QUESTION: How come nobody in Trump’s team can not explain to Trump that the Trade War with China will push the rates up?
It looks very logical to me that if you are aggressive to China, they will continue to sell off bonds, and the sale of USA bonds will push rates higher. If they would start talking peace and honor the One China Policy, they will simply stop selling bonds, and rates would stay lower.
Peace means we all collaborate, and hostility will finally expose the fact that the FED is not controlling the rates, but markets do.
Is this correct logic?
Regards,
GD
ANSWER: I’m not entirely sure. What seems like common sense to me looks like Nobel Prize-winning logic to others. Perhaps because they are just domestic and cannot see the international aspects or how we are all connected, I have encountered strange forecasts from some analysts. However, I can understand it because they are purely domestic and never consider anything outside their own country.
Both China and Japan have been selling US debt, but this was before the tariffs were imposed. Their economies are declining, and they need to bring cash home. In the case of Japan, this is while the Biden Administration was threatening China with sanctions if they helped Russia. One Socrates, we also have all the countries holding US debt. You can look at the trends and see what I am talking about. Yes, selling US debt will send long-term rates higher which the Fed cannot prevent. Trump’s thinking that he can fire Powell and lower rates for politics is without any historical backing.
There is absolutely ZERO evidence that lowering interest rates will EVER stimulate the economy. Trump is dead wrong on this. The ECB went NEGATIVE in 2014, and it still did not reverse the economic decline of Europe, and it made it worse, undermining pensions and banks. Trump is a borrower, not a lender. He has to step back and objectively look at history.
This trade war will cause STAGFLATION, and Trump seems to be taking us in that direction, all on his misguided views that somehow China is to blame for us losing manufacturing. I have experience with multinational companies and have reorganized many. It is the Democratic propaganda that companies move solely because they can get cheaper labor. That is just socialist propaganda.
I even warned a company in Germany that when the Berlin Wall fell, they rushed to open a plant there on this stupid theory of cheaper labor. After one year, they apologized for not listening to me. They bought into the theory that they were Germans so that they would have the same work ethic. They admitted that it took nearly 3 East Germans to do the same work as one West German.
Companies move due to regulations and taxation. I helped some get into North Macedonia, which gave them a 25-year guarantee of no tax increases. I put Japanese companies in Britain that needed skilled labor, vs Germany or France, because the cost of regulation was 40% more on the same salary in Germany vs Britain.
Perhaps because I have dealt with international issues, it’s just common sense to me and our global readers. I sent a letter last week to the Secretary of the Treasury, and I just texted someone else about the tariffs on China. There will be shortages in goods, and that alone will drive prices higher, even without the tariffs.
The Crimean War, from 1853 to 1856, in what is now called Ukraine, halted grain shipments from that region, and wheat prices nearly doubled in the USA due to the war in Crimea. There was a crash in 1856 when the war ended.
