China Macro Reporter
1. 'Expect the president to move forward with tariffs this Friday.": Meredith Sumpter, Eurasia Group

<table class="nl_card" id="19may0801"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></tbody></table><p class="caption"></p><p class="excerpt"><em>‘We should anticipate that the president will move forward with tariffs this Friday.'</em></p></td></tr><tr><td class="nl-post"><p><strong>‘We should anticipate</strong> that the president will move forward with tariffs this Friday,' <a href="" target="_blank">predicts Meredith Sumpter</a> of the Eurasia Group in a Bloomberg video interview.</p><ul><li><strong>‘He's given the Chinese</strong> a very small window to come to the table with what Beijing would consider to be large concessions.'</li></ul><p><strong>‘Also, we're in the middle</strong> of some very politically sensitive days for the Chinese.’</p><ul><li><strong>‘The “May 4th Movement”</strong> just passed and the June 4th anniversary of Tiananmen is coming up.'</li><li><strong>‘So Xi Jinping</strong> cannot be seen to capitulate to U.S. demands during this sensitive time.’</li></ul><p><strong>‘We've got</strong> two strong personalities.’</p><ul><li><strong>‘President Trump</strong> on one side, Xi Jinping on the other.’</li><li><strong>‘Both men</strong> are fairly confident that they will win out in the end.’</li></ul><p><strong>‘Both sides believe</strong> that they have time on their side.’</p><ul><li><strong>‘Both sides believe</strong> that their respective economies can withstand additional pressure.’</li><li><strong>‘The U.S. is coming off</strong> very strong Q1 growth.’</li><li><strong>‘China for its part</strong> has seen some success with its stimulus measures from earlier this year.’</li></ul><p><strong>‘What it comes down to</strong> is market pressure on one or the other economies.'</p><ul><li><strong>‘That’s going</strong> to force the hand.’</li><li><strong>‘What we see happening now</strong> is a likely continued extension of trade negotiations - a delay of any deal perhaps even into 2020 depending upon how this latest bout works out.’</li></ul><p><strong>‘What we're also seeing here</strong> is the underlying negotiations have been much more contentious than we had anticipated.'</p><ul><li><strong>‘You really have to look</strong> at what was negotiated - Liu He had a 150 page document with seven chapters written in English.’</li><li><strong>‘Some of the negotiators</strong> have described that language is fairly broad brushstrokes.’</li><li><strong>‘So this is a perfect opportunity</strong> for Beijing to go back, take a look at that language, translate into Chinese, and then come to Washington and say, “You know we need to clarify what we meant in certain chapters or with certain key provisions.”</li></ul><p><strong>‘This is really</strong> Chinese diplomacy.’</p><ul><li><strong>‘You think</strong> you're getting somewhere with the Chinese.’</li><li><strong>‘And at the very last minute</strong> they'll come back and say, “Actually what we had agreed to, we need to take another look at that”’</li><li><strong>‘That's essentially</strong> where we are now.'</li></ul></td></tr></tbody></table>

2. Will Trump's ‘Crazy Uncle’ strategy work this time?

<table class="nl_card" id="19may0802"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></tbody></table><p class="caption"><strong>Scott Kennedy,</strong> Bloomberg  <a href="" target="_blank">4m video interview</a></p><p class="excerpt"><em>‘Trump has tried to scare the bejeezus out the Chinese with his “Crazy Uncle” strategy.</em><br/><em>'The president has his own analysis of what the problems are and is willing to do just about anything to hurt China if if that will help bring a deal.'</em></p></td></tr><tr><td class="nl-post"><p><strong>‘The president's</strong> tweets and the announcement of potential tariffs have brought us to a genuinely dramatic turning point in the trade negotiations,' says Scott Kennedy of the Center for Strategic and International Studies in his essay <a href="" target="_blank">'The Challenges of the "Crazy Uncle" Strategy.'</a></p><ul><li><strong>‘And the president's threats</strong> are believable because he has already acted on them before, pushing aside entreaties from Wall Street, allies, and close friends.’</li><li><strong>‘Trump abandoned</strong> the Trans-Pacific Partnership, chastised the World Trade Organization, and engaged in a series of bilateral talks, while also slapping trading partners with tariffs and threatening still more penalties.’</li></ul><p><strong>‘To their credit,</strong> the administration has created tremendous leverage against China.’</p><ul><li><strong>'The president</strong> has marshalled hyperbolic "facts" concerning the trade balance to portray the United States as a long-suffering victim and the amount of collected tariffs to show that the trade war is benefitting Americans.’</li><li><strong>‘Although objectively inaccurate,</strong> his apparently sincere declarations signal the fervency of his beliefs and his willingness to bear tremendous economic costs in the short-run that conventional politicians wouldn't consider, all in order to force a stubborn China to modify its economic policies and system.’</li></ul><p><strong>The “Crazy Uncle” Strategy.</strong> 'But the president's "Crazy Uncle" strategy may be wearing thin, not only through fatigue but also as listeners become accustomed to his outbursts and have difficulty differentiating between momentary complaints and genuine threats.’</p><ul><li><strong>‘Ever more tempestuous language</strong> is needed to generate the desired anxiety and subsequent concessions, and at some point, targets either don't get the message or decide to break this anxiety-compliance spiral by not giving in.’</li><li><strong>‘This strategy</strong> vis-a-vis China may be nearing the end of its shelf-life.’</li></ul><p><strong>Also ‘President Trump's "Crazy Uncle" strategy</strong> reinforces the impression in Beijing that deals with the United States are temporary and that sooner or later Washington will up the ante and demand still more, while offering no more than momentary calm in return.’</p><ul><li><strong>‘This does not bode well</strong> for efforts to reach any sort of enduring equilibrium in the U.S.-China relationship, whether one based on cooperation and harmony or even one rooted in greater competition and rivalry.’</li><li><strong>‘Such stability</strong> would require an approach that strengthens Washington's credibility at home and abroad.’</li><li><strong>‘Bilateral brinksmanship,</strong> whether conveyed by Twitter or other means, cannot serve that function.’</li></ul></td></tr></tbody></table>

3. New tariffs could cost China 1% GDP: Tao Wang, UBS

<table class="nl_card" id="19may0803"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></tbody></table><p class="caption"></p><p class="excerpt"></p></td></tr><tr><td class="nl-post"><p><strong>‘If the tariffs</strong> on the 200 billion go from 10% to 25%, it's going to have another .3 or .34% points of negative impact on China's GDP,' says Wang Tao, a leading and highly respected China economist and Head of China Economic Research at UBS in a <a href="" target="_blank">Bloomberg video interview.</a></p><ul><li><strong>‘Still with a little bit</strong> more easing I think China can still keep growth above 6% this year.’</li><li><strong>‘But</strong> if a 25% tariff is imposed on everything, then the additional impact could be more than one percentage point.’</li><li><strong>'The Chinese government</strong> would then have to step up the stimulus - and even in that case growth may fall below 6%.'</li></ul><p><strong>‘If Xi does have to stimulate</strong> the economy, ‘the usual levers can still be used, infrastructure spending and so on.’</p><ul><li><strong>‘But this time</strong> we have already seen China focus more on tax cuts for corporates and also more support for the private sector.'</li><li><strong>‘And</strong> pushing through domestic structural reforms – such as SOE reforms and introducing more private sector participation - has had a lot of support.’</li><li><strong>‘So even if tariffs</strong> push growth below 6%, I think those kinds of reforms will boost domestic confidence.'</li><li><strong>‘To me</strong> that's more important for the sustainable growth in China than resolving the trade war.’</li></ul></td></tr></tbody></table>

4. 'Why Trump Is Raising Tariffs on China' - by Trump advisor Michael Pillsbury

<table class="nl_card" id="19may0804"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table><p class="caption"></p><p class="excerpt">'China has been busy in these final three weeks trying to weaken the deal.' <br/>'That’s Beijing’s modus operandi: String the West along, then renegotiate and take back earlier concessions from the gullible “barbarians.” </p></td></tr><tr><td class="nl-post"><p><strong>Michael Pillsbury</strong> is director of Chinese strategy at the Hudson Institute and author of <em>The Hundred Year Marathon: China’s Secret Strategy to Replace America As the Global Superpower</em> – a must-read to understand the China hawk view of U.S.-China relations.</p><ul><li><strong>He is also</strong> an advisor to President Trump.</li><li><strong>So, Mr. Pillsbury</strong> may have had a role in Mr. Trump’s recent threat to raise tariffs.</li><li><strong>At the very least</strong>, we can assume that Mr. Trump has been briefed on Mr. Pillsbury's take.</li><li><strong>His take</strong> is definitely essential to interpret what influences President Trump's views China and the trade deal.</li></ul><hr /><p><strong>‘President Trump’s Sunday tweet,</strong> in which he said he’d raise tariffs from 10% to 25% on $200 billion of Chinese exports at the end of this week shocked China’s leaders,' writes Michael Pillsbury in <a href="" target="_blank">'Why Trump Is Raising Tariffs on China.'</a></p><ul><li><strong>'They underestimated</strong> the strength of American hawks’ influence.’</li><li><strong>‘Just as Americans</strong> once underestimated the influence of Chinese hawks.’</li></ul><p><strong>‘But the president’s tough line now</strong>—heading into the final stretch of negotiations—will reduce friction later.’</p><ul><li><strong>‘China is less likely to cheat</strong> on any future agreement if it needs to comply to earn a reduction of these tariffs.’</li><li><strong>‘China will cheat</strong> if the U.S. has no tariffs to enforce it.’</li></ul><p><strong>‘As trade watchers</strong> around the world armchair-quarterback this week’s negotiations, it’s useful to assess the likelihood of success in each key area of the deal to determine whether it has indeed fallen apart.’</p><hr /><p>⚡<strong>‘First,</strong> cyber intrusions into U.S. business networks have helped Chinese companies gain advantages in key high-tech areas, including artificial intelligence, electrical vehicles, jet engines and nuclear reactors.’</p><ul><li><strong>‘America can’t maintain</strong> its technological supremacy if this continues'.</li><li><strong>'But China is loath</strong> to give up the hacking and espionage that help its entrepreneurs pillage America’s intellectual property and technological crown jewels.’</li></ul><p><strong>‘My forecast</strong> is no deal in this area.’</p><ul><li><strong>‘For Beijing,</strong> crime pays too well.’</li></ul><hr /><p>⚡<strong>‘Second,</strong> it’s difficult to monitor and restrict China’s efforts to force the transfer of American technology in exchange for access to Chinese markets unless tariffs remain to aid enforcement.’</p><ul><li><strong>‘It’s almost</strong> as difficult to police China’s intellectual-property theft effectively.'</li><li><strong>'Besides,</strong> the hawks in Beijing will likely work overtime to scuttle this part of the deal.’</li></ul><p><strong>'Agreement can be found</strong> here only if the U.S. takes a leap of faith that China will do what it has never done before—fulfill its commitment to a trade deal.’</p><p><strong>‘China has a long history</strong> of quickly breaking promises to the West.'</p><ul><li><strong>‘From refusing to abide</strong> by the rules of the World Trade Organization after it joined in 2001 to abandoning President Xi Jinping’s promise to President Obama not to militarize the South China Sea, Beijing’s record makes strong enforcement mechanisms a necessary precondition to any U.S. agreement to a deal.’</li></ul><p><strong>‘But seen through the lens</strong> of Chinese history, strong monitoring and enforcement look like humiliation at the hands of the West.’</p><hr /><p>⚡<strong>‘Third,</strong> China’s state-owned enterprises represent a critical cog in its mercantilist machinery.’</p><ul><li><strong>‘SOEs roam the globe</strong> with massive subsidies, running circles around private-sector corporations.’</li><li><strong>‘There is no reason</strong> a Chinese corporation should be the largest producer of railroad cars in the world other than subsidies and stolen technology.’</li></ul><p><strong>‘But any agreement</strong> that commits China to reining in its SOEs is a nonstarter in Beijing.’</p><ul><li><strong>‘The SOEs</strong> are too powerful politically and too important economically.’</li></ul><hr /><p>⚡<strong>‘Fourth,</strong> Beijing’s currency manipulation has harmed the trade balance.'</p><ul><li><strong>Treasury Secretary</strong> Steven Mnuchin is dovish on this issue—he hasn’t branded China a currency manipulator, as Mr. Trump promised to do during the 2016 campaign—so the U.S. may not press Beijing too hard.’</li></ul><p><strong>‘A deal is possible here,</strong> although it’s likely not in the U.S. long-term interest because it wouldn’t be enforceable.’</p><ul><li><strong>‘Even so,</strong> Sen. Bernie Sanders is hitting the president on the broken campaign promise.’</li><li><strong>‘Mr. Trump</strong> may pay a political price for inaction.’</li></ul><hr /><p><strong>‘Given these challenges,</strong> it’s hardly surprising that the long-negotiated deal appears to be falling apart.’</p><ul><li><strong>‘China has been busy</strong> in these final three weeks trying to weaken the deal.'</li><li><strong>'That’s Beijing’s modus operandi:</strong> String the West along, then renegotiate and take back earlier concessions from the gullible “barbarians.”</li></ul><p><strong>‘China has a clear strategic choice':</strong></p><ul><li><strong>'establish</strong> a real accord that will lead to better growth for both nations,'</li><li><strong>'or continue</strong> its predatory mercantilist reliance on national champions, beginning the descent into a cold war that portends security concerns and slower growth rates for all.’ </li></ul></td></tr></tbody></table>

5. Trump's Tariff Threat on Rest of Chinese Goods Would Hit Final Consumer Product

<table class="nl_card" id="19may0805"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table><p class="caption">PIIE</p><p class="excerpt"></p></td></tr><tr><td class="nl-post"><p><strong>'In a sudden reversal</strong> during the US-China trade negotiations, President Trump tweeted that the United States will increase the 10 percent tariff on $200 billion of imports from China to 25 percent on May 10, 2019,'<a href="" target="_blank"> write Chad P. Bown Eva (Yiwen) Zhang </a>of the Peterson Institute for International Economics.</p><p><strong>'He also indicated</strong> he would "shortly" impose 25 percent tariffs on the rest of US imports from China not yet targeted with his Section 301 tariffs, which he states are "325 Billions Dollars" and would mostly hit final consumer products, such as toys, footwear, clothing, and electronics.'</p></td></tr></tbody></table>