Will US-China Trade War Grows into a World Trade War?

US President is putting pressures on almost all rich countries including all developed European countries, Canada, Japan and South Korea for reduction of US trade deficits with them. China is the first facing a trade war with the US but I pointed out in my post “Lucky! Thucydides Trap Leads to Trade instead of Military War” yesterday, Trump’s trade war aims first of all at stopping China’s rise so as to maintain US world hegemony. It is thus typically a war caused by Thucydides Trap.

The war may spread to other countries as China’s tariff increase on US goods may hurt other countries’ companies that produce goods for export to China from the US.

Reuters says in its report “German carmakers join American farmers on front line of U.S.-China trade war” yesterday, “Daimler on Wednesday cut its 2018 profit forecast while BMW, whose Spartanburg, South Carolina plant is the largest single exporter of vehicles in the United States, said it was looking at “strategic options” because of the threatened trade war.”

Chinese Communist Party (CCP) has three magic weapons, one of which is the United Front. US pressure on the above-mentioned countries provides China with the golden opportunity to form a united front in China’s trade war with the US.

The trick is to reduce the enemy and united with friends as much as possible so that China’s strength will be enhanced to the maximum while that of its enemy will be reduced to the minimum.

Chinese President Xi Jinping knows and can apply the trick well. While threatening the US with retaliation of tariff increase, he promises to carry on China’s reform to open wider to the outside world including reduction of tariffs on imports from countries other than the US.

Reuters says in its report “China’s Xi says has honored word on opening up economy” yesterday, “Chinese President Xi Jinping said on Thursday he had honored his word by taking action on steps to open up the country’s economy”.

If by so doing Xi is able to form a united front with the above-mentioned countries, the trade war will become a world war between the united front of China and those countries and the United State alone.

Comment by Chan Kai Yee on Reuters’ reports, full text of which can be respectively be viewed at https://www.reuters.com/article/us-usa-trade-china-xi/chinas-xi-says-has-honored-word-on-opening-up-economy-idUSKBN1JH1CD and https://www.reuters.com/article/us-usa-trade-china/german-carmakers-join-american-farmers-on-front-line-of-u-s-china-trade-war-idUSKBN1JH072.


US Senate clashes with Trump on China’s ZTE

Lucas Niewenhuis June 14, 2018

Chinese telecom giant ZTE has had a rocky couple of months. It’s not out of the woods yet.

The company nearly shut down after the U.S. Commerce Department cut off the 25-30 percent of its supply chain that comes from America on April 14, following an investigation that found it had violated sanctions on Iran and North Korea. Li Yuan, a new columnist at the New York Times, calls this a possible “sputnik moment” for China (paywall), because as long as the country still imports 90 percent of its semiconductor components, its technological prosperity is “built on sand.”

President Donald Trump then decided to save the company and strike the deal, in what trade adviser Peter “Death by China” Navarro recently described as “a personal favor to the president of China as a way of showing some goodwill for bigger efforts, such as [the nuclear summit with North Korea] in Singapore.” Details of that deal for ZTE’s pay-to-play were announced last week.

Now a bipartisan group of U.S. senators has inserted an amendment into the 2019 National Defense Authorization Act that again puts the future of ZTE in question.
• “At this point, the only fitting punishment is to give them the death sentence,” Republican Senator Tom Cotton of Arkansas said of ZTE as he advocated for the amendment, the SCMP reports.
• ZTE is “a multiple and flagrant violator of U.S. sanction laws and we can’t let them off the hook with the slap on the wrist,” Democratic Senator Chris Van Hollen of Maryland added.
• ZTE’s stock fell 40 percent on June 13, the day that its trading resumed, on the news of its new limbo, the New York Times reports (paywall).
• But these efforts are “likely to fail,” political analysts at the Eurasia Group said in a statement cited by the SCMP, because the Republican-controlled House of Representatives will be “reluctant to challenge the administration so close to the [Fall 2018 midterm elections].”

In and out of Congress, there are still many questions being raised about exactly how Trump was persuaded to strike a deal to bring ZTE back.
• “Trump’s kid-glove treatment of the company raises questions about possible links between it and Trump family businesses,” write (paywall) a political scientist and two lawyers, one of whom is serving as co-counsel in a case against Trump for accepting foreign bribes, in the New York Times.
• They suggest that ZTE is being saved as part of a “bargain” to personally benefit the Trump family, pointing to a China-linked project with Trump’s name in Indonesia, new China trademarks for Ivanka Trump, and the news that Ivanka Trump and her husband, Jared Kushner, raked in $82 million last year from not-fully-disclosed sources while serving as White House advisers.

Source: SubChina “US Senate clashes with Trump on China’s ZTE”

Note: This is SubChina’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

No New Cold War due to Lack of a West Camp to Counter East Camp

I have talked much in my previous posts about the new Cold War between the East Camp centered on China and Russia and the West Camp led by the US. Now according to SCMP’s report “Xi Jinping sends unity message at regional security summit in China after G7 disarray”, the West Camp is in disarray after the G7 meeting.

Due to the rift between the US and Europe due to their conflicts of interests, there will simply be no West Camp to counter the East Camp. As it takes two to tango, there will be no new Cold War like the old one.

The East Camp has the opportunity to exploit the rift to ally with Europe in dealing with the US and ally with the US to deal with Europe. As a result, the East Camp will prevail to prove the prediction that the 21st century is Asian century.

Comment by Chan Kai Yee on SCMP’s report, full text of which can be viewed at http://www.scmp.com/news/china/diplomacy-defence/article/2150117/xi-jinping-sends-unity-message-regional-security-summit.

The US Is Pushing Iran into China’s, Russia’s Arms

Previously I had a few posts on the US pushing China into Russia’s arms by interference with China’s disputes with its neighbors in the South China Sea and pushing Russia into China’s arms by sanctions over the Ukrainian issue.

Now, SCMP’s report “Xi Jinping, Vladimir Putin hail ‘all-time high’ in ties, sign US$3 billion of nuclear deals” describes the close de facto alliance between China and Russia.

What does “all-time high” mean? Is there an alliance between Russia and China?

It means Russia-China tie is closer than alliance. Why? Because it is “all-time high”! The highest point must be in the 1950s when China and Russia’s predecessor the Soviet Union concluded the Sino-Soviet Treaty of Friendship, Alliance and Mutual Assistance to establish an alliance between the two. Now, there has been no treaty of alliance, but the two are closer than they were treaty allies in the 1950s.

As mentioned above, the two have to thank the US for the alliance, which make them strong enough to openly challenge the US.

Russia challenged the West led by the US by sending troops into Ukraine to annex Crimea and split Ukraine. The US and EU have imposed sanctions on Russia to punish it. However, with China’s support, sanctions do not work. Russia has become more aggressive and even sent troops into Syria.

US former president Obama adopted the policy of pivot to Asia to interfere with China’s maritime territorial disputes with its neighbors in the South China Sea in order to contain China. China responded by building seven artificial islands with three long airstrips on them in the South China Sea. The US failed to stop China promptly as it was distracted by Russia in Europe. Now with the artificial islands, China has de facto turned the South China Sea into its lake.

The US responds with a few freedom of navigation operations a year in the South China Sea. It will be joined by Britain and France that will also send navy to carry out similar operations there.

China says that it will never hinder freedom of navigation there but such operations shall not be the excuses for violating China’s sovereignty by entering China’s territorial waters.

China has turned the sea into its lake in order to exploit the rich fish and energy resources there. The US and EU know that well but do they dare to interfere with China’s exploitation of resources there?

The above is Obama’s contributions to China and Russia.

Now, it’s US President Trump’s turn. He is pushing Iran into China and Russia’s arms by unilateral withdrawal from the Iranian Nuclear Deal. Iran needs Chinese and Russian help to deal with US sanctions. SCMP says in the above-mentioned report, “Xi and Putin also vowed to make ‘all possible efforts’ to preserve the 2015 international accord on Iran’s nuclear programme that Trump abandoned last month.”

The Russia- and China-led Shanghai Cooperation Organization (SCO) has just become an organization of significance after recruiting India and Pakistan as its new members. Now, Iranian president has come to China to attend SCO summit and may very likely make real efforts for SCO membership.

The US is driving Iron to Russia’s and China’s side to enable them to form an Asian iron triangle to counter the US.

Does the US really need so many enemies?

Comment by Chan Kai Yee on SCMP’s report, full text of which can be found at http://www.scmp.com/news/china/diplomacy-defence/article/2149991/xi-jinping-vladimir-putin-hail-all-time-high-ties-sign.

Moron’s Successes v. Non-morons’ Failures

It is really a funny world, funny for those who want peace and cooperation but sad for those who want confrontation and war.

Former US Secretary of State Rex Tillerson called US President Trump moron. He certainly regards himself as a non-moron much cleverer than Trump.

His greatest invention is the strategy of Quad to form an alliance of the US, India, Japan and Australia to contain China with India at the forefront in confronting China.

However, India Prime Minister Modi is even cleverer. He certainly would not pull the chestnut out of fire for the US. In Modi’s keynote speech at Shangri-la Dialogue on June 1 he did not even mention the Quad. Without India and with Japan anxious to court China for the establishment of the ASEAN plus 3 (China, Japan and South Korea) free trade area, the non-moron’s Quad dream has entirely been broken.

Tillerson and other non-morons in US political and media circles are clever but fail to be realistic. They fail to see that diplomacy is driven by national interests. India’s recent prosperity has been built on export of technological, secretary and other services to the US. Now, Trump wants to bring jobs back to the US, which means loss of jobs in India. With a huge and fast growing population, employment problem is quite serious in India. The US wants to take back jobs to aggravate the problem while China can help India solve the problem by moving its labor-intensive industries to India to exploit India’s cheep labor—a win-win cooperation.

What about the Moron? He surprised non-morons by his friendly approaches toward China though he attacked China severely in his presidential campaign. Non-morons have been really upset by the “moron” as they regard China as a rising rival that may grab from the US world leadership. Since China has such ambition, it certainly will not give the “moron” the concessions the “moron” wants.

They are surprised that China has helped the “moron” solve the North Korean problem.

Lots of non-morons hope that there will be a trade war between China and the US to hinder China’s rise so that they are not happy that the “moron” has got China’s promise to reduce US trade deficit with China by USD70 billion. The “moron” wants a reduction of USD100 billion but after intensive bargaining gets 70 billion. It will be China buying USD70 billion more US goods, a great boost to US economy.

US farmers and entrepreneurs are happy for expanding their access into China’s vast market, but the hegemony-obsessed non-morons are unhappy. They want China to suffer and do no care that US farmers and entrepreneurs will suffer along with China.

A typical example is their fury that the “moron” allows ZTE to survive instead of killing ZTE as they want.

They do not care that the “moron” would not have got China’s trade concession if he had not made the concession on ZTE.

They do not care that if ZTE had been killed, US technological enterprises would have lost a major buyer of their goods.

They do not care that if a tariff war had been launched between the US and China, US consumers would have suffered by the increase in the prices of lots of consumer goods imported from China.

They are so obsessed with hegemony that they want to stop China’s rise at whatever cost!

The “moron” wants immediate achievements. He gets them and the achievements will enable him to be reelected and boost US economy when he is in power.

China wants to realize its long-term China dream of its rejuvenation so that it is willing to make the concession to prevent the hard consequence of trade war that may hinder the realization of China dream. Denuclearization of North Korea contributes to China’s security and increase in import from the US means decrease in the imports from other countries. China will be able to maintain its rise. It really upsets US non-morons. That is why US senators and congressmen scramble for ways to block Trump’s deal with China’s ZTE as described in Reuters’ report “U.S. lawmakers scramble for way to block Trump deal with China’s ZTE”.

Comment by Chan Kai Yee on Reuters’ report, full text of which was reblogged in his post on June 8.

U.S. reaches deal to keep China’s ZTE in business: congressional aide

David Shepardson, Karen Freifeld May 26, 2018

WASHINGTON (Reuters) – The Trump administration told lawmakers the U.S. government has reached a deal to put Chinese telecommunications company ZTE Corp back in business after it pays a significant fine and makes management changes, a senior congressional aide said on Friday.

U.S. President Donald Trump appeared to confirm the deal in a tweet late on Friday. “I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine.”

The reported deal involving China’s second-largest telecommunications equipment maker ran into immediate resistance in Congress, where Democrats and Trump’s fellow Republicans accused him of bending to pressure from Beijing to ease up on a company that U.S. intelligence officials have suggested poses a significant risk to U.S. national security.

ZTE was banned in April from buying U.S. technology components for seven years for breaking an agreement reached after it violated U.S. sanctions against Iran and North Korea.. After ZTE makes a series of changes it would now be allowed to resume business with U.S. companies, including chipmaker Qualcomm Inc.

The deal, earlier communicated to officials on Capitol Hill by the Commerce Department, requires ZTE to pay a substantial fine, place U.S. compliance officers at the company and change its management team, the aide said.

The Commerce Department would then lift an order issued in April preventing ZTE from buying U.S. products. ZTE shut down most of its production after the ruling was announced.

Fox News said Trump told them on Thursday that he had negotiated the $1.3 billion fine with Chinese President Xi Jinping in a phone call.

ZTE, which is publicly traded but whose largest shareholder is a Chinese state-owned enterprise, agreed last year to pay a nearly $900 million penalty and open its books to a U.S. monitor. The penalty stemmed from for breaking an agreement after it was caught illegally shipping U.S. goods to Iran and North Korea, in an investigation dating to the Obama administration.

The company has lost over $3 billion since the April 15th ban on doing business with U.S. suppliers, according to a source familiar with the matter.

Trump on Tuesday floated a plan to fine ZTE up to $1.3 billion and shake up its management as his administration considered rolling back more severe penalties that have crippled the company.

Responding to news of the administration’s deal with ZTE, Republican Senator Marco Rubio tweeted: “Yes they have a deal in mind. It is a great deal … for #ZTE & China. #China crushes U.S. companies with no mercy & they use these telecom companies to spy & steal from us.”

Rubio, as well as Democratic Senators Chuck Schumer and Chris Van Hollen, said Congress should act to stop Trump from letting ZTE get back into business. “If the administration goes through with this reported deal, President Trump would be helping make China great again,” Schumer said Friday on Twitter. “Would be a huge victory for President Xi, and a dramatic retreat by Pres Trump. Both parties in Congress should come together to stop this deal in its tracks.”

U.S. intelligence and U.S. law enforcement agencies have serious concerns that ZTE and other Chinese telecommunications firms use their equipment to gather intelligence on U.S. citizens.

The U.S. Department of Defense has also stopped selling ZTE’s mobile phones and modems in stores on its military bases, citing potential security risks.

William Evanina, the acting director of the National Counterintelligence and Security Center, said at his May 15 confirmation hearing that he would not use a ZTE phone nor recommend that anyone in a sensitive position in government use one.

Chinese officials sought a pullback on ZTE as part of any broader deal to prevent a trade war between the world’s two biggest economies. U.S. Commerce Secretary Wilbur Ross is scheduled to visit China next week for another round of talks. White House legislative director Marc Short told PBS Friday that Ross “would be making that announcement in the coming day” of a resolution of the ZTE issue.

ZTE needs U.S. components for its mobile phones and network equipment. U.S. companies provide an estimated 25 percent to 30 percent of components in ZTE’s equipment.

As part of the agreements ZTE made last year it dismissed four senior employees.

Shares of ZTE’s U.S. suppliers traded higher on Friday. Optical networking equipment maker Acacia Communications Inc, which got 30 percent of 2017 revenue from ZTE, rose 4.4 percent. Optical component company Oclaro Inc, which received 18 percent of its fiscal 2017 revenue from ZTE, rose 2.7 percent.

Reuters reported earlier this week citing sources that a proposed trade deal with China would lift the ZTE ban. In return, China would eliminate tariffs on U.S. agriculture or agree to buy more farm products from the United States.

Reporting by Roberta Rampton and Doina Chiacu; Additional reporting by Jonathan Landay; Writing by Chris Sanders; Editing by Meredith Mazzilli, Tom Brown and Diane Craft

Source: Reuters “U.S. reaches deal to keep China’s ZTE in business: congressional aide”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

US Sanctions Facilitate China’s Economic Expansion into Iran

Reuters says in its report “China’s CNPC ready to take over Iran project if Total leaves: sources” on May 11 that due to US sanctions to be imposed after Trump’s withdrawal from the Iran nuclear deal, Frances’ Total may be forced to let Chinese oil giant CNPC take over its 51% share in Iran’s South Pas gas project with world largest natural gas reserve.

CNPC has 30% share now, it it gets Total’s share, it will have an overwhelming majority share of 81% in the lucrative natural gas project.

Trump wants to make Iran suffer, but with Chinese investment, Iran will not suffer. His sanctions may not hurt Iran like his sanctions on Russia. The US has only been benefiting China with its sanctions. However, what the US has got and will get by its enmity with Russia and Iran? A Russia, Iran and China iron triangle?

Comment by Chan Kai Yee on Reuters’ report, full text of which is reblogged below:

China‘s CNPC ready to take over Iran project if Total leaves: sources

Chen Aizhu May 11, 2018

BEIJING (Reuters) – China’s state-owned energy major CNPC is ready to take over Total’s stake in the giant Iranian South Pars gas project if the French company leaves amid newly announced U.S. sanctions, industry sources said.

The United States this week said it would impose new sanctions against major oil and gas producer Iran after abandoning an agreement reached in late 2015 that limited Tehran’s nuclear ambitions in exchange for sanctions relief.

While the new sanctions are unilateral, many companies, including Japan’s Inpex, already appear to be bowing to Washington’s pressure and abandoning projects in Iran.

If Total walks away from the South Pars field, which has the world’s biggest natural gas reserves ever found in one place, CNPC is prepared to step in, the sources said.

It was not clear whether CNPC had received top government approval to do so. But such a move could further strain the tense trade relationship between Beijing and Washington.

Reuters reported in December that a $1 billion deal signed last July gave the Chinese firm the option to take over Total’s stake if it left Iran.

Since then, the Beijing-backed giant has conducted significant due diligence and planning, several high-level industry sources told Reuters.

“The possibility of Total’s pullout is quite high now, and in that scenario CNPC will be ready to take it over fully,” said a senior state oil official with knowledge of the contract.

An executive with direct knowledge of the project added that planning began “the day the investment was approved.”

“CNPC foresaw a high probability of a reimposition of (U.S.) sanctions,” the executive said.

All the sources spoke on condition of anonymity because they were not authorized to speak to media.

Under the terms of the agreement to develop phase 11 of South Pars, CNPC could take over Total’s 50.1 percent stake and become operator of the project.

CNPC already holds a 30 percent stake in the field, while Iranian national oil company subsidiary PetroPars holds the remaining 19.9 percent.

So far, the Chinese oil giant, which already operates two oil fields in Iran, has spent about $20 million on planning to develop the field, the sources said.


Despite CNPC’s preparations, the two sources said they were not aware of any meetings between Total and CNPC after Trump’s move.

CNPC and Total declined to comment.

A source close to Total said the French company was analyzing the impact of new sanctions and whether it could get a waiver that would allow it to keep its stake.

An experienced onshore oil and gas producer, CNPC is relatively green in offshore drilling. Most of its experience lies in its subsidiary China Petroleum Offshore Engineering Company (CPOE), which has worked in shallow waters off north China.

The South Pars gas reservoirs are buried beneath the seafloor, 70 meters underwater.

The project will have a production capacity of 2 billion cubic feet per day, or 400,000 barrels of oil equivalent per day, including condensate, Total has said.

At current market prices, the whole reserves of the field, which Iran shares with Qatar, would be worth around $2.9 trillion.

The field is set to start supplying the Iranian domestic market in 2021.

CNPC is prepared to use its banking unit Bank of Kunlun Ltd as a funding and clearing vehicle if it takes over operation of South Pars, the second senior state oil official said.

The bank was used to settle tens of billions of dollars worth of oil imports during the UN sanctions against Tehran between 2012 and 2015, the official added.

Most of the bank’s settlements during that time were in euros and Chinese renminbi. The U.S. Treasury sanctioned Kunlun in 2012 for conducting business with Iran.

If CNPC goes ahead, it would also likely have to develop crucial equipment, such as large-powered compressors needed for developing gas deposits on this scale, on its own.

Leading manufacturers like U.S. firm GE and Germany’s Siemens could be barred from supplying to Iran under U.S. sanctions.

Additional reporting by Bate Felix in Paris and Ron Bousso in London; Editing by Henning Gloystein and Gerry Doyle