Shawn Hackett, president of Hackett Financial Advisors, breaks down how this year’s harvest for corn and soybeans is at risk of major frost damage. In this interview with Jake Merl, Hackett walks through how weather patterns and solar cycles historically influence crop yields, discusses the severity of the current situation, and reviews how traders can take advantage of the rare setup with a particular grains ETN. Filmed on August 30, 2019.
Hawks in Washington speak of ‘decoupling.’ Xi Jinping is already busy doing that—his way.
A China hand and former Treasury Department colleague told me before the 2016 election that officials in Beijing preferred Donald Trump to Hillary Clinton because they thought Mr. Trump would be an easier negotiator.
Yet Mr. Trump has proved to be anything but—and in ways that ill serve U.S. interests. Through a series of vacillating threats and entreaties that often seem to be decided on a whim, he has shown President Xi Jinping that he is an unreliable negotiator. Mr. Trump’s public bullying makes it hard for Mr. Xi to accept any deal while saving face, which is very important to the Chinese. Thus Mr. Xi is no longer earnestly negotiating, merely going through the motions.
The Costs of China’s Crackdown on Hong Kong
The new buzzword in Washington discussions of Sino-U.S. negotiations is “decoupling.” From the Trump administration’s perspective, they are threatening Beijing with the prospect of disentangling the U.S. and China entirely and creating two distinct economic systems, similar to the bipolar world of the Cold War. Many in Mr. Trump’s orbit believe that blocking China’s access to U.S. technology would thwart China’s attempts to surpass the U.S. on the world stage.
Denying parts needed by Chinese national champions like Huawei, the argument goes, would frustrate Mr. Xi’s Made in China 2025 program to make critical commercial supply lines self-sufficient. These American hard-liners believe decoupling would cause the Chinese economy to crumble in the same way containment led the Soviet economy to collapse.
This approach is naive and probably counterproductive. It is accelerating rather than slowing the Made in 2025 program. Mr. Xi has jettisoned Deng Xiaoping ’s established strategy: “Hide your strength, bide your time, never take the lead.” From his perspective, decoupling is not only an American threat—it’s the new Chinese strategy.
Nowhere is this more evident than Huawei’s case. The Trump administration has temporarily cut off most transactions between U.S. companies and Huawei, and China hawks are pushing the president to make this decoupling permanent. Meanwhile, Mr. Trump dangles access to American-made components as leverage to get Mr. Xi to buy American soybeans. But Mr. Xi does not appear interested in tactical détente as he was last year, when he asked Mr. Trump to save ZTE, the other prominent Chinese telecommunications firm. Instead of giving in to Mr. Trump’s demands, Huawei recently introduced its own operating system, Harmony, an alternative to Android that will reduce Huawei’s reliance on U.S. technology.
I do not contend that China is benign or even that Mr. Trump has misdiagnosed the problem. Rather, my concern is that the president’s erratic approach has aggravated the situation by encouraging Mr. Xi to embrace decoupling on his own terms. After more than two decades of globalization, severing the integrated supply lines of the world’s two largest economies will necessarily be messy. For the U.S., Mr. Trump’s approach makes it even messier.
The latest whipsawing escalations in the United States’ trade war with China prompted a wide array of business organizations to warn over the weekend that American consumers and workers would soon be caught in the crossfire.
It is now looking increasingly likely that few large American companies will be able to sidestep the toll exacted by the new tit-for-tat tariffs that China and President Trump rolled out on Friday.
Many business leaders have kept a low profile as the trade war intensified, for fear of attracting President Trump’s ire, and in the hope that the threats of tariffs could be negotiating tactics that will lead to some sort of trade agreement.
But with several tariffs already in place, and President Trump staking out an even more aggressive stance on Friday, many industries are reckoning with just how serious the situation has become.
Joshua Bolten, the president and chief executive of the Business Roundtable, an organization representing the leaders of the largest American companies, said on Sunday that many C.E.O.s were already “poised right on top of the brake.”
“The risk is that everybody’s going to slam on the brake, and that would be a disaster,” Mr. Bolten said on “Face the Nation” on CBS.
President Trump’s latest moves, Mr. Bolten said, could “disrupt trade and commerce in a way that would cause huge damage — not just to the Chinese economy, but to the global economy and the U.S. economy.”
The American manufacturing sector shrank in August for the first time since 2009.CreditRoss Mantle for The New York Times
The American economy has so far been relatively resilient as the two sides battle. But several recent signs suggest that the tit-for-tat is beginning to broadly hit American businesses.
The American manufacturing sector, for instance, shrank in August for the first time since 2009, according to data released last week from the research group IHS Markit.
“America’s manufacturing workers will bear the brunt of these retaliatory tariffs, which will make it even harder to sell the products they make to customers in China,” the president and chief executive of the National Association of Manufacturers, Jay Timmons, wrote on Twitter on Friday.
While corporate earnings have held strong, several companies said last week that they were trimming their profit expectations as a result of the trade war.
On Friday, after China announced new tariffs and Mr. Trump ordered American companies out of China, the Standard & Poor’s 500 index slid 2.6 percent and the tech-heavy Nasdaq composite fell 3 percent. After the markets closed, the president announced more tariff increases.
China said on Friday morning that it would impose new tariffs on $75 billion of American imports. A few hours later, President Trump announced on Twitter that he would be raising tariffs further on $550 billion of goods coming from China.
The biggest shock was from Mr. Trump’s statement that he was ordering American companies to “immediately start looking for an alternative to China.”
The president said he had the power to do so as a result of a 1977 law that has traditionally been used to deal with security and military threats.
President Trump on Sunday at the G7 summit in Biarritz, France.CreditErin Schaff/The New York Times
Over the weekend, some of Mr. Trump’s advisers tried to somewhat soften the blow of the president’s words.
Treasury Secretary Steven Mnuchin, speaking on “Fox News Sunday,” said that Mr. Trump had the authority to make such a demand if he declared a national emergency but that he had not yet done so.
“I think what he was saying is he’s ordering companies to start looking because he wants to make sure — to the extent we are in an extended trade war — that companies don’t have these issues and move out of China,” Mr. Mnuchin said. “And we want them to be in places where they are trading partners that respect us and trade with us fairly.”
There is still significant uncertainty on how many of the steps that China and Mr. Trump have announced will come into effect. The president has stepped back or delayed previous tariffs. And on Sunday the president said he was having “second thoughts” about the threats he made last week. But shortly thereafter, the White House press secretary, Stephanie Grisham, said that the president’s regret was that he had not raised tariffs even further.
American businesses have already begun taking steps to respond. The toymaker Hasbro said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.
The American toy industry is particularly reliant on Chinese factories, which account for 88 percent of its production, according to the National Retail Federation. But the figures are also large for other major portions of the retail industry.
David French, the senior vice president for government relations at the retail federation, said this weekend that companies were facing a difficult road because it could take years to make the kind of moves that the president has demanded.
“It’s impossible for businesses to plan for the future in this type of environment,” Mr. French said in a statement. “The administration’s approach clearly isn’t working, and the answer isn’t more taxes on American businesses and consumers. Where does this end?”
Hasbro toys at a Target store in Manhattan. The toy company said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.CreditJeenah Moon for The New York Times
President Trump has said that he expects China to pay the costs of the tariffs he has imposed. But the direct costs of the tariffs are generally paid by the companies importing goods from China, who can then pass them along to consumers.
The Consumer Technology Association, which represents the largest electronics companies, has said that the tariffs are already costing the American tech sector $1.3 billion a month, and could raise the price of cellphones by $70 and the price of
The latest whipsawing escalations in the United States’ trade war with China prompted a wide array of business organizations to warn over the weekend that American consumers and workers would soon be caught in the crossfire.
It is now looking increasingly likely that few large American companies will be able to sidestep the toll exacted by the new tit-for-tat tariffs that China and President Trump rolled out on Friday.
Many business leaders have kept a low profile as the trade war intensified, for fear of attracting President Trump’s ire, and in the hope that the threats of tariffs could be negotiating tactics that will lead to some sort of trade agreement.
But with several tariffs already in place, and President Trump staking out an even more aggressive stance on Friday, many industries are reckoning with just how serious the situation has become.
Joshua Bolten, the president and chief executive of the Business Roundtable, an organization representing the leaders of the largest American companies, said on Sunday that many C.E.O.s were already “poised right on top of the brake.”
“The risk is that everybody’s going to slam on the brake, and that would be a disaster,” Mr. Bolten said on “Face the Nation” on CBS.
President Trump’s latest moves, Mr. Bolten said, could “disrupt trade and commerce in a way that would cause huge damage — not just to the Chinese economy, but to the global economy and the U.S. economy.”
The American manufacturing sector shrank in August for the first time since 2009.CreditRoss Mantle for The New York Times
The American economy has so far been relatively resilient as the two sides battle. But several recent signs suggest that the tit-for-tat is beginning to broadly hit American businesses.
The American manufacturing sector, for instance, shrank in August for the first time since 2009, according to data released last week from the research group IHS Markit.
“America’s manufacturing workers will bear the brunt of these retaliatory tariffs, which will make it even harder to sell the products they make to customers in China,” the president and chief executive of the National Association of Manufacturers, Jay Timmons, wrote on Twitter on Friday.
While corporate earnings have held strong, several companies said last week that they were trimming their profit expectations as a result of the trade war.
On Friday, after China announced new tariffs and Mr. Trump ordered American companies out of China, the Standard & Poor’s 500 index slid 2.6 percent and the tech-heavy Nasdaq composite fell 3 percent. After the markets closed, the president announced more tariff increases.
China said on Friday morning that it would impose new tariffs on $75 billion of American imports. A few hours later, President Trump announced on Twitter that he would be raising tariffs further on $550 billion of goods coming from China.
The biggest shock was from Mr. Trump’s statement that he was ordering American companies to “immediately start looking for an alternative to China.”
The president said he had the power to do so as a result of a 1977 law that has traditionally been used to deal with security and military threats.
President Trump on Sunday at the G7 summit in Biarritz, France.CreditErin Schaff/The New York Times
Over the weekend, some of Mr. Trump’s advisers tried to somewhat soften the blow of the president’s words.
Treasury Secretary Steven Mnuchin, speaking on “Fox News Sunday,” said that Mr. Trump had the authority to make such a demand if he declared a national emergency but that he had not yet done so.
“I think what he was saying is he’s ordering companies to start looking because he wants to make sure — to the extent we are in an extended trade war — that companies don’t have these issues and move out of China,” Mr. Mnuchin said. “And we want them to be in places where they are trading partners that respect us and trade with us fairly.”
There is still significant uncertainty on how many of the steps that China and Mr. Trump have announced will come into effect. The president has stepped back or delayed previous tariffs. And on Sunday the president said he was having “second thoughts” about the threats he made last week. But shortly thereafter, the White House press secretary, Stephanie Grisham, said that the president’s regret was that he had not raised tariffs even further.
American businesses have already begun taking steps to respond. The toymaker Hasbro said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.
The American toy industry is particularly reliant on Chinese factories, which account for 88 percent of its production, according to the National Retail Federation. But the figures are also large for other major portions of the retail industry.
David French, the senior vice president for government relations at the retail federation, said this weekend that companies were facing a difficult road because it could take years to make the kind of moves that the president has demanded.
“It’s impossible for businesses to plan for the future in this type of environment,” Mr. French said in a statement. “The administration’s approach clearly isn’t working, and the answer isn’t more taxes on American businesses and consumers. Where does this end?”
Hasbro toys at a Target store in Manhattan. The toy company said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.CreditJeenah Moon for The New York Times
President Trump has said that he expects China to pay the costs of the tariffs he has imposed. But the direct costs of the tariffs are generally paid by the companies importing goods from China, who can then pass them along to consumers.
The Consumer Technology Association, which represents the largest electronics companies, has said that the tariffs are already costing the American tech sector $1.3 billion a month, and could raise the price of cellphones by $70 and the price of laptops by $120, on average.
JPMorgan Chase analysts recently predicted that the overall costs to American families of the tariffs were likely to be between $1,000 and $1,500 a year.
“Tariffs are taxes on Americans, putting us on the wrong economic path and compromising our global leadership,” the president and chief executive of the technology association, Gary Shapiro, said on Friday. “How much longer will our families, companies and economy be forced to bear the financial burden of this misguided trade policy?”
China appears to be aiming its tariffs at parts of America where support for President Trump is particularly strong, like farm country in the Midwest. China’s actions on Friday, for instance, add 5 percentage points to the 25 percent tariff already paid on American soybeans.
The president of the American Farm Bureau, Zippy Duvall, said after the latest announcements that “continued retaliation only adds to the difficulties farm and ranch families are facing and takes the situation in the exact wrong direction.”
China also added new tariffs to cars made in America. Tesla, as well as the Germany carmakers Daimler and BMW, are the most vulnerable to the additional levies. Six of the top 10 vehicle models exported from the United States to China, the world’s biggest car market, are from the two German brands, according to the forecaster LMC Automotive.
In private, auto executives say that, for now, the uncertainty is a greater concern than the potential material impact of the tariffs. One auto executive who spoke on the condition of anonymity said the industry was more worried that it cannot predict what might happen next or how bad it might get.
JPMorgan Chase analysts recently predicted that the overall costs to American families of the tariffs were likely to be between $1,000 and $1,500 a year.
“Tariffs are taxes on Americans, putting us on the wrong economic path and compromising our global leadership,” the president and chief executive of the technology association, Gary Shapiro, said on Friday. “How much longer will our families, companies and economy be forced to bear the financial burden of this misguided trade policy?”
This means the trade fight has cost U.S. farmers a bundle when they least can afford it. In 2017 U.S. farmers sent 25%—some $140 billion—of production abroad. More than 17% went to China. But then the U.S. imposed tariffs against Chinese products, and Beijing retaliated with sizable tariffs on 90% of U.S. farm exports. American Farm Bureau Federation President Zippy Duvall says that “in 2018, U.S. agricultural exports to China declined $10 billion—about a 50 percent loss.”
China was once the second largest export market for U.S. agriculture but it’s now fourth. “This is a drastic reversal for what had been a growing market,” wrote Mr. Duvall in a recent letter to the President. “From 2000 through 2017, the value of our agricultural exports to China grew from 2 percent to 16 percent of total U.S. agricultural exports.”
American soybean farmers sent about 60% of their exports to China in 2017. But their Brazilian competitors pay a 3% Chinese tariff while Americans now pay 28%. In 2018 U.S. soybean exports to China fell 75%, and U.S. farmers had to cut prices to unload oversupply in other markets. The total value of soy exports fell $4.3 billion—a 20% decline.
Or consider pork exports, 40% of which has traditionally gone to Mexico and China. U.S. pork exports by volume to China dropped 58% in September 2018 from a year earlier and 80% since 2016. Mexico’s 20% tariff on U.S. pork exports, in retaliation for Mr. Trump’s steel tariffs, cost the pork industry an estimated $1.5 billion in 2018.
None of this comes as a surprise to Mr. Trump, who has been hearing complaints for months from his Farm Belt supporters. That’s why Mr. Trump is responding with the $16 billion in subsidies, most of which will be direct payments to farmers. These are in addition to the subsidies under traditional U.S. farm programs.
So in order to make up for losses from trade, Mr. Trump is dunning other American taxpayers. But as Bill Gordon, vice-president of the American Soybean Association, recently told the South China Morning Post, farmers don’t want welfare. “Here’s a handout to make you happy? That doesn’t make us happy. We want our markets back,” Mr. Gordon said.
The argument for enduring this pain is that it is the price of getting China to change its predatory trade practices. Short-term pain for some will lead to long-term gain for everyone. The game theory is that Mr. Trump has to show China’s Xi Jinping that he is willing to absorb more pain for longer than Mr. Xi can. But then the pain is in Kansas, not Washington.
Not long ago Mr. Trump said he wanted a China trade deal but lately he’s been suggesting he’d be as happy running for re-election in 2020 as the trade hawk who was willing to take on China. We wonder how Iowans will feel about that if farm incomes continue to decline for another 18 months.
