U.S.-China Trade Deal Already in Doubt

 

Trump Chaos Rattles China Trade Negotiations Before They Even Begin

Just days after President Trump claimed success in trade disputes with China, disagreement over the details have emerged. That rings with a familiar tune.

The Trump-Kim Summit this past June in Singapore raised similar doubts about what, if anything, was actually accomplished. It turns out that even with a loosely worded document we now know that nothing was formalized after that highly touted success.

While North Korea continues to develop missiles and possibly more nuclear weapons, Trump complains he hasn’t been offered the Nobel Peace Prize for his efforts. 

The Saturday Trump-Xi dinner in Buenos Aires didn’t even offer anything in writing and journalists were left guessing why applause erupted from behind closed doors as the dinner ended. There was no press conference or photo op to clear up the issue as Trump & Co. headed for the airport.

After landing, Trump claimed Chinese auto tariffs were being lifted. The White House has now walked that back. Trump claimed China would spend over $1 trillion on U.S. goods. His economic advisor Larry Kudlow said that was more aspirational than specific and would be determined by private entities and economic conditions. Trump said if China doesn’t make bold moves in ninety days, he’s Mr. Tariff, and then suggested the timeline might be extended.

No one knows what success looks like three months from now, and that’s a serious problem.

Now China has expressed its discontent with the White House version of winning it all. Yet again, Trump excels at undiplomatic posturing while others are left to clean up his mess.

The pattern here is clear. Trump’s erratic words cannot be trusted, only managed, even by those closest to him. It’s another episode of “Promises Made, Promises Broken.”

U.S. markets didn’t like that kind of uncertainty, and along with other negative financial news on Tuesday, they shed over 3% in one of the worst days in their history. 

Making matters worse, US Trade Representative Lighthizer replaced Treasury Secretary Mnuchin as lead negotiator. Lighthizer is a known China hawk, and while having someone strong-willed and skeptical at the table is an advantage, if the lead isn’t considered to be negotiating in good faith that will not end well for bilateral relations or the international trading system.

The most likely outcome at the end of February will be China claiming they did everything they said they would do and the U.S. saying whatever they did wasn’t enough.

Chinese state media has already started making the list and announced increased punishments for firms found guilty of IP theft, but will they be implemented?   

If Trump really wants to reduce the trade deficit, protect intellectual property, and remove investment barriers, he and his team are going to have to be far more disciplined than they have been to date, and that seems highly unlikely.

Playing loose and fast with the facts, tweeting exaggerated wins, and painting Chinese negotiators into a corner will not make this relationship work. Both sides have to be able win.

 

G20 – What to Watch

G20 – What to Watch

 

 

11/30/18 – Updates on potential Trump-Putin meeting below.

The city center is bulking up on barricades and armed officers as world leaders being arriving for this year’s G20 meeting. Some 22,000 security personnel are being enlisted to keep the peace as anti-globalization and leftist political protests are expected, though they’ll be confined to a largely emptied part of town. The Argentine economy is under significant stress with 45% inflation and the peso more than doubling over the last two years against the dollar. Major parts of downtown will be completely closed, including cafes and shops. 

Saudi Arabia’s Crown Prince Mohammed Bin-Salman arrived on Wednesday and French President Macron is on the ground today. Trump is expected Friday along with several hundred press in tow. How many are fake news, but real people, will likely be tweeted ad nauseam starting late Saturday as Trump winds up his 48 hour stint in Argentina. 

Here are a few of the potentially most controversial issues to come out of the annual gathering.

 

Will there be a joint statement? 

After the debacle at APEC where the U.S. and China were at loggerheads over the final text and in an unusually thuggish move, the Chinese delegation stormed the offices of the Papua New Guinea Prime Minister’s office demanding changes. In the end there was no agreement over language for a final statement, the first time since APEC’s founding in 2003. 

For context, those final statements are mostly aspirational with very watered down, benign language that all participating countries can sign off on. They aren’t even legally binding. Early drafts are usually negotiated well in advance.

Will the same happen at the G20 with an even more complex set of issues in play including climate change (which Trump doesn’t believe is a scientific fact), migration (U.S. troops still on the border with Mexico), economic growth, health, sustainable development, the international financial architecture, and a host of other issues in addition to an “Action Plan.”

For comparison here’s a link to last year’s statement. 2017 G20 Leader’s Declaration 

 

Lots of Deals, or Not

Part and parcel of G20 gatherings are major business deal announcements and project financing, aka deliverables. Most, if not all of these, have either been in the works for months or already started, but it makes the event look like a venue where things get done. China is funding Argentina’s fourth nuclear power plant and if the proliferation of China’s ICBC bank branches across the capital are any indication, financial ties are strengthening even during Argentina’s economic downturn (Citibank sold its retail operations to Santander in 2016 further shrinking U.S bank presence in the country.)

Teatro Colón (Colón Theatre) in Buenos Aires
Site of cultural event for Leader’s Summit

What, if anything, will the U.S. be announcing in terms of large deals in Latin America? The re-negotiated NAFTA with Mexico and Canada is already old news as is Argentina’s new beef exports to the U.S. China’s financing largesse is likely to overshadow any announcements by Trump unless the numbers are “bigly” and “yuge.” There are no signs of that happening.

Trump-Xi Statement

Rumor has it Trump and Xi are meeting for dinner on Saturday night, with the venue and menu yet to be reported. The outcome of that feast may well determine the near-term future of global trading relations, major stock market movements, and a wave of punditry over the temperature of a new Cold War. Trump’s economic adviser, Larry Kudlow, tried to strike a positive tone this week suggesting a deal could be made over the tit-for-tat tariffs that have roiled markets, while hedging with a statement that China needs to offer more. Trump, with his illimitable bravado, threatened even more tariffs.

Meanwhile China’s President Xi continues to travel the world (most recently Spain) and continues to tout support for free markets and the allure of China’s growing market. So far there’s been no mention of structural reform and there likely won’t be. State-owned enterprises are a fixture of China’s Communist Party rule despite its turn towards capitalism, and no threat from the U.S is going to change that. 

 

Trump-Putin Meeting

Update 11/30/18 12:54 – Russia says a meeting with Trump is still on as with other leaders. WH says nothing has changed. They may be splitting hairs on what “meeting” means. Technically a “pull aside” is not an “official” meeting since it doesn’t involve a formal sit down with advisors, etc. and can take place for a very short time. A pull aside also doesn’t carry the same gravitas as a formal meeting, but leaders still talk to each other, and usually without press or even a briefing afterwards.

Update 11/29/18 11:45 – Trump tweets cancellation of his G20 meeting with Putin citing Russia’s continued seizure of Ukrainian ships and crew. That leaves door open if they’re released in the next two days, but suspicions swirl that this has to do with more Cohen revelations of pursuing a Moscow deal during the campaign.

Official White House Cancellation of Putin Meeting Announced via Tweet

As of 11/29 the meeting has been cancelled via Trump’s tweet and then on 11/30 Russia says they will still meet. Who knows what “meet” means anymore.

No matter how this pans out, the on-again, off-again announcements make the U.S. look weak and confused. If Trump does end up meeting Putin, even in an “unofficial” pull-aside, he appears to be dancing to Russia’s balalaika (stringed Russian musical instrument.) There will be no time for an in depth discussion of Iran, missile treaties, Ukraine, North Korea, Syria, or a handful of other pressing issues. 

It’s amateur hour in Buenos Aires for the U.S. delegation, in part or by design thanks to Trump’s inability to stay on point and engage with the international community in any strategic way. Have no doubt though that WH Comms will spin this as a series of successful events during an intense two days of high stakes diplomacy.  

. . . It will certainly be a whirlwind few days of summitry, though don’t expect any mountain peaks to be topped with major announcements. 

If you like this post please share it widely and often. For Twitter updates join the conversation @brianpklein.  Thanks.

Fiction: When We Were Young and Full of Wonder

 

  1. The Cycle of Life

 

NYC, Artist Unknown

They stand in pairs, waiting, hands tucked neatly behind their backs. Four rows. Two columns. The males would have been high school football players in their prime, muscled, but now humbled. White threads show through the knees of their identical, brushed denim jeans from actual distressing, not a fashion re-tread. On the way in to the only bookstore in town, stripped of bound paper, re-purposed with metal flooring and exposed florescent lighting, one wrist-bound couple glances quickly around the room. Maybe that was a classmate before the school closed or a neighbor from down the street.

Well-heeled guards enter, single file, walking the perimeter, tapping their steel-tipped canes on the ceramic floor. They laugh when the tiles beneath the kids’ feet warm from yellow to orange, to red, and the heat steals the rubber from their soles.

“Would you look how still they stand,” the chief says, swinging her cane back and forth, right up to their noses. She never hits. The priest said they must be kept unblemished. After the last cycle hardly anything grew in season or ever made it to fruit.

A boy in the back row raises his head and winces. The metal collar, chained to the girl beside him, tugs against his bruised neck. The guard narrows her gaze.

“That one,” she says, pointing squarely at his head. 

The couple walks silently off their square, heads low, melted rubber footprints trailing to the door.

* * *

Inside the domed tent ancient images of ochre-stained animals stare down from the cloth roof— long legs, arched backs, some baring teeth. Pale yellow sunlight, weakened with age, shines through their poked-out eyes onto an over-ripened earth. With barely enough room to stretch out their arms, the young pair stand, facing each other.

“Why did you think that would work, giving up so easily?” The girl asks him.

“I know how they think. Resist, but not too much. Isn’t this our chance?”

“Do you think they’re watching now?”

“I doubt it. Otherwise, how could they be confident this works.”

A bell rings. They drop to their knees and dig at the dirt with their fingers. When they’re fist- deep, warm water pours over them from an opening above their heads and pools around the tender sapling between their hands.

He catches his first glimpse of the sky through the tent hole: so blue and pure he nearly cries and then makes his move. She pulls him sharp and close, close enough to steal a whiff.

“I know how this part ends. we’ll never make it like this” she says, tugging at the chain. She digs the toe of her shoe into the soft earth, exposing a blade brighter than anything he’s ever seen before.

“You’ll need to be quick,” she tells him.

“Why are you helping me?”

“Just give me your coat and shoes before you go.”

When the bullhorn sounds they bow at the waist, according to custom. Her hand sweeps the ground with a rehearsed ease. Two twists of the blade and the collars fall from their shoulders. He grabs for the knife and catches the edge, slicing his palm.

“I didn’t do that to you,” she says, throwing the red-tinged metal back into the dirt. 

Drumming starts outside, guttural chants. The tent will come down soon.

”You go first,” she says. “Out the back. Don’t forget the shoes and coat. They already have your scent.”

He holds on her eyes, looking for a trust too readily given. The boy bolts, bare feet slapping the stone walkway as it curves towards the tree line. He does not look back. After twenty strides his calf muscles cramp. His joints seize. An electric shock singes the ground up to his thighs. 

They never make it past the first turn, not the simple ones, not the young ones, not even the strongest among them. At least she’s warm now. Her shoes wedge tightly inside his. Double the melted rubber should protect her for next time. That counts for something. Giving him false hope, too. It’s a certain kind of grace. That and a good death is about as much as you could ask for. The soil must be fed and the saplings should grow faster with his sacrifice.

 

2. A Folder’s Lament

 

I don’t like cramped spaces. I once spent three days wedged between floorboards and caustic insulation. That might not sound like a lot. Hardly a record. Hardly worth mentioning considering the others hip-high in water, skin puckered with rot, or wasting in the cistern where the sewage leaks. I had it easy. Warm, but itchy. There was even some light.

The first few hours were the hardest, especially when someone came looking for me. They’d stand on the floor, right above my face, and wait. Sometimes there’d be an argument. I could hear them yelling. “You knew it was her time. There’s no use hiding her. We’ll find her one way or the other. Even your old, tired blood stains red.” 

My breath dropped low, deep into the well of my belly. That’s when I knew I could truly fold.

The technique is simple. Wedge both forearms behind the back, right under left. Cross the ankles, bend at the waist, and bring your knees up to your chest. Some people like turning their head to the side. I prefer looking straight ahead. It helps to learn while the muscles are limber. I was taught a little earlier than the others. A year or two later and the lessons would have been excruciating.

“Joints were made to be broken,” the tutor said every day as the straps were tightened. Sounds almost funny now, if not cruel. Really it’s the ligaments that stretch and the bones just follow. Nothing really breaks. 

Part of me wanted to escape, of course. But how could I leave what I’d just gotten to know? I learned a lot staring up through that narrow gap of knotty pine. People wear their souls on their shoes. Soft, worn rubber—mostly kind words. Hard, new heels—they had no remorse. 

After a couple of days under the floorboards the world cracked open and I could see broad daylight again. I thought I had failed. My grandfather’s fingertips were bloody from ripping at the nails. He motioned to keep quiet as he untied the straps and carried me in his arms until his face winced with a pain I knew, but had overcome. We left, heading towards the edge of town. He kept pointing to the trees and said in heaving, accented words, “avoid the tent and rock-a-ways.” 

He told me as he dropped me off at the edge the woods, remember, we fold because we never bow. You learned the skill, now teach it to your children. Even if it seems like better days.

The ceremonial bell rang. I folded first between two moss-covered boulders beyond the ferns. No one caught me there. A boy, barefoot, blood trickling down his arm and nearly naked, ran across the field and almost made it through. He didn’t clear the circle—he didn’t know how to fold. Otherwise, why would he ever need to run. They say the soil will grow stronger for his sacrifice.

I can still hear my grandfather’s voice in the rocks as they crack and splinter on the ledge below. A bird I’ve never seen before rides thermoclines in the valley: peaceful, arcing circles as it eyes its next meal. Wind rushes the crack as it passes. It was supposed to be my offering time. All of us, silent in this cliff face, we will always know how to fold.

 

3. Sports for Lazy Sundays

 

A plume of smoke rises out of the only chimney in town. Everyone gathers in the street and waits with their backs against the midday sun. When the smoke turns from blue to white a small cheer erupts. They wait again until a gong rings, deep and low, then turn, nearly in unison. Two-by-two they go down the narrow cobblestone pathway and under the archway to the proving grounds. There’s order, an odd calm. 

A single, round-walled tent, painted in dried, ochre clay, has gone up in the center of a grassy field. A stray cow lowers its head to eat the grass, sniffs a few times, and stops. A child hits its boney hide with a stick until the field is clear. The old, the middle-aged, and the very young suddenly press up against the wooden fence, eager for a show.

Another cheer erupts from the crowd as two teenagers, shackled at the neck, walk slowly to the tent. They don’t wave or smile as phones flash. One woman cries out a name. Then another. Still no recognition. The pair lift the flap, bow at the waist, and disappear inside. 

A group of village elders appears at the far side of the field. They carry drums of varying sizes — small round cylinders covered in taut animal skin, carved-out logs, a metal drum kit complete with cymbals. They sit in a circle and begin a rhythmic beating. Those on the fence-line with the metal-tipped boots beat their canes against the rough-hewed wood. People, three rows deep, fidget and kick the sterile dirt beneath their feet.

The priest, her black-robe embroidered with the clan’s symbol—a small seedling breaking through parched soil, climbs a shaky aluminum ladder next to the tent. Most days she’s the baker who runs this town along with the local barista—everyone depends on a warm muffin and coffee first thing in the morning. Her hem gets caught on the first rung as she climbs. An apprentice with top-knot hair, pants two-inches cuffed, runs over and frees her garment. He waits at the foot of the ladder for the nod, then passes a bucket up to her. She quickly empties the triple-filtered, spring-fed water, warmed by hand-hewn cardboard bricks, into a hole in the top.

A fidgety restlessness spreads through the crowd. Somehow they all have to go to the bathroom at the same time. They wait, arms outstretched, cellphones high above their heads and ready to record.

A collective gasp surfaces as a barefoot young man, no jacket or shoes, sprints from the back flap of the tent. They’ve never seen this before. He leaves the circular path and heads straight towards the tree line. It’s a good run, eyes fixed, arms pumping, a long, steady gait. Thighs propel more than lift like a deer sprinting over a fence. He never looks back. 

About three, four rows into the crowd someone starts to cheer, “Go, go, go-go-go.” The chanting rises in a wave of frenzied voices. An older, bearded man, his fingertips raw, throws his hand up in a fist. The metal tips look back and glare. One of them tries to get a good look at his face. The crowd closes in around him, obscuring her line of sight. The chanting drops off. Several kids turn around and snap selfies with the running boy in full stride. “That’s a good one,” a baby banker says to his friend. “Send me that one, will ya?”

“Already did bro. Already did.”

Movement from the tree line catches an eye in the crowd. “Look, there, in the forest.” A hand waves from a tight crack between two boulders. The running boy doesn’t notice. He’s stopped, cramped over, gasping for breath. When his legs seize up and the spasm grips his torso the crowd exhales a disappointed sigh. Electric sparks arc from the ground up to his thighs, downing him in one explosive rage. The drumming ends.

“This is getting tiring,” says a middle-aged woman coated in rough fabric edged in fur. “If no one ever makes it past the first circle, what’s the sport in that?” The old man next to her asks, “Isn’t your daughter giving age? She’s a fighter, too. Just what the priest demands.” The woman doesn’t respond, except to step aside, raise her hand and point down at him, hoping to get a guard’s attention. They’ve already left. It was the spectacle they’d come to enjoy. 

As the crowd disperses, unraveling in groups of two or three, the old man says “we never needed rituals.” 

“That’s blasphemy,” the woman yells. “He’s blasphemed.”

“You tell me then, why do you think this works?”

“With sacrifice anything is possible,” she says, snapping a picture of his face.

“That’s not how science works.”

* * *

After an hour, a sharp-beaked bird arcs through the air, circling up from the canyon beyond the trees. Black eyes narrow to the body below. A girl emerges from the tent and watches the feeding. She sends her thoughts and prayers to his family, but the soil never grows.

An earlier version of this short story first appeared in Tilde Literary Journal

Of Three Minds

The age of mindspeak, communicating brain-to-brain, may arrive sooner than expected if recent networking advances pan out.

Researchers at the University of Washington and Carnegie Mellon have developed a three-person, brain-to-brain, communication system that utilizes EEGs to detect “signals” from one person and sends magnetic stimulation to the brain of another. 

According to the MIT Technology Review, we may be on the cusp of “cooperative problem-solving by humans using a ‘social network’ of connected brains.”

In Ursula LeGuin’s 1969 classic “The Left Hand of Darkness” the main character Gently Ai can mindspeak with fellow Terrans. Since people could literally see what was on another Terran’s mind they had achieved a straight-talking society devoid of deceit (and duplicitous politicians.) Could mind-to-mind communication eliminate lying and create community in a shared mindspace?

However intriguing the idea, the recent experiment doesn’t go as far as some might think towards live-streaming our thoughts.

A “signal” was detected when the senders looked at or avoided looking at a flashing light. That changed a detectable brainwave frequency which in turn became a signal sent to the receiver, who either saw a flash of light from a magnetic pulse to the skull, or not. And ta-da, communication.

Importantly this wasn’t pattern recognition of complex neuronal nets. Simple signals like this won’t do the trick when it comes to communicating thoughts.

True mind-to-mind communication devices need to be able to do more than just pick up brain waves emanating at skull level. Billions of connected neurons fire in three-dimensional space. Detectors would have to be exquisitely sensitive to pick up and differentiate these subtle nets buried within nets of similar looking electrical signals.

Mental images add more complexity. Where within these incredibly dense neural networks does conscious experience emerge? That remains a mystery to neuroscientists and philosophers of mind alike. Are the patterns of neuron firings that generate the mental image of an apple, for example, even the same from person to person? No one knows.

There’s also a lot of verbal garbage floating around in our minds that one wouldn’t want broadcast to another person. Meditators routinely observe this chatter of personal stream-of-consciousness. A mental filter would be crucial to refining intentional messaging. 

Even then, without the physical cues of face-to-face communication it might be impossible to tell the difference between a sarcastic quip or a simple observation that, say, engaging in Twitter political arguments is a tremendous time suck.

Since the internet already does a good job of connecting across distance and time, is there any advantage to mindspeak? Augmented reality glasses may already be the next step in hands-free communication with MagicLeap’s Lightwear, Microsoft’s HoloLens, Google’s Glass, and the Meta 2 all promising high-definition, seamless, digital communication meshed with the physical world.

Still, the research is intriguing for the detection and transmission of crude brainwaves. The field is developing rapidly and head-mounted detectors, along with some that connect directly to the brain, can now enable users to remote-control robotic arms and move cursors around a screen. That’s a significant step up from mouth or eye-movement controllers for paraplegics and those suffering loss of nerve or muscle control. The U.S. military is even experimenting with mind-controlled robotic soldiers

For now, though, we’re still going to have to rely on instinct, experience, and media to help decipher our fellow human beings. Using technology has its limits. Despite the “connectedness” of social media people already feel increasingly isolated, no matter how many Facebook or Instagram friends they have. 

The amazing biology of skin, muscles, eyes, ears, vocal chords, and hand gestures still hold the best promise of understanding each other with an in-person chat and the art of conversation. In this increasingly polarized, tech-obsessed world a coffee-house or couch may be all the tech we need.

Related Reading: 

Trump’s Dangerous China Trade Gambit

Update 9/17/18: The Trump administration has announced a 10% tariff on $200 billion in Chinese imports that will rise to 25% at the end of the year. U.S. consumers will bear the brunt of what is essentially a tax passed on as higher prices.

China has said they will not negotiate if these tariffs are imposed. Expect retaliatory Chinese tariffs and a raft of new restrictions on U.S. businesses as Trump escalates his trade war.

Revised list of U.S. tariffs via USTR website (here).

China has said they will not negotiate if tariffs were imposed. Expect retaliatory Chinese tariffs and a raft of new restrictions on U.S. businesses as Trump escalates his trade war. 

A dangerous new phase in Trump’s trade war is about to begin when the $200 billion in U.S. tariffs on Chinese goods comes into effect soon. Everything from electronic components to auto parts and textiles will be affected, though notably U.S. consumer goods including toys, cell phones, and pharmaceuticals were left off the list. Someone in Trump’s orbit must have realized that the consumer backlash on these items would mean a Republican hit in the midterms.

While this may look like a giant game of chicken, neither Trump nor Xi is likely to swerve anytime soon. Some China policy advisors have come to the conclusion that Trump’s true intention is to weaken China, not negotiate in good faith towards resolving long simmering trade tensions. A segment of hard-liners in Beijing always interpret U.S. policy as a direct threat to Chinese interests. They’re often wrong, but this time they may be on to something.

Leaked, off-the-record comments made by Trump during an interview with Bloomberg, as reported in The Star, suggest that Trump is only interested in win-lose scenarios. He reportedly said that he has no interest in conceding anything to Canada in ongoing NAFTA trade talks and Canadian negotiators seem to agree, noting a complete lack of flexibility on the U.S. side. Talks with Canada have since broken down.

That’s a death blow to constructive negotiations.

Trump’s refusal to offer concessions does not bode well for U.S.-China economic relations. The latest round of trade talks broke down after two days without any plan to renew discussions, and the first tranche of U.S. tariffs kicked in on $16 billion worth of goods.

While Trump thinks “trade wars are easy to win”, he is becoming ever more isolated not only from facts, but from his advisors in general. His own narcissism, on full display in excerpts from Bob Woodward’s new book “Fear: Trump in the White House” suggest nothing and no one can change his penchant for causing chaos if left to his own instincts. There are only so many times an order can be ignored or a paper can “go missing” from his Oval Office desk.

Add to that the misinformation bubble tightening around him and his warped perceptions are likely to lead to even more problems. His chief economic advisor, Larry Kudlow, recently told him that the Chinese economy is looking weak, giving false feedback that either Trump’s actions are already bearing fruit or now is an opportune time to pressure Beijing.

Xi Jinping is not likely to back down in the face of an aggressive U.S. push on trade. Quite the opposite. As China’s military build-up in the South China Sea illustrates, their rhetoric of a “peaceful rise” and “biding one’s time” has come to an end. 

Despite economic difficulties, and there are many, from decades of easy money, loose financial oversight, and rising debt, China’s leaders have been exceptionally adept at managing through difficult periods. The entire financial system is commanded by the Communist Party. The renminbi, despite early signs of increased convertibility, is not freely traded. Exports, as a total percentage of China’s economic activity, remains relatively low and trade with Europe and the rest of Asia are unlikely to be affected by the latest eruption from another of Trump’s late night Pennsylvania Ave. rants. 

China’s economy is still largely insulated from the worst of what a sustained trade war might inflict on its economy. A slowdown in trade with the U.S., at least in the short-term, is unlikely to cause significant pressure. This trade war may actually accelerate China’s transition to a more consumer-oriented economy while other countries/regions, including the EU, Australia, and Japan, gain greater market share.  

The real stakes here are a lasting break-down between two of the world’s largest economies that goes far beyond tariffs. 

Normally foreign policy issues including security and trade, are addressed separately. Trump has consistently blamed China for impeding progress on North Korean denuclearization and then linked that to his tariff policy. With increased CFIUS reviews, a necessary effort to reduce potentially damaging Chinese government interference in the U.S., the hardliners in China are likely to conclude that nothing is to be gained from constructive negotiations across an ever widening number of important bilateral and multilateral issues. 

No one doubts that China has been abusing the international trading system for years at the expense of U.S. companies. Intellectual property theft, market restrictions, counterfeiting of drugs, and a host of important issues need to be addresses, but a trade war is one of the least effective ways to accomplish these goals. Tariffs are simply the wrong tool for the job.

Once negotiating trust is lost, the dangers of misperception rise exponentially. Everything Trump does now may be seen as directed at Xi’s hold on power and China’s system of government. An external threat is an easy cause to rally around and China has no shortage of nationalistic tendencies at the moment. If relations become polarized there’s nothing easy about walking back form the edge towards the negotiating table again. 

Wall Street’s GoldmanSachs, JPMorgan and UBS are all warning that a wide-ranging trade war will lead to a bear market as corporate earnings and investment take hits they cannot easily ignore.

As U.S. consumer prices rise and companies lose export markets, Trump will no doubt think he’s winning. The November mid-terms will show whether the nation agrees with him or not.

Trump’s China Trade War – Attack on Consumers

The next tranche of U.S. tariffs on $200 billion worth of Chinese goods are about to hit. Rather than being largely invisible to the public like the first $50 billion, round two includes seafood, bicycles, suitcases, bags, carpets, air conditioners, and sports gear (an exhaustive list of over 190 pages can be found as a USTR .pdf file here.)

(DoD Photo By Glenn Fawcett – Wikimedia Commons)

Other imports subject to tariffs this time around include auto glass, tires, engines, iron, steel, flooring, and construction tools. A visit to Lowe’s or a home improvement project will cost more, along with new cars that use China-made inputs.

This is the beginning of his attack on consumers, but not the worst yet. Some of the most popular consumer items including toys, cell phones, and pharmaceuticals, were not included. A consumer backlash is the last thing the Trump administration needs right now as polls continue to show Republican candidates struggling in the run-up to the midterms. The widespread business outcry would also be hard to contain.

Still, this latest round of tariffs and the failed recent trade talks suggest more problems ahead for the relationship as both Trump and Xi harden their positions. 

Some China policy advisors have concluded that Trump is hell-bent on weakening China. That view casts the tit-for-tat tariff struggle in a far more damaging political light. Xi Jinping will be easily backed into a corner where he has no choice but to fight and show his people how strong China has become.

Trump’s advisors meanwhile, including Larry Kudlow, are feeding him the false impression that China’s economy is on the ropes and ripe for disruption. With a “winner take all” approach Trump will have to keep ratcheting up the pressure, no matter how much he breaks in the process.

With so much distrust and misinformation flowing freely, expect this dispute to go well into 2019 and affect consumers far more than at present.

The U.S. can include almost $200+ billion more in traded goods. China, out of categories to include by then, can opt for a trade war by other means by restricting U.S. business operations and increasing scrutiny of foreign investment.

To be sure this is no easy win for Trump, no matter how many times he says it. Tariffs are a blunt instrument. Come January the domestic environment, including Congress, may not be so supportive of his “get tough” efforts, which will have done little except to increase consumer prices and the cost of doing business.

Brain Meet Computer- Elon Musk’s NeuralLink

Artificial intelligence – the ultimate tech disruptor some may fear has just gotten another boost. Elon Musk’s new company, NeuralLink, is exploring brain chip implants according to the Wall Street Journal (paywall).

The Verge quotes Musk from a Dubai conference saying, “Over time I think we will probably see a closer merger of biological intelligence and digital intelligence.”

So far, brain-computer interfaces focus mainly on medical applications with embedded, electrical stimulus helping reduce seizures. A prototype neural lace dates back to at least June, 2015 when scientists embedded the device in living mice.

Investors, neuroscientists and futurists see cognitive enhancement as the logical next step.

While this may seem far-fetched at the moment it was only a few years ago when pundits said that an electric vehicle company would never thrive. Tesla’s market cap crossed $45B in March.

Doubters said a rocket couldn’t fly into space, launch a satellite, and then land upright back on Earth. SpaceX has put that notion to rest. HyperLoop, space tourism, human life on Mars — none of these are so far-fetched anymore.

I thought I was writing speculative fiction with Ocular Rift, about a near-future where citizens are divided by version and brain-tech Immersives rank highest among them. Now, I’m not so sure. Shameless plug: New chapters were just added. Read for free here and let me know what you think.

 

Photo: Lieber Research Group, Harvard University

How to Build a Successful Executive Intelligence Capability

In Part 1 we looked at why firms need executive intelligence and the challenges companies face in terms of capturing value from the onslaught of global data.

In Part 2 we look  at the foundations for building a successful executive intelligence capability. Here are three main components to consider.

1) Patterns in Digital Anthropology – Why do some online campaigns succeed and others fail? As the above graphic illustrating a complex social network shows, simply mapping connections provides little intelligence in and of itself.

Comparing your firm’s efforts to known patterns and discovering patterns as they emerge helps create an early warning system. Not all networks behave the same way. Not all influence comes from those with the most social media followers.

When evaluating the risks posed by online campaigns targeting a company or industry the strength and reputation of the groups involved, how a campaign spreads, its timing and whether a firm proactively engages with the issues all come into play.

2) Trend Identification – International firms need more innovative ways of understanding economic and political trends beyond typical surveys and government data, especially in emerging markets.

Ground truth and what ends up in the corporate memo chain are often drastically different. Is a local demonstration against industrial water use an issue? Local advisers say no, but media analysis and the strength of local activism suggests it is an immediate operational risk to any new investment.

Knowing what to look for, where and then being able to match current concerns against historical trends yield critical insights.

Similarly, new opportunities often arise from looking at information in a different way. New social trends and preferences often emerge online well before being discussed in formal media. Identifying trends as they emerge and predicting their strength and longevity become invaluable to the decision making process.

3) Synthesis and Reporting – Corporate objectives need to drive the use of intelligence. Understanding who in the organization needs it, the best ways to present that information and how often they need to be updated are critical to building a system people will actually use.

Some firms build out technology first and then try to re-jigger what they have to fit the often disparate business needs across the organization. The net result can often be unnecessary expense and ultimately loss of confidence in the project.

Incorporating broader corporate functions (strategy, operations, marketing and security) into an intelligence capability is critical to providing insights that executives can use rather than summaries of social media popularity that are common in out-of-the-box solutions.

Many social media reports (either automated via dashboards or lightly edited) work their way up the corporate chain disconnected from strategic business goals. If feedback sounds something like “and what can I use this for?” intelligence has missed the mark.

In part 3 we’ll take a look at specific examples of what executive intelligence can do for an organization.

Graphic credit: CreativeCommon Usage, Map of social network connections.

What the China Stock Market Crash Really Tells Us (and What It Doesn’t)

Monday morning headlines were more sobering than a double shot of espresso, adding anxiety to an already tumultuous few weeks in China. The Shanghai index dropped 8.5%, in one day, again. This after a see-saw struggle to regain momentum with similar drops from mid-June’s dizzying peak of over 5,000.

The consequences of such a serious correction, with a Monday close at 3209.91, are neither dire nor surprising and the ensuing panic will likely bring out a host of incorrect linkages.

Here are three misconceptions of what the crash seems to mean, but doesn’t.

1. The China market crash will destroy the U.S. economy

U.S. exports to China totaled a mere 7% of total U.S. exports year to date. Canada and Mexico represent a combined 34%.

Exports in general make up an extremely small percentage of the U.S. $18 trillion economy (about 8%) and exports to China represent an even smaller amount.

Over two-thirds of all U.S. economic activity is driven by consumers. The biggest impact on that activity is whether people feel they have more money to spend today than yesterday, not on whether day traders in Pudong are pulling their money out of Sinopec shares.

2. Shanghai and Shenzhen stock markets represent the broader Chinese economy  

Usually a broad-based stock market sell-off represents a belief that the underlying economy isn’t going to do as well going forward as it has in the past. That’s the rational explanation assuming near perfect knowledge of economic conditions. Even the U.S. market doesn’t work that efficiently (there are sell-offs even without new negative economic information.)

In China, knowledge of the broader economic slowdown has been around for a while. If the markets were rational they should have been dropping when the government announced lower growth targets back in March. They should have dropped as alternate economic measures hinted that the official 7% growth rate might not be reached.

Instead they continued to climb based primarily on two non-economic beliefs. The self-fulfilling prophecy that the market could only go up and that the Chinese government would prop up any market weakness. Win-win.

Since domestic savers have very limited choices of where to put their money, once the real estate two-step dance was over (buy one to live-in, buy one to hold) the stock market became the only game in town attracting a flood of capital. That rush caused prices to rise which attracted even more investment, much of it borrowed on margin. Thus the illusion of a perpetually rising market.

The Shanghai composite has now dropped below the magical 3,500 level where many believed the Chinese government would step in with massive buying to push prices back up. The illusion of invincibility appears to be faltering. Meanwhile online sales in the real economy continue to expand.

In this market there is no irrational exuberance with Chinese characteristics, just irrational exuberance as rationality returns to the market.

3. The China sell-off is similar to previous Asian financial crises   

In 1997 the Thai Baht came under heavy pressure resulting in large scale contagion throughout the region. A heavily reliance on trade with a market-determined exchange rates drove this spread. China has neither.

China’s yuan, despite recent changes, remains a managed currency. The government still decides on its opening daily price. That means speculators cannot significantly alter its value beyond a government imposed trading band of +/- 2 percent per day.

China’s economy is also far less reliant on trade than in the past as government investment in infrastructure as well as real estate development have become main drivers of growth. Of those industries dependent on trade China’s recent devaluation made Chinese exports cheaper (a dollar or euro buys more today than in the recent past).

What does the recent sell-off really tell us?

The Chinese government is going to have an increasingly difficult time trying to stop the carnage. Despite conventional wisdom, it does not have unlimited power. By even trying to manage the sell-off, policymakers have placed themselves in an extremely difficult situation.

If they can’t right the market as people expect the government looks weak. If they impose even more draconian rules to stop sellers from liquidating they may kill interest in the market as a whole. Lose-lose.

Apple’s Tim Cook, for one is not that concerned about purchasing habits in China. Let’s hope that the nascent middle class has more cash stashed at home that they’re willing to spend than most people think.

Meanwhile the China market crash has caused a flash sale on a host of solid U.S. equities.

China Devaluation Latest Sign of Market Weakness

The People’s Bank of China (PBOC) devalued the renminbi yesterday in the latest sign that market forces continue to weaken in the world’s second largest economy.

Exports have fallen. Growth is likely far slower than the official 7% rate. Electricity usage is down. Steel production has declined. Infrastructure investment yields less impact. Even demographics highlight a shrinking workforce (enter the robots). And then there’s the stock market, largely divorced from the underlying economy and gyrating like hips at a hula hoop competition.

Currency devaluation will do little to reverse these trends.

As a short term fix it may help exporters whose goods are now cheaper to buy abroad, slow capital flight (it costs more to convert renminbi into other currencies) and potentially attract more foreign investment into the country (a U.S. dollar today buys more renminbi than a dollar yesterday).

But the underlying economic uncertainty in China’s partial transition to domestic led growth will continue to weigh heavily on the minds of international investors and policymakers alike.

If China truly wants to make the renminbi a global reserve currency the PBOC will have to reverse itself and let the currency float freely like the yen, euro and pound. That requires giving up managing a trading band around a fixed daily rate. Economic conditions would have to improve significantly before moves in that direction resume (almost certainly a gradual step-by-step process).

None of this means a hard landing for China’s go-go economy, but resorting to a currency devaluation highlights the limited policy options left for a government navigating increasingly choppy waters.

Remaining moves (and ones largely ignored to date) include government heavily investing in a social safety net, improving health care coverage and promoting more affordable housing. That will allow households to free up some of their savings to spend and spur new business creation.

Until this happens expect more partial solutions and continued volatility.