#OONO!2: Biden’s Zugzwang... Dropping CH Trade Tariffs = Deflationary Wind
US dropping China trade tariffs— enough to turn this bear market into a bull market? What's in it for Biden?
Happy Tuesday from the Asia Pacific & more specifically, the Macro·Crypto jungles of Singapore – where one more floater seems to have popped up in the crypto death verse in the form of crypto lender Vauld (backed by Coinbase & Peter Thiel). It looks like the Terra|Luna & 3 Arrows (3A) death spiral is causing the mother of all domino effects in crypto.
Today also marks the day post the long 4th of July weekend. So for a lot of the Macro & Crypto kitties out there—the US will be back in, looking to potentially set the trend of how we start on the 3Q / 2H22.
One very interesting thing that has crossed KVP’s radar was something he’d initially dismissed: The US administration potentially discussing whether to drop the Trade Tariffs on China that Trump had initiated. One’s knee-jerk thoughts would have been— wait a minute, being tough on China is one of the few bipartisan agreements.
Yet after reflecting on it some more, it’s a very different world that this administration finds itself in from when Trump put these tariffs in.
Now, let’s be clear. Biden is screwed either way on the countdown to the US midterms in November. Whether it’s fair or not is besides the question. The American people will put the blame of inflation firmly on whoever happens to be at WH at the time. Biden is Zugzwang.
With that said, what do trade tariffs do? They introduce friction, they bring back inefficiencies for the greater global commerce background. More importantly— that means they are inflationary as they are the opposite of productivity (which is deflationary).
So Biden dropping China trade tariffs would be hugely viewed as bullish by the markets, as well as most risk-assets. Perhaps not enough to turn this bear market into a bull market, but definitely bring a much more structural tailwind back into play.
It would naturally be super bullish for China equities (of which #OONO has been long now for a few weeks, remember on the CH-A50 the ‘easy’ move is to 15,500— last week, month & quarter close was a big level for the bulls). Paradoxically, it may create even more stretched prices on certain commodities.. as a more active China (i.e. trade pick-up) would need more commodities to fuel its engine.
And yes, there would be a number of companies— net majority at least— who would welcome a dropping of trade tariffs with China, as it could bring a welcome respite to the margin pressures they have been getting.
The question is: does Biden have the political will to do so?
It will not change his administration future but it could definitely ease the pressure for hundreds of millions of Americans, as well as bring about that current rare force of deflationary winds.
If KVP was consigliere to Biden, he would also propose bringing Iran back into the fold as well as looking back to ensuring US energy sustainability, with NextGen Nuclear tech (TerraPower).
The paradox of all this is Biden put to death US fossil fuel independence on entering his presidency i.e. almost as crazy as Merkel cutting Germany’s own throats when they shut down Nuclear Plants, post Japan’s Fukushima Incident on a populist move & now Germany is seeing its first trade deficit in over 3o years! So you know they got to save the Euro!
Namaste,
KVP
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Kay Van-Petersen (KVP) is Co-Founder & Chief Strategist-Consigliere @ D·Central. He is also a Serial Backer & Angel Investor, Macro Speculator, Non-Executive Director, Advisor & Builder.
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#OONO is solely the views/opinions of its author & does not constitute any investment or asset allocation recommendations. It also does not in any shape or form, represent the views or opinions of other folks within D·Central, nor the D·Central EcoSystem.