim? The US has yet to remove tariffs against Canadian steel and aluminum, even though Trump had promised to do so before the signing of USMCA (the new NAFTA).
The World Bank had estimated that the trade war will cut 0.5% off China’s GDP growth this year, or 6.5% down to 6.0%. Even if this goes down to 5.0%, it will hardly cause a collapse as many in the US are rooting for. The devaluation of Chinese yuan will negate much of the tariffs (already happening). Additionally, US businesses (Walmart etal) plus US consumers will suffer the rest, as Kudlow admitted on a Fox interview. China can also do her own QE, plus tax cuts (already done), and lower the requirement of reserve held by Chinese banks, etc. There are many ways for China to ride out this war.
China will also immediately cooperate even more with Russia, Iran and the EU. After the US imposed sanction against Russia because of Crimea, Russia quickly sold thirty years worth of natural gas to China. Trump is also imposing tariffs against European cars. China can/will ink a deal with the EU for mutually lowering tariffs against each other.
The point is, unlike Japan, China has a very large domestic market, and is not dependent on the US for military protection. In 1985 when the US forced the Plaza Accord on Japan, Japan had no way of resisting, thus sewing the seed for the lost decade, which has yet to end thirty years later.
This bring me to the thesis today. Xi Jinping grew up being best friend with Nei Weiping, the top Chinese Go (围棋) player in the 1980’s. Nei Weiping had single-handedly defeated the Japanese team three years in a row, from 1985-1987, making him a national hero in China.
(See Nei Weiping at bottom of page 5)
Xi Jinping is apparently an excellent amateur Go (围棋) player in his own right. In chess, killing the opposing king will achieve victory. However, this is usually not true in real life. In a war between nations, the death of one king does not necessarily mean the defeat of that nation. Kings live, kings die. Successors come and go. In Go, the objective is to secure more territory. There is no king (a single vulnerability) in Go.
Chess is played on a small 8 x 8 board. A typical chess game lasts forty moves. In Go, the board is 19 x 19, and a typical game will last 200 to 300 moves. In short, Go is the long game, much longer than chess.
In chess, if player A loses an important piece, then player B can usually start a war of attrition and exchange one important piece for another, until B has only one important piece left, with A having none. This way B can maneuver for a final checkmate.
In Go, even if one player loses a big battle on the right side, he can still turn around and achieve victory on the left side, and in the end, eke out a slim win. This is possible because Go has a big board and takes place over many moves. In that sense, it is more like a war, not a battle.
The Chinese view Go as a perfect analogy to the real world of geopolitics. China was vulnerable to the east. The US navy has been ever ready to blockade the Mallaca Strait in order to choke China out of her import of oil from the middle east. Strategically, the US felt China could not last more than three to four months in case of war because of this blockade.
China’s Belt and Road Initiative (BRI) serves many purposes. One of them is to get around this vulnerability. China can now get petro energy over land, from Russia and central Asia. China can also get oil piped in, from Gwadar port in Pakistan, directly into Xinjiang.
The others were to put her excessive capacity to good use, and to develop more trading partners to the south and to the west.
Starting in 2013, Xi Jinping was already getting ready for a trade war with the US. Instead of four years election cycles, Xi had ten years, which he has extended recently. Something massive like the BRI will take many years to execute. Xi plays the long game, as in Go. This is something Trump can hardly comprehend.