Generational Dynamics World View

[John J. Xenakis]

** 07-May-2019 World View: US-China trade war has no resolution in sight

Today's market selloff is being blamed on a growing realization that
Trump was serious about imposing large new tariffs on Friday, meaning
that a US-China trade deal will not be reached soon.

There's very little confirmed information available about what the
disagreement is in the US-China trade talks, but various reports say
it has to do with theft of intellectual property. Incidentally, this
is not a Trump-only concern. Trump is getting advice to "hang tough"
from Chuck Shumer and other Democratic leaders, and there's very
little criticism from other Western nations, since they've all been
screwed by China's theft of intellectual property, and refusal to
comply with international law and commitments it had already made in
writing.

More specifically, reports indicate that Chinese negotiators had
agreed to end theft of intellectual property, and to put that
agreement into Chinese law.

Apparent Xi Jinping pulled the plug on this a few days ago, and said
that the agreement wouldn't go into Chinese law, but would only be
made some vague "regulation." In other words, the Chinese had no
intention of abiding by their own signed agreement.

In the last few months, I've seen Trump economic advisors on TV, such
as Larry Kudlow and Kevin Hassett, repeatedly say that the US-China
trade negotiations were going very well. I watched these statements
in increasing disbelief, wondering which side was backing down -- the
Chinese or the Americans. Now we can see what happened. The Chinese
negotiators made concessions with regard to stealing intellectual
property, and Xi Jinping pulled the plug, causing Trump to announce
the new tariffs. This is the kind of thing that leads to world wars.

As long-time readers know, Generational Dynamics predicts a stock
market crash and global financial crisis with 100% certainty. This
would begin with a full-scale panic. What's going on today is the
first signs of a panic, but it could reverse tomorrow, as investors
begin to calm down and decide that a delay in the US-China talks is
not serious.

At times like this, I like to repeat what happened in the stock market
panic that occurred on October 28, 1929. This year will be the 90'th
anniversary of that panic, and yet, to this day, nobody knows why the
panic occurred on that particular day, or why it didn't occur a few
months earlier or later. A panic had to occur, since the stock market
was a huge bubble (as it is today), but the panic nonetheless was
completely unexpected.

The other thing to remember is that the 1929 panic was not the same as
a stock market crash and, in fact, the stock market recovered in the
next few days much of what it had lost. What the panic did was to put
in train a long, grinding process of margin calls and bankruptcy
chains, and this was the stock market crash. An investor who had
borrowed money on high-risk stocks would have to sell his blue chip
stocks to meet the margin calls. When one person or company went
bankrupt, then its lenders were suddenly also exposed to bankruptcy.
This chain of bankruptcies continued for four or five years, as the
stock market fell 90%.

History doesn't repeat itself, but it rhymes. "It's different this
time" is a lie. The next financial crisis won't be an exact repeat of
the 1929 crisis, but the general elements (stock market bubble, panic,
margin calls, bankruptcy chain) will be the same.

[John J. Xenakis]

** 08-May-2019 World View: Details of US-China trade deal collapse emerge

According to a new report, the current US-China trade deal crisis
began late Friday last week, when China sent the Trump administration
an edited version of the 150-page draft trade agreement that they had
been negotiating for months. The edits reversed all of China's
commitments in the areas of theft of U.S. intellectual property and
trade secrets; forced technology transfers; competition policy; access
to financial services; and currency manipulation.

It's becoming increasingly clear what happened. During the months of
negotiations, the Chinese negotiators had made numerous commitments to
end China's illegal trade practices. On Friday, China threw out all
its commitments.

This is from the Reuters report:

Quote: "The diplomatic cable from Beijing arrived in
Washington late on Friday night, with systematic edits to a nearly
150-page draft trade agreement that would blow up months of
negotiations between the world’s two largest economies. ...

The [edited] document was riddled with reversals by China that
undermined core U.S. demands. ...

In each of the seven chapters of the draft trade deal, China had
deleted its commitments to change laws to resolve core complaints
that caused the United States to launch a trade war: theft of
U.S. intellectual property and trade secrets; forced technology
transfers; competition policy; access to financial services; and
currency manipulation.

U.S. President Donald Trump responded in a tweet on Sunday vowing
to raise tariffs on $200 billion worth of Chinese goods from 10 to
25 percent on Friday – timed to land in the middle of a scheduled
visit by China’s Vice Premier Liu He to Washington to continue
trade talks.

The stripping of binding legal language from the draft struck
directly at the highest priority of U.S. Trade Representative
Robert Lighthizer - who views changes to Chinese laws as essential
to verifying compliance after years of what U.S. officials have
called empty reform promises.

Lighthizer has pushed hard for an enforcement regime more like
those used for punitive economic sanctions – such as those imposed
on North Korea or Iran – than a typical trade deal.

“This undermines the core architecture of the deal,” said a
Washington-based source with knowledge of the talks."

The Chinese have a three-millennia belief that they have a mandate
from heaven, and that you and I and everyone else in the West are
barbarians and vassals. The Chinese Communist Party (CCP) have built
their entire economy on the principle that it's OK to steal anything
they want from the barbarians because, after all, we're just
barbarians.

I want to emphasize that the Chinese people are not at fault here.
The same, identical Chinese people have thrived in Taiwan and colonial
Hong Kong. The governments of Taiwan and colonial Hong Kong have been
far superior to the pathetic CCP, which is committing genocide and
ethnic cleansing of Uighurs, is violently cracking down on Buddhists
and Christians, demolishing churches and temples, and is pathetically
terrified of the cartoon character Winnie the Pooh because Xi Jinping
looks like him. The great Chinese people in China are being crushed
and victimized by the evils of the CCP, which is why the Chinese
people in Taiwan are ten times wealthier and happier than the Chinese
people in China.

The gloves are really coming off now. Both the Chinese and American
negotiators are playing hardball. Right now, it appears that on
Friday massive new tariffs will be placed on Chinese imports. China
will retaliate with tariffs on American goods.

Possible scenarios:

• US-China negotiators will reach a new agreement quickly (not
  likely)
  
  
• Trump will postpone the new tariffs
  
  
• The tariffs will go into effect on Friday (likely)
  
  
• The tariffs will continue for months (likely)
  
  
• The Chinese economy will be hurt (likely)
  
  
• The Chinese economy will be devastated (unlikely but possible)
  
  
• The American economy will be hurt, but only in pockets
  
  
• The tariffs will trigger a stock market panic (unlikely but
  possible)
  
  
• The stock market will mostly discount the new tariffs in the next
  few weeks (likely)

So there you go, people. Place your bets!

---- Sources:

-- Exclusive: China backtracked on nearly all aspects of U.S. trade
deal - sources
https://www.reuters.com/article/us-usa-t...SKCN1SE0WJ
(Reuters, 8-May-2019)

[John J. Xenakis]

** 09-May-2019 China's sinister strategy in US-Trade talks

The SCMP article that you quoted is interesting on multiple levels,
because it suggests a Chinese strateby that's even more sinister than
I've been assuming.

Quote:> From the South China Morning Post (A Hong Kong News org)

> But national pride, and a Communist Party ideology grounded in
> resisting unequal treaties in the name of free trade, mean that
> such shifts could never be seen to be done under
> duress.

Burner Prime Wrote:> This is an example of how this event is more serious than
> normal. Diplomacy always involves allowing one side an "out", and
> saving face is of paramount importance in Asian culture. One
> singular genius I've observed from Trump is he avoids badmouthing
> people he's negotiating with when the stakes are really high, such
> as with Kim Jong Un, Putin, and Xi Jinping. Instead he prefers to
> pay them compliments. This is in stark contrast with other nations
> where the stakes are low (Trudeau, etc).

> However in this case, Trump has called them out in public for
> reneging on a previous deal. This does not give them an out. And
> now brinkmanship is in play. This situation requires more
> attention than the typical nonsense seen in Washington.

> http://www.scmp.com/business/china-busin...ons-expose

The scenario that analysts had been describing recently was that
the Chinese negotiators had been too anxious to make a deal, and
so had made too many concessions, and Xi Jinping had to pull back
on them.

The new interpretation of events is far more sinister: The Chinese
strategy was to make concessions that would never be implemented in
order to get Trump to agree to a deal, and then pull back on the
concessions at the last moment, when Trump would be politically forced
to accept the weak deal -- and remove the tariffs with China having to
make no real concessions on trade at all.

The reason that this strategy is so credible is that North Korea used
exactly the same strategy at the Hanoi summit. Kim Jong-un had hoped
to politically force Trump to agree to remove sanctions with North
Korea having to make no real concessions on denuclearization at all.

It's scary how similar these two strategies are. In both cases, they
seemed to believe that Trump would be forced to back down, and then
they would once again have defrauded the United States in a
negotiation, as both countries had done so many times in the past.

In both cases, Trump has shown himself willing to be the "bad guy,"
and walk away, rather than accept a bad deal. However, what's
different this time is that Trump has the (usually tacit) support
of the international community in the West. Nobody in the West
wants North Korea to have nuclear missiles, and almost every
country in the West has had their trade secrets and intellectual
property stolen by the Chinese.

There's another interesting angle to the SCMP article.

Hong Kong was a British colony from the 1850s to 1997. Starting
in the 1930s with the Sino-Japanese war, China used Hong Kong
as a communications channel with the outside world, to beg
for money and other resources to fight the war. Hong Kong
was the civilized face of China.

The SCMP article suggests that Hong Kong is still being used as the
civilized face of China. The article goes on at length to say that
Beijing is already making changes in IP and trade law, and the article
suggests that there's no real difference between Beijing's and
Washington's positions, except communications difficulties, and that
it should be easy to reach agreement.

But the article contradicts that point when it also says that the
"expansive demands from Washington's trade hawks" are delusional.

Once again, this is the same as the North Korea strategy -- blame
disagreements on John Bolton, in the hope of forcing Trump to
compromise.

And the news this morning is that North Korea has launched two more
"short range projectiles," apparently believing that doing so might
embarass Trump into concessions, a belief that's profoundly
delusional.

There's lots of interesting stuff going on here, but both sides are
playing hardball, and it seems very likely that the harsh new tariffs
will be implemented tomorrow, with whatever consequences they bring.

[John J. Xenakis]

** 10-May-2019 World View: Syria's Idlib: Al-Assad's assault continues, displacing 250,000


The renewed assault by Bashar al-Assad's forces, backed by Russian
airstrikes, has been going on for two weeks, forcing about 200,000
people from their homes, according to various reports.

Idlib is supposed to be a ceasefire "de-escalation zone," according to
an agreement last year among Russia, Iran, and Turkey. However, there
have been other "de-escalation zones," negotiated by the same parties,
in Aleppo, Ghouta, Daraa, and elsewhere, and Russia has ignored its
own commitments, and backed al-Assad's assaults.

Al-Assad has been conducting genocide and ethnic cleansing of Arab
Sunnis. He uses the same techniques in each region. He begins by
bombing peaceful protesters, particularly women and children. As soon
as someone become violent in revenge, he declares the whole community
of Arab Sunnis to be "terrorists," and uses that as an excuse for
full-scale genocide and ethnic cleansing. The genocide is performed
with missiles, barrel bombs, chlorine gas and Sarin gas, all
particularly targeting women and children, as well as schools,
markets, and hospitals.

Idlib is the place where all the Sunni Arabs fled with their home
regions were being targeted for ethnic cleansing by the regime forces
of Bashar al-Assad in 2014-2018, doubling the population of Idlib from
1.5 million to over 3 million. Of the three million civilians, there
are an estimated 60,000 or so anti-Assad rebels in Idlib, including
both "moderate" rebels and jihadists in al-Qaeda linked Hayat Tahrir
al-Sham (HTS), formerly the al-Nusra Front.

Al-Assad has always said that he would attack Idlib and the three
million "terrorists" living them, but he was held off by the agreement
between Turkey and Russia. It's always been just a matter of
time before al-Assad completely dumped the agreement.

Turkey has been begging Russia to stop al-Assad from doing a
full-scale assault, since there will be a massive humanitarian
disaster, and hundreds of thousands or millions of people will pour
across the border into Turkey, which is already hosting 3.5 million
Syrian refugees. Hundreds of thousands of the Idlib Idlib refugees
will continue on into Europe, resulting in a new European migrant
crisis.

There have been reports that al-Assad has been targeting women
and children in markets, schools and hospitals, which is his
usual practice. However, there have not been any reports yet
that al-Assad has used chlorine gas or Sarin gas. This will be
part of the maximal assault when it begins.

However, al-Assad is apparently holding back from a maximal assault
for the time being, under pressure from Russia and Turkey. The
purpose of the current limited assault is to regain government control
over the strategic M4 and M5 highways to open the way between the
Mediterranean city of Latakia with Hama and Aleppo.

Turkish media says that Russia's defense minister Sergei Lavrov says
that Russia is ending its airstrikes as of Thursday morning. Anything
that comes out of Lavrov's mouth is generally garbage with no relation
to the truth, so we'll have to see whether Russian airstrikes have
really stopped.

The Syrian civil war has been out of the headlines for a few months
now, and a lot of people believe that it's winding down or over. But
that ignores the fact that Bashar al-Assad has proven himself to be a
war criminal and a psychopathic monster who takes pleasure in torture
and atrocities.

Al-Assad has vowed to kill all three million "terrorists" in
Idlib. When he begins the maximal assault, and starts again
using chlorine gas and Sarin gas, the Syrian war will be
back in the headlines.

Syria's civil war has been out of the headlines for a few months, but
it will be back once refugees start pouring into Europe again.

---- Sources:

-- Q&A: Syria's Assad sets sights on Idlib, the final showdown?
https://abcnews.go.com/International/wir...n-62953823
(AP, 10-May-2019)


-- Syrian Government Forces Advance in NW Region Between Idlib, Hama
https://www.globalsecurity.org/wmd/libra...-voa01.htm
(Global Security, 9-May-2019)

-- Assad regime attacks on Idlib kill 114, displace more than 250,000
https://www.msn.com/en-ae/news/other/ass...ar-AABaIH6
(Qatar Tribune, 10-May-2019)

-- Turkey asks Russia to halt airstrikes in Syria's Idlib
http://www.hurriyetdailynews.com/turkey-...lib-143300
(Hurriyet, Turkey, 10-May-2019)



--- Related:

** 1-Dec-18 World View -- Evidence grows of Assad's 'final solution', extermination of Arab Sunnis in Syria
** http://www.generationaldynamics.com/pg/x...tm#e181201



** 28-Oct-18 World View -- Syria peace summit issues delusional call for political solution in Idlib
** http://www.generationaldynamics.com/pg/x...tm#e181028

[John J. Xenakis]

** 11-May-2019 World View: Hong Kong parliament fistfight over pro-Beijing vs pro-democracy

A fistfight broke out in Hong Kong's parliament on Saturday over a
proposed law that would permit Hong Kong to deport anyone who breaks
any law to mainland China, where he will be subject to the typical
abuse of China's courts, including torture, isolation, and arbitrary
executions.

Beijing has been trying to get the parliament to pass the new law, but
they've been unable to do so. The fistfight began because Beijing has
tried to replace a pro-democracy legislator with a pro-Beijing
legislator, in order to get the law passed.

Since World War II, China has been repeatedly humiliated, as its
citizens have remain poor and oppressed, as Japan, Taiwan, South
Korea, and colonial Hong Kong have all had "economic miracles" that
made the citizens in those counties a lot wealthier and happier than
Chinese citizens.

Since the 1989 Tiananmen Square massacre, where the Chinese Communist
Party (CCP) slaughtered thousands of young pro-democracy protesters,
the CCP has been conducting harsh violent crackdowns on anything that
could be interpreted as "pro-democracy," including the violent
suppression of religions. At the same time, the CCP adopted a
vitriolic anti-Japan hate campaign, in order to stoke nationalism
instead of pro-democracy feelings.

When Xi Jinping came to power in 2013, the CCP issued "Document Number
9," which codified CCP hostility to Western values, including freedom
of speech and press, as being a Western plot to undermine the CCP.
Document Number 9 particularly was used for a harsh crackdown on Hong
Kong media and Hong Kong pro-democracy demonstrations, including the
jailing of many demonstrators.

Under the new law, if passed, pro-democracy demonstrators would not be
tried in Hong Kong, but would be deported to mainland China, where
they could simply be thrown into a pit and forgotten.

China does have a problem is that a lot of Western business is done
through Hong Kong because it's the civilized face of China. As China
continues to crack down on Hong Kong, it will become as violent and
poor as the rest of China, which will make it far less useful to China
as a civilized gateway.

----- Sources:

-- Hong Kong lawmakers scuffle in parliament
https://www.theguardian.com/world/2019/m...parliament
(Guardian/AP)

-- Document Number 9
http://www.chinafile.com/document-9-chin...ranslation
(China File, Document Number 9, 8-Nov-2013)

[John J. Xenakis]

** 11-May-2019 World View: Major terrorist attack in China-run Gwardar port in Pakistan

• Pearl Continental Hotel in Gwadar, Balochistan, Pakistan

A terror attack by the Balochistan Liberation Army (BLA) on the luxury
Pearl-Continental hotel in Gwadar port in the province of Balochistan
in Pakistan was mostly foiled on Saturday. Three gunmen shot and
killed a security guard who challenged them, but a quick response by
Pakistan army and navy soldiers apparently prevented further murders.
The three gunmen themselves were shot dead.

Gwardar seaport is the endpoint of a massive infrastructure project,
the China-Pakistan Economic Corridor (CPEC), a major part of China's
Belt and Road Initiative (BRI), also called One Belt One Road (OBOR)
or "the new Silk Road." CPEC will be a network of roads, railways and
energy pipelines aiming to connect western Chinese cities, starting
from China's easternmost city Kashgar in Xinjiang province, to the sea
port in Gwadar on the Indian Ocean in Balochistan province in southern
Pakistan. It will have both economic and military components. Power
generation, transport, commerce, R&D and the defense of Pakistan all
will be increasingly tied to Chinese investment, supplies and
interests. It's expected to cost $55-60 billion and take 20 years to
complete.

Balochistan is Pakistan's biggest province, and also its poorest.
Most of the $55-60 billion investment will benefit the wealthy Punjab
and Gilgit Baltistan provinces, rather than Balochistan. Furthermore,
the seaport project has closed off miles of coastline to the
indigenous ethnic Baloch people in communities that have been fishing
in the natural Gwardar port for centuries, and depend on fishing to
feed their families.

Finally, as is typical of all of China's BRI projects, instead of
hiring local workers, China will bring in tens of thousands of Chinese
workers to do the work, get the money, and create a Chinese enclave,
displacing indigenous Baloch people.

The Balochistan Liberation Army (BLA) has been conducting regular
terrorist attacks in the region. Saturday's attack on the
Pearl-Continental hotel was the most brazen because the gunmen were
able to penetrate multiple layers of security to reach it. Apparently
the only reason that a lot more residents weren't hurt is because the
security forces responded quickly and because there were few residents
living there at the current time.

------ Sources:


-- Gwadar PC hotel stormed by militants, security guard martyred
https://www.geo.tv/latest/237047-gwadar-...n-underway
(Geo TV, Pakistan)

-- Pakistan / Forces stave off Mumbai-style terrorist attack on Gwadar
hotel
https://tribune.com.pk/story/1970807/1-t...otout-way/
(Express Tribune, Pakistan)

-- Pakistan hotel attack HIGHLIGHTS: All three gunmen killed in
shootout, says Balochistan Home Minister
https://indianexpress.com/article/pakist...n-5723056/
(Indian Express)

-- Gunmen attack hotel in Pakistan's Gwadar, kill security guard
https://www.aljazeera.com/news/2019/05/g...34253.html
(Al Jazeera)

-- National Party / Pakistan / Balochistan has right over Gwadar Port
operations: NP
https://tribune.com.pk/story/1961790/1-b...ations-np/
(Express Tribunes, Pakistan, 29-Apr-2019)

-- Pakistan / Will China’s Plans for Gwadar Destroy Fishermen’s
Livelihood?
https://thediplomat.com/2019/04/will-chi...ivelihood/
(Diplomat, 3-Apr-2019)

-- Gunmen Storm Hotel in China-Run Pakistani Gwadar Port
https://www.voanews.com/a/gunmen-storm-h...13414.html
(VOA)


---- Related:

** 6-Nov-18 World View -- Pakistan's Balochistan Liberation Army (BLA) claims credit for killing CPEC workers
** http://www.generationaldynamics.com/pg/x...tm#e181106



** 22-Dec-18 World View -- China's CPEC project in Pakistan turns military, marginalizing Balochistan
** http://www.generationaldynamics.com/pg/x...tm#e181222


** 12-Dec-17 World View -- Pakistan overwhelmed and China alarmed over the China-Pakistan Economic Corridor (CPEC)
** http://www.generationaldynamics.com/pg/x...tm#e171212

[Tim Randal Walker]

Peter Zeihan (zeihan.com) has been posting to both his online newsletter and twitter regarding Chinese/U.S. trade. It seems that the Trump administration is contemplating imposing higher tariffs than before, for China being uncooperative.

I understand that Trump has thought of selling more stuff to China, but the Chinese seem to want a one sided relationship. So in that respect I don't think that Trump will get what he wants.


On the other hand, I don't think that the Chinese grasp how little support for globalization now exists in America. Think about it-many Americans dislike Trump, but there has no big uproar regarding tariffs.

[John J. Xenakis]

** 12-May-2019 US-China trade talks

(05-11-2019, 06:57 PM)Tim Randal Walker Wrote: > Peter Zeihan (zeihan.com) has been posting to both his online
> newsletter and twitter regarding Chinese/U.S. trade. It seems that
> the Trump administration is contemplating imposing higher tariffs
> than before, for China being uncooperative.

> I understand that Trump has thought of selling more stuff to
> China, but the Chinese seem to want a one sided relationship. So
> in that respect I don't think that Trump will get what he wants.

> On the other hand, I don't think that the Chinese grasp how little
> support for globalization now exists in America. Think about
> it-many Americans dislike Trump, but there has no big uproar
> regarding tariffs.

Yes, Trump is indeed threatening to increase the tariffs further.

The news this evening is that everyone in Washington and Asia are
wondering what China is going to do to retaliate, but except for some
nationalistic bluster from the Global Times newspaper, China has been
almost completely silent. There's a feeling that the Chinese are
totally at a loss of what to do. They've gotten away with so much for
so many decades. It's quite likely that they were certain that they
would get away with simply editing down the 150-page draft trade
agreement so it would be completely unenforceable. It's quite likely
that the Chinese were confident that the Trump administration would
simply whine and complain but still go along with all the edits, which
is exactly what the Clinton, Bush and Obama administrations would have
done. It's quite likely that they were enormously shocked when Trump
called their bluff.

It's amazing how much support or tacit support that Trump is getting
-- not only from Shumer and the Democrats, but also from other Western
nations, who are sick and tired of dealing China's dishonest,
contemptuous trade practices. There was even a farmer interviewed by
the BBC who was losing money from the tariffs, but said that it had to
be done.

The level of hostility to China in America and in Western countries is
growing rapidly, because of the trade and Huawei issues, and because
of the contemptuous way that China treats everyone.

On the other hand, someone on Bloomberg tv this evening (morning in
Asia) has pointed out that the tariffs depend on shipping dates, and
it takes about a month for goods from China to reach America, so the
tariffs won't really be felt for a month.

But there's no doubt that this is a very deep and serious split
between the US and China. This is the kind of situation that can lead
to tit-for-tat responses that spiral into war.

[John J. Xenakis]

** 13-May-2019 AEI: How boomers screwed millenials for their own comfort

From an e-mail invitation:

Quote:> Description

> Millennials complain that the job market has never fully worked
> for them, that they are crushed by student debt, and that paying
> for their parents’ old-age entitlement benefits will bankrupt
> them. But are these complaints justified? Joseph C. Sternberg
> weighs in this debate in his new book on millennials in the
> post-2008 economy — and finds that baby boomers have mortgaged
> their children’s future to pay for their own economic comforts.

> Please join AEI for a discussion with Mr. Sternberg and an expert
> panel on his new book, “The Theft of a Decade: How the Baby
> Boomers Stole the Millennials’ Economic Future” (Public Affairs,
> 2019).

> Continental breakfast will be served.

[John J. Xenakis]

** 13-May-2019 World View: China's trade retaliation shows a change in attitude

• Cartoon from China's Global Times

China's media are reflecting an increasingly belligerent response
to the US-China trade negotiations, which is more often being
called a "trade war." The strategy change is from deception
and subterfuge to belligerence, threats and confrontation.

China announced a 5-25% tariff on 5,100 American products.
According to Global Times:

Quote: "The measured but firm response from Chinese officials
highlighted China's defiance toward maximum pressure from US
officials amid a fresh escalation in the trade war, while also
seeking to avoid a full-fledged trade war with the US, analysts
said. ...

"Since the US has resumed the trade war, we should hit back hard…
to show the Americans that they will not gain anything from their
tough approach," He Weiwen, a former senior Chinese trade
official, told the Global Times. "But we should also not close the
door to talks.""

The threatened tariffs will hurt small pockets of Americans,
but will have little effect on the economy as a whole.

• Market Watch chart showing how much US-China trade is at stake (Guardian)

This represents a fairly standard Chinese transition from deception
and subterfuge to confrontation, threats and belligerence:

• In 2015, Xi Jinping lied to Barack Obama on the White House
  lawn, saying that China would never militarize the South China Sea.
  A year later, China was openly militarizing the South China Sea
  and threatening military action against transgressors.
  
  
  
• In 2017, China denied the existence of concentration camps and
  crematoria for Uighurs and Kazakhs in East Turkistan (Xinjiang
  province). A year later, China was not denying that millions of
  people were being locked up in the concentration camps, but called
  them "reeducation centers." It's clear today that China is conducting
  genocide and ethnic cleansing of Uighurs and Kazakhs -- and also
  taking increasingly violent actions against Buddhists and Christians.
  
  
  
• Similarly, in 2018 North Korea's Kim Jong-un launched a "charm
  offensive," and promised to denuclearize in meetings with Trump.
  Earlier this year, Kim refused to take any steps to denuclearize,
  apparently believing that Trump would be forced to agree, which is
  what Clinton, Bush and Obama would have done. Kim was apparently
  shocked when Trump walked out of the meeting in Hanoi, and is now
  conducting short-range missile tests.
  
  
  
• Throughout out 2018 and early 2019, China negotiated a trade
  agreement with the US, making written commitments to write
  verification procedures into law, but then at the last moment reneged
  on the commitments, apparently believing that Trump would be
  politically forced to accept the amended agreement. Xi Jinping was
  apparently shocked when Trump rejected the amendments, and imposed new
  tariffs. China is now imposing new tariffs in retaliation.

China and North Korea are very contemptuous of the West, believing us
to be barbarians that they can easily manipulate and threaten. That
attitude worked with Clinton, Bush and Obama, but is being confronted
by Trump.

America has no choice but to confront China's deception and
subterfuge, because doing so would be "appeasement" in the sense that
Neville Chamberlain appeased Hitler. Appeasement is the road to war.

Indeed, Trump is receiving support from Chuck Shumer and the
Democrats, as well as from the international community. There is an
increasing acceptance of the fact that China has been getting away
with lying, fraud and dishonesty for decades, and someone has to stand
up to them.

But confrontation is also the road to war. As I've said many times,
war is 100% certain, no matter what Trump does, but I'm not going to
criticize Trump for steps he takes to try to prevent a world war, even
if preventing a world war is impossible.

What we're seeing is a standard tit-for-tat pattern that leads to a
world war. China will not pull back, because it's bent on a war of
revenge against Japan and a war of annexation against Taiwan, and
Trump is not going to pull back because doing so would be appeasement,
and would do no good anyway.

• Worried traders on Wall Street on Monday (Guardian)

There was a sharp selloff on Wall Street on Monday. In one
sense it was a great overreaction to China's tariff announcement.

However, as I've been writing for a long time, the stock market is in
a huge bubble, and there's no way to predict what event will trigger
the inevitable panic that will lead to a full-scale crash.

Similarly, there's no way to predict what event will trigger
a military clash that will lead to a full-scale world war.

---- Sources:

-- China hits back at US tariffs
http://www.globaltimes.cn/content/1149756.shtml
(Global Times, China, 13-May-2019)

-- Beijing retaliates to America’s new tariffs with fresh taxes on US
food, machinery and consumer goods, despite president Trump warning
them not to
https://www.theguardian.com/business/liv...iness-live
(Guardian, London, 13-May-2019)

-- Trump Says He'll Meet China's Xi Amid Deepening Rift Over Trade
https://www.bloomberg.com/news/articles/...ust-eroded
(Bloomberg, 13-May-2019)

-- Global markets fall as China hits back at US with new import
tariffs
https://www.theguardian.com/business/201...nald-trump
(Guardian, London, 13-May-2019)

-- China / Social credit system to restore morality
http://www.globaltimes.cn/content/1149741.shtml
(Global Times, China, 13-May-2019)

[John J. Xenakis]

** 16-May-2019 World View: Mideast tensiions grow after attacks attributed to Iran

• Aircraft carrier USS Abraham Lincoln passes thru Suez Canal
  on way to Strait of Hormuz

During the last week, there have been several acts of "sabotage"
on Saudi Arabia and UAE targets, including the following:

• On Sunday, May 12, four Saudi oil tankers were attacked
  in UAE's Fujairah port.
  
  
• On Tuesday, the Iran-backed Houthis in Yemen launched drones and
  bombed two pumping stations, owned by Saudi Aramco, on a major Saudi
  East-West oil pipeline.
  
  
• There are reports that Iranian speedboats in the Gulf of Hormuz
  have been outfitted with cruise missiles.

No one has claimed credit for Sunday's attack, but it's believed
that they were perpetrated by Iran's Revolutionary Guards (IRGC)
marine force unit.

The logic behind the attacks is that they follow the restoration of
American sanctions and the end of waivers to the sanctions, with the
result that Iran's oil exports are being severely reduced. Saudi
Arabia has promised to increase oil exports to compensate for the
reduced Iranian exports. The sabotage attacks would then be Iran's
retaliation against the Saudis.

Even before these attacks, the Trump administration had announced the
deployment of two US aircraft carriers -- the USS Abraham Lincoln and
the USS John C. Stennis -- to the region, accompanied by 10 warships,
as a show of force, operating with the US Sixth Fleet in conjunction
with allied navies. There were also uncomfirmed and denied reports of
deployment of 120,000 soldiers to the region.

At the same time, the US, Britain, and some EU countries have
withdrawn unnecessary personal from embassies and legations in Iraq,
apparently out of fear of Iranian terrorist attacks.

In the 1800s, Iran was thoroughly humiliated by losing border wars
with Russia and Britain, so in Iran's major wars in the last century
-- the Constitutional Revolution of 1908-09, the Great Islamic
Revolution of 1979, and the Iran/Iraq war that climaxed in 1989 --
Iran did not attack any other nation, and takes pride in not having
done so.

However, Iran has been increasingly active in using proxies,
especially the Houthis, Hezbollah and Hamas, as well as its own IRGC
forces, to perform terrorist acts against Saudi, America and Israeli
target, as well as full-scale participation in the Syria war,
supporting Bashar al-Assad.

A war between the US and Iran is highly unlikely. News reports of
questionable veracity claim that John Bolton and Mike Pompeo are
encouraging Donald Trump to invade Iran. Whatever Bolton and Pompeo
think, Trump has no intention of invading Iran. Furthermore, through
his knowledge of Generational Dynamics passed on to him by Steve
Bannon, Trump would be aware that will be an American ally.
Furthermore, Iran itself is in a generational Awakening era, with
younger generations firmly opposed to foreign wars.

Nonetheless, Iran's hardline leaderhip has no reluctance to conduct
terror attacks and proxy attacks on its perceived enemies, even if
such attacks are not expected to trigger a war.

Late news is that Saudi Arabia is retaliating for the Houthi
attacks by increased missile attacks on sites in Yemen's capital
city Sanaa, with civilians as collateral damage.

----- Sources:

-- Saudi Energy Minister says two pump stations on the East-West
pipeline were attacked
https://www.spa.gov.sa/viewfullstory.php...30#1923830
(Saudi Press Agency, 14-May-2019)


-- Germany, Netherlands suspend Iraq training missions
https://www.aljazeera.com/news/2019/05/g...23703.html
(Al Jazeera, 15-May-2019)


-- UK raises threat level for personnel in Iraq due to 'heightened
risk from Iran'
https://news.sky.com/story/uk-raises-thr...n-11721363
(Sky News, 16-May-2019)


-- USS Abraham Lincoln deploys opposite Syria, US envoy to Russia
aboard
https://www.debka.com/uss-abraham-lincol...ia-aboard/
(Debka, 11-May-2019)

-- Trump, frustrated by advisers, is not convinced the time is right
to attack Iran
https://www.washingtonpost.com/world/nat...story.html
(Washington Post, 15-May-2019)

-- Here's how you'll know we're about to go to war with Iran — right
now, we're not
https://www.washingtonexaminer.com/opini...w-were-not
(Washington Examiner, 16-May-2019)

-- The Golan is next after Iran hit 3 Gulf oil targets, say Rev Guards
associates
https://www.debka.com/the-golan-is-next-...ssociates/
(Debka, 15-May-2019)


-- Second attack on Gulf oil: Drones drop explosives on two Saudi oil
pumping stations
https://www.debka.com/second-attack-on-g...-stations/
(Debka, 14-May-2019)


-- Iran’s special marine unit sabotaged tankers. Fujairah was outside
US, Saudi, UAE purview
https://www.debka.com/irans-special-mari...e-purview/
(Debka, 13-May-2019)

---- Book:

"World View: Iran's Struggle for Supremacy -- Tehran's Obsession to
Redraw the Map of the Middle East," by John J. Xenakis
https://www.amazon.com/World-View-Suprem...732738610/

[John J. Xenakis]

** 17-May-2019 World View: Turkey desperate to halt Syria-Russia assault on Idlib

The violence in Syria is increasing to levels not seen in almost a
year, as Russia and the regime of Syria's president Bashar al-Assad
have increased their bombing of civilians in Idlib province.

All the worst signs are back. According to the United Nations, in the
last three weeks Syria and Russia have destroyed 17 schools and 20
hospitals and medical facilities. More than 180,000 newly displaced
people have fled their homes and moved to camps, but al-Assad has been
targeting these IDP camps -- if you want to commit mass slaughter and
genocide, it's easier if you can kill them all together in camps.
More than 80,000 people are sitting under trees or in open fields with
no protection from sun and rain.

There haven't yet been reports of al-Assad once again using chemical
weapons -- chlorine and Sarin gas -- but presumably that's coming
soon. There are three million people in Idlib, mostly refugees from
al-Assad's violence in other parts of Syria, and al-Assad has declared
them all to be terrorists, with the intention of killing them all.

Turkey is desperate to get al-Assad to stop this. Idlib is on the
border with Turkey, and Turkey is already hosting 3.5 million refugees
that fled from al-Assad's violence in the past. Even though Turkey
has closed the border, Al-Assad's assault on Idlib could cause a
million or more to push across the border into Turkey anyway.

As I wrote last week, Turkey begged Russia to end the airstrikes, and
Russia's defense minister Sergei Lavrov said that the airstrikes had
ended on May 10. But anything that comes out of Lavrov's mouth is
total garbage with no relation to the truth, and indeed the airstrikes
have continued.

Since then Turkey has once again begged the Russians to end the
airstrikes. On Monday, Turkey's president Recep Tayyip Erdogan spoke
on the phone with Russia's president Vladimir Putin, and Putin very
sweetly and kindly offered to form a committee to discuss the matter.

Turkey's foreign minister Mevlüt ÇavuSoglu says that the airstrikes
are preventing work on the UN's project on drafting a new Syrian
constitution:

Quote: "This aggressive attitude of the regime needs to
change. The attacks must stop. While we made progress in the
establishment of the Constitutional Commission, the regime’s
aggression on the ground can ruin everything."

This is so laughably ridiculous and pathetic, even by the very low
standards of typical international politics. Bashar al-Assad is a
Shia/Alawite genocidal psychopath and war criminal who is
exterminating the Alawite's historic enemies, the Arab Sunnis, and has
no intention of stopping until he's through with Idlib. Anyone who
believes that al-Assad would agree to have a UN committee draft a new
constitution for Syria belongs in a mental institution.

--- Sources:

-- Risk grows of ‘catastrophic humanitarian fallout’ in Syria’s Idlib,
https://news.un.org/en/story/2019/05/1038681
(United Nations)

-- Turkey steps up efforts to stop all-out assault on Syria’s Idlib
https://www.al-monitor.com/pulse/origina...omacy.html
(Al Monitor)

-- Turkey, Russia agree to form joint committee for Syria’s Idlib
http://www.hurriyetdailynews.com/turkey-...lib-143455
(Hurriyet, Turkey)

[John J. Xenakis]

** 18-May-2019 World View: Australia's climate change activists suffer a surprise election rout

Apparently nobody saw this coming. The Labor Party, headed by Bill
Shorten, was expected by everyone to win the majority of seats in
Saturday's nationwide elections in Australia, but instead, the winner
was the conservative Liberal-National Coalition, led by Scott
Morrison, according to exit polls.

This is being compared to the unexpected win by Donald Trump in the
2016 election, where many polls turned out to be wrong.

According to analysts, there were two major issues that led to the
shock result. One was that the Labor party was promising to
raise taxes and spend a lot more on social programs.

But the major issue that led to the Liberal-National Coalition
victory, according to analysts, was that the Labor Party was
promising to implement the same sort of loony tunes climate
change agenda that we're always hearing about in the United
States and Europe.

In Australia's case, the biggest loss to Labor were a number
of seats in Queensland, which has a lot of coal mines. Normally,
coal miners vote overwhelming for Labor, but in this case,
they believed that Labor's climate change activist agenda
would cost them their jobs, so they switched sides.

The greatest shock of this election is that everyone got it wrong
because the polls got it so wrong. And for those people interested
in participating in forecasting contests, this is a good example from
Chaos Theory that shows why neither polls nor Generational Dynamics
can predict election results.

--- Sources:


-- Australian election: Queensland drives a stake through Labor's
hopes
https://www.theguardian.com/australia-ne...abor-hopes
(Guardian, London, 18-May-2019)

-- Adani / One word that sums up Labor’s election disaster in
Queensland
https://www.news.com.au/national/federal...038f66b2ca
(News.com, Australia)

-- 2019 Australia election: Morrison celebrates 'miracle' win
https://www.bbc.com/news/world-australia-48305001
(BBC)

-- How Australia’s Election Could Save the World (But Won’t)
https://www.washingtonpost.com/business/...story.html
(Bloomberg, 17-May-2019)

[Hintergrund]

(05-13-2019, 09:25 AM)John J. Xenakis Wrote: ** 13-May-2019 AEI: How boomers screwed millenials for their own comfort

Thanks for mentioning this, will pass it on.

[John J. Xenakis]

** 19-May-2019 China's Foreign Investment Law imposes draconian controls

When China passed its new Foreign Investment Law in March, I didn't
pay much attention since the media described it as "a move widely seen
as an effort to facilitate US trade talks." According to the news
stories at the time, the new law would make it easier for foreign
owned companies to do business in China by making them equivalent to
Chinese companies.

However, a subsequent analysis of this law shows that it has the
opposite effect. By making foreign owned businesses equivalent to
Chinese companies, it means that foreign owned businesss are exposed
to the full force of the CCP-military control.

According to an analysis in the China Law blog:

Quote: We wrote how we were not at all impressed with China’s
new Foreign Investment Law . Since then, a number of commentators
(who near as I can tell cannot read Chinese) have hailed the law
as a positive development for foreign companies doing business
with China and in China. The impression these commentators are
giving is that China’s new Foreign Investment Law (FIL) will raise
up foreign companies to become equal to Chinese companies.

This is just not correct. The intent of the new law is actually
the opposite and for people like me who have been doing business
with China for decades even the idea that it would be otherwise is
at least somewhat laughable. The intent and the reality of the FIL
is to pull down foreign investors to the status of privately owned
Chinese companies. At that level, foreign invested companies will
be firmly under CCP control and they will operate at a permanent
economic disadvantage to PRC state owned enterprises. In other
words, foreign invested companies in China will be crushed by the
PRC state in the same way nearly all private Chinese companies are
crushed by the state.

...

Foreign invested companies will now receive no incentives or
benefits at all. They will be treated the same as any private
Chinese company. They will pay tax at an effective rate of
60%. When they remit after tax profits to their shareholders, they
will pay an additional withholding tax of 15%. They will be
subject to the 17% VAT rate. They will pay the some of the world’s
highest rates for land and office rent. Perhaps most importantly,
they will be entirely under the control of the CCP and the Chinese
government. No “special status” will shield them. Among other
things, this will mean the following:

• When the CCP arrives to set up a party branch in the foreign
  enterprise, compliance by the foreign enterprise will be required.
  When the CCP branch insists on reviewing confidential company
  business records, compliance will be required.
  
  
  
• When the workers in even a five person office state that they
  will form a union controlled by the local CCP/government,
  compliance by the foreign company will be required.
  
  
  
• When the local telecom/ISP service states that it will set up
  the foreign company’s Internet and email server, compliance will
  be required. When the foreign company is told it can no longer use
  its international VPN to get access to necessary news and
  information, compliance will be required.
  
  
  
• When the company is told that all of its company data must be
  stored on a cloud server located in China accessible to the
  Chinese government, compliance will be required.
  
  
  
• When the Chinese government/military arrives at the door and
  tells the foreign company that the PRC Cybersecurity Law mandates
  that it turn over its source code and other confidential
  information, compliance will be required.

This law was passed as the US-China trade talks were being negotiated,
and we now know that the Chinese were making agreements that they had
no intention of committing to. As we've been reporting, the Chinese
reneged on all the agreements just before the final agreement was to
be signed, apparently expecting that political pressures in the US
would force Trump to accept the changes. This follows a decades-old
pattern by the Chinese (and North Koreans) of making agreements and
then ignoring their obligations, while demanding that others
scrupulously meet their commitments, as a standard pattern. Passing
the new Foreign Investment Law is part of the strategy of subterfuge
this time.

The fact that Trump is standing up to the Chinese, and that Trump is
receiving a lot of support from the international community and from
Democrats, is apparently quite a shock to the CCP, since it
means that the CCP's entire negotiating strategy has collapsed.

A G-20 meeting is scheduled for Osaka on June 28-29, and Trump
and Xi Jinping are supposed to meet at that time. Unless some
surprise breakthrough occurs in the US-China trade talks,
that meeting probably will not be held.

On Saturday, China's foreign minister Wang Yi spoke to US secretary of
state Mike Pompeo on the phone. The purpose of the phone call was to
put further political pressure on the US to back down in the trade
talks. The media is reported Wang's statements as a "veiled threat."

China's readout of the call is on the Foreign Ministry web site. The
following is a machine translation:

Quote: Wang Yi phone call with Mike Pompeo (translation)

"On May 18, 2019, State Councilor and Foreign Minister Wang Yiying
made a phone call with US Secretary of State Pompeo.

Wang Yi said that the US has taken words and deeds that harm
China's interests in various aspects in recent times, including
suppressing the normal operation of Chinese enterprises through
political means. The Chinese side is firmly opposed to this. We
urge the US side not to go too far. We should change our course as
soon as possible to avoid further damage to Sino-US
relations. History and reality show that China and the United
States are two big countries. If they are both good and bad,
cooperation is the only correct choice for both sides. The two
sides should, in accordance with the direction set by the two
heads of state, manage differences on the basis of mutual respect,
expand cooperation on the basis of mutual benefit, and jointly
promote Sino-US relations based on coordination, cooperation and
stability.

Wang Yi pointed out that China has always advocated and is willing
to resolve economic and trade differences through negotiations and
negotiations, but the negotiations should be equal. In any
negotiation, China must safeguard the legitimate interests of the
country, respond to the general voice of the people, and defend
the basic norms of international relations.

Wang Yi emphasized that China has shown its position of resolute
opposition to the recent negative behaviors of the US-related
Taiwan. We urge the US to abide by the one-China principle and the
three Sino-US joint communiques and carefully handle the
Taiwan-related issues.

The two sides also exchanged views on relevant international and
regional issues. Pompeo reported on the US's views on the latest
developments in the Iranian situation. Wang Yi emphasized that
China, as a permanent member of the UN Security Council, is
committed to denuclearization and peace and stability in the
Middle East. We hope that all parties will exercise restraint and
act with caution and avoid escalating tensions. Wang Yi reiterated
his principled stand against the "long arm jurisdiction" of the
United States."

The call came several days after Trump signed an executive order
that could block Huawei doing business with American companies.

Both China and the US are becoming more belligerent in tit-for-tat
escalations. China has absolutely no intention of agreeing to a fair
US-China trade deal, and the terms of the Foreign Investment law show
what that means. China will not pull back, because it's bent on a war
of revenge against Japan and a war of annexation against Taiwan, and
Trump is not going to pull back because doing so would be appeasement,
and would do no good anyway.

----- Sources:

-- China foreign investment law: Bill aims to ease global concerns
https://www.bbc.com/news/business-47578883
(BBC, 15-Mar-2019)

-- New China Foreign Investment Law: Not Good News
https://www.chinalawblog.com/2019/04/new...-news.html
(China Law Blog, 23-Apr-2019)

-- China’s Wang Tells Pompeo U.S. Must Negotiate on Equal Basis
https://www.bloomberg.com/news/articles/...e-by-phone
(Bloomberg, 18-May-2015)

-- Wang Yi phone call with Mike Pompeo (translation)
https://www.fmprc.gov.cn/web/wjbzhd/t1664649.shtml
(China's Foreign Ministry, translation in article, 18-May-2019)

[John J. Xenakis]

** 22-May-2019 World View: Britain's Theresa May on her last days as Brexit disaster continues

Andrea Leadsom, who is Theresa May's second in command as leader of
Britain's House of Commons, resigned from May's cabinet an hour ago.
Her complaint: She objects to the crass weakness shown by May in
making concessions to Labor in order to get a compromise Brexit deal.

Making the concessions was a waste of time anyway, since Labor leader
Jeremy Corbyn said that they weren't enough concessions, so he
rejected them as well.

The continuing Brexit disaster is a perfect example of what happens
when Gen-Xers are in charge of running things.

In the 1990s, the world was being run by World War II survivors,
mostly Silents. Those leaders knew how to negotiate and compromise.

Today, the world is being run by Generation-Xers, backed up by
millennial crazies like Alexandria Ocasio-Cortez (OAC), who do not
have the vaguest clue how to negotiate and compromise, and consider
knowledge and experience to be worthless baggage, rather than
something of value.

So we see this spectacle of Britain's House of Commons with everybody
shouting at everyone, with no compromise in sight, or even a
willingness to compromise.

The same kind of spectacle is occurring in Washington, where the
Democrats completely humiliated themselves by demanding a two-year
Russia collusion investigation that produced a report that didn't meet
their demands, so they're pursuing dozens more investigations to try
to get the conclusion they do want.

We've been reading for decades that SAT scores have been falling, and
there are news stories now that many students are graduating from
college without even basic skills. OAC, who is one of the stupidest
people around, is the poster child for one of these college graduates.

This, ladies and gentlemen, is what happens when Gen-Xers and
Millennials are in charge. Many of them are good people, but most of
them appear to be complete idiots. No wonder the world is headed for
a world war.

As for Brexit, my expectation continues to be that Britain will leave
the EU with no deal, because that's the only option that doesn't
require anyone to agree with or compromise with anyone else.

Theresa May might resign today or this week, or she may wait until
week after next, given that Donald Trump will be visiting London next
week to commemorate WW II. Whoever replaces Theresa May will face
exactly the same problems -- Gen-Xers and Millennials who are
too dumb to know how to negotiate or compromise.

[Tim Randal Walker]

My impression is that the Chinese government is determined to have a one sided relationship with the United States.

On the other hand, I understand that Trump wants to sell more stuff to China.

I suspect that Trump will be disappointed-the Chinese will weasel out of attempts to change their behavior.

On the other hand, I doubt that the Chinese will see a return to pre-tariff conditions. Quoting from The Absent Super Power (Peter Zeihan tells this better than I can):

"...the isolationist trickle I detected in American politics has deepened and expanded into a raging river....

"...a populist, isolationist, anti-trade bent has insinuated itself into American politics on both the Left and Right..."

[David Horn]

(05-22-2019, 02:48 PM)Tim Randal Walker Wrote: My impression is that the Chinese government is determined to have a one sided relationship with the United States.

On the other hand, I understand that Trump wants to sell more stuff to China.

I suspect that Trump will be disappointed-the Chinese will weasel out of attempts to change their behavior.

On the other hand, I doubt that the Chinese will see a return to  pre-tariff conditions.  Quoting from The Absent Super Power (Peter Zeihan tells this better than I can):

"...the isolationist trickle I detected in American politics has deepened and expanded into a raging river....

"...a populist, isolationist, anti-trade bent has insinuated itself into American politics on both the Left and Right..."

I read a great critique of Trump's trade war as stupid on tactics, totally lacking in strategy, but something that needed to be done.  China has been riding the "developing nation" hobby horse far longer than they deserved to ride it.  Add their great plans for world leadership, but also their weaknesses.  They are already showing their hand on their one-sided view of trade and political relationships.  What happens if the world decides that China is just too risky to have as a partner on really important things, and too domineering on everything else, and decamps for ABC (Anywhere But China) for making their things, great and small.

This can get really messy really fast.

[John J. Xenakis]

** 21-May-2019 World View: Vietnam to gain from collapse of US-China trade talks

Thanks to China's new Foreign Investment Law and the apparently
complete collapse of the US-China trade negotiations, new investment
opportunities are opening up in China's neighbors, especially
Vietnam, but care must be taken to reduce risks.

China passed its Foreign Investment Law in March. It allows any
Chinese Communist Party (CCP) official to visit a foreign-owned
business and demand copies of all confidential company business
records and company data, as well as its source code and all other
intellectual property. Compliance is required.

US and Chinese trade negotiators had reached a 150-page written
agreement that removed all of these regulations.

US trade negotiators had thought that they had an agreement with the
Chinese negotiators that threw out all these onerous conditions. But
late in the evening, Friday May 3, Washington received the latest
edits from their Chinese counterparts that completely reneged on all
of Beijing's commitments. It's now believed that Beijing never had
any intention of honoring the its commitments, but expected that
political pressure would force President Donald Trump to accept the
watered-down agreement anyway. Instead, Trump angrily announced a new
rounds of tariffs and restrictions on Huawei. It's believed to be
quite a shock to Beijing that Trump is receiving wide support from the
international community and Democrats in Washington to stand up to
China, at least for the time being. China will not back down from its
trade model that uses subterfuge, extortion, and ignoring its
commitments and obligations, and Trump cannot back down because to do
so would be appeasement, and would do no good anyway.

And so the US-China trade negotiations have apparently completely
collapsed. China and the US have entered a period of tit-for-tat
escalations of trade restrictions, including higher tariffs and
blocking certain types of sales and business transactions.


**** Businesses shifting production to Vietnam

The collapse of the US-China trade talks is shaking up all of Asia,
and there are certainly going to be winners and losers. Vietnam is
hoping to be one of the major winners, as businesses look for
countries to which to shift their manufacturing out of China, in order
to avoid the US tariffs.

Vietnam also has a young, ambitious labor force, with two-thirds of
the population under age 35. Just as the West had its "baby boom"
after World War II, Vietnam had its own baby boom after the extremely
bloody civil war between North and South Vietnam in the 1970s,
and those babies are now of working age.

Furthermore, labor costs are a fraction of what they are in
neighboring countries. According to one estimate, labor costs in
Vietnam are half those of China, with the same worker productivity.

Because of the US-China trade dispute, many companies are considering
moving their manufacturing facilities from China to Vietnam, since
exports from Vietnam would not be subject to the US tariffs.

Vietnam was flat on its back after the 1970s wars, but the economy has
changed substantially in the last decade or so. For example, fifteen
years ago Vietnam imported almost all the food it consumed, but today
Vietnam is in the top two exporters of rice and coffee and exports a
lot of seafood worldwide, mainly to China and Hong Kong.


*** North vs South Vietnam


Those wanting to make more direct investments in Vietnam should
distinguish between the the North and the South, because they have
two very different cultures, and in many ways they're like
two different countries.

North Vietnam (Vietnamese Kingdom) was originally populated by ethnic
Chinese, while South Vietnam (Champa Kingdom) was populated by
Polynesian settlers from Indonesia and Malaysia. These ethnic
differences resulted in one crisis war after another over the
centuries.

The country was united by the Tay-Son rebellion (1771-1790), the most
celebrated military event in Vietnamese history, ending in a brilliant
battle in 1789 where the Vietnamese troops repelled a much larger
Chinese army. The North and South remained technically united through
the French colonial period, until Ho Chi Minh founded the Vietnam
Communist Party and drove the French out of North Vietnam in 1956.

The North and the South went through bloody civil war (America's
"Vietnam war") that united the two regions under the North Vietnamese
communists. However, although the war has ended, there's still a
great deal of animosity between the North and the South. Furthermore,
after the war ended, Vietnam followed up with wars against Cambodia,
and then a border war with China.

After the 1970s wars, the Communist government in Hanoi applied
Communist restrictions on businesses in the South, with the continued
use of wartime planning mechanisms that emphasized output targets and
paid little heed to production.

In 1986, Hanoi adopted the Doi Moi economic reforms, with a
significant effect on the south, making it the engine for Vietnam’s
industrial growth.


*** Moving to North Vietnam after the US-China negotiations

Companies moving their production facilities from China to Vietnam to
evade US tariffs are selecting sites for convenience, in North Vietnam
close to China's border. The Hanoi government is encouraging
investments from China, but North Vietnamese public in general is
opposed. Critics argue that Chinese projects exploit cheap labor and
minerals, while polluting the environment and landing the locals in
debt.

Vietnamese hostility toward China is great for a number of reasons.
In the late 1970s, after the Vietnam civil war, there was an extremely
bloody border war between China and Vietnam that left a lot of dead
but was otherwise inconclusive. More important, China has illegally
annexed the South China Sea, including regions that historically
belonged to Vietnam. China's navy has even attacked Vietnamese
fishing boats in Vietnam's own territorial waters.

In 2014, thousands of anti-Chinese protesters in Vietnam, furious over
China's installation of an oil rig in waters in the South China Sea
historically claimed by Vietnam, turned violent and torched a number
of factories in a southern Vietnam industrial park. It was Chinese
factories that were the nominal targets, but the angry mob also
attacked properties owned by Korea, Singapore, Taiwan and Japan.

Public opposition last year to Chinese investments became focused when
thousands of people filled the streets of several major cities across
Vietnam in June, 2018. They were protesting a proposal to create
three "economic zones" which would give special business and trade
privileges to foreign investors. They were particularly objecting to
a proposal to allow 99 year leases by foreign investors, which allow
the Chinese to set up Chinese enclaves that would remain forever. The
Vietnamese public strongly opposed the economic zones. So far, public
pressure has prevented the Communist government in Hanoi from gaining
approval of the economic zones.


*** Investing in South Vietnam -- Ho Chi Minh City (HCMC or Saigon)

Those who wish to invest in South Vietnam should focus on the city of
Saigon, which was renamed to Ho Chi Minh City or HCMC by the
Communists after the 1970s civil war. Last year HCMC attracted
foreign investment of over $7 billion, 22% of the country’s total.

HCMC is experiencing a major real estate boom, thanks to low property
prices. However, the disproportionate investment in real estate is
raising concerns. Foreign investment money is pouring into Saigon for
real estate, but not so much for industries.

During the first four months of 2019, real estate accounted
for 46.8% of foreign investment, with little going for
industries such as manufacturing or agricultural processing.

In response, the HCMC People's Committee chairman Le Thanh Liem has
called for $53.8 billion in foreign invesments, focusing on nine areas,
including transport, infrastructure, agriculture, commerce-service,
education, and healthcare. 1,000 hectares of land would be earmarked
for industrial purposes to attract investors.


--- Sources:

-- Vietnam's Booming Economy Offers Investment Opportunities
http://www.morningstar.co.uk/uk/news/181...ities.aspx
(Morningstar, 22-Feb-2019)

-- Industries in Vietnam
http://factsanddetails.com/southeast-asi...-3477.html
(Facts and Details, 2014)

-- Top 4 ETFs for Investing in Vietnam
https://www.investopedia.com/articles/et...tnam-etfs/
(Investopedia, 29-Apr-2019)

-- How Will Foreign Investment Change Vietnam’s Economy?
https://www.voanews.com/a/how-will-forei...46702.html
(VOA, 25-Mar-2019)

-- New China Foreign Investment Law: Not Good News
https://www.chinalawblog.com/2019/04/new...-news.html
(China Law, 23-Apr-2019)

-- Saigon / HCMC / Chinese Get Chances to Invest in Vietnam Despite
Political Rifts
https://www.voanews.com/a/vietnam-and-ch...03661.html
(VOA, 17-Dec-2018)

-- Saigon /HCMC / Vietnam, with its low property prices, has become a
new treasure hunting ground for Hong Kong and China buyers
https://www.scmp.com/property/hong-kong-...w-treasure
(South China Morning Post, Hong Kong, 23-May-2019)

-- Saigon / HCMC / Big real estate developments and infrastructure
plans make Ho Chi Minh City Vietnam’s most lively city
https://www.webuildvalue.com/en/reportag...aigon.html
(We Build Value, 13-Feb-2019)

-- Growth quality concerns over disproportionate investment in Saigon
real estate
https://e.vnexpress.net/news/business/in...21792.html
(Vietnam Express, 13-May-2019)

-- HCMC wants $54 billion foreign investment
https://e.vnexpress.net/news/business/ec...20629.html
(Vietnam Express, 8-May-2019)

-- Saigon / HCMC / The Hot New Market for Luxury Property Is Vietnam
https://www.bloomberg.com/news/articles/...ty-markets
(Bloomberg, 18-Feb-2019)

-- How can Vietnam avoid becoming China’s dirty industrial backyard?
https://www.scmp.com/week-asia/economics...l-backyard
(South China Morning Post, Hong Kong, 9-May-2019)

-- The spoils of trade war: Asia’s winners and losers in US-China
clash
https://www.scmp.com/week-asia/geopoliti...hina-clash
(South China Morning Post, Hong Kong, 28-May-2019)

-- FAQs About The Special Economic Zones and Vietnam’s SEZ Draft Bill
https://www.thevietnamese.org/2018/08/fa...raft-bill/
(The Vietnamese, 28-Aug-2018)

-- Public criticism pressures Vietnam to back down on new economic
zones
https://www.chinadialogue.net/article/sh...omic-zones
(China Dialog, 26-Mar-2019)

[Tim Randal Walker]

Moving to Vietnam to avoid tariffs will likely turn out to be a short term tactic. Americans will eventually notice (we aren't entirely stupid), and the trade war will expand in its geographic spread.