CHARLES: FOLKS TIME TO EXPLAIN
WHY AMERICA IS WINNING THE TRADE
BATTLE WITH CHINA.
TO DO THIS I HAVE TO CUT THROUGH
THE SEMANTICS CLUTTER.
I WANT TO FOCUS ON THREE WORDS
AND A LOT OF FACTS.
FIRST, PAYING IS, GIVING MONEY
IN EXCHANGE FOR GOODS AND
SERVICES.
WE GOT THAT.
SO WHEN GOODS ARE DECLARED ENTRY
INTO THE UNITED STATES THE CBP
ASSESSES DUTY.
THAT IS PAID BY THE AMERICAN
IMPORTER OF RECORD BEFORE THOSE
GOODS ARE RELEASED.
SO AMERICANS WRITE THAT CHECK.
OKAY.
THEN ABSORB.
ABSORB TAKE IN MAKE PART OF AN
EXISTENCE WHOLE, RIGHT?
SO CHINA ACTUALLY IS ABSORBING
THE COST OF THE TARIFFS.
THEY DO IT IN MANY WAYS.
ONE AMERICAN IMPORTERS ARE
GETTING BETTER DEALS THAN THEY
ORIGINALLY NEGOTIATED.
FOR INSTANCE, THIS IS
HYPOTHETICAL, IF IMPORTER PAIDS
50 BUCKS FOR LOL SURPRISE LMG
DOLLS OR BOX OF 12 BASEBALLS OR
REMOTE CONTROL CAR THEY MIGHT BE
ABLE TO GET THE EXPORTER TO ADD
ANOTHER DOLL, MORE BASEBALLS
EVEN ANOTHER CAR ALL AT THE SAME
PRICE.
IN ADDITION CHINA LOWERING ITS
CURRENCY.
REMEMBER THEY LOWERED THE YOU
ARE CURRENCY AGAINST THE DOLLAR,
THAT ALLOWS THE AMERICAN
IMPORTER TO GRAB OTHER LOL DOLL,
LIKE THE WINTER DISCO AND HER
LITTLE TESTER.
THE ORDER IS SUBSTANTIALLY
LARGER THAN AT THE SAME PRICE.
THAT BRINGS US TO THE LAST WORD
IN THE DISCUSSION, FUNGIBLE.
THAT IS THE ABILITY OF A GOOD OR
ASSET TO BE INTERCHANGED WITH
ANOTHER INDIVIDUAL GOOD OR ASSET
OF THE SAME TYPE.
YOU SEE THE MONEY SAVED FROM ALL
THESE EXTRA DOLLS AND EXTRA
BASEBALLS AND EXTRA REMOTE
CONTROL CARS MEANS THE IMPORTER
DOES NOT HAVE TO RAISE PRICES TO
MATCH THE DUTY THAT WAS PAID ON
THE IMPORT BECAUSE OBVIOUSLY
THEY'RE GOING TO MAKE AT LO MORE
MONEY BECAUSE THEY SELL THESE
EXTRA PRODUCTS.
SO YOU ADD THE COST THAT IS
ABSORBED THROUGH ALL THE
DIFFERENT PARTS FROM THE SUPPLY
CHAIN.
IT REALLY EXPLAINS WHY THERE HAS
BEEN VERY MUTED IMPACT FOR
AMERICAN CONSUMERS.
NOW LAST NIGHT, IT WAS REVEALED
THAT CHINA'S INDUSTRIAL PROFITS
FELL THE MOST EVER ON RECORD,
ALMOST 10%.
THIS ACTUALLY CONTINUE A STRING
OF DECLINE.
IN AUGUST IT WAS DOWN 2%.
SEPTEMBER DOWN 5.3%.
IN ACT DOWN ALMOST 10%.
HERE IS THE BOTTOM LINE.
CHINA IS ABSOLUTELY ABSORBING
AND LOSING THIS TRADE BATTLE.
TO PUT IT ANOTHER WAY, THIS IS
JUST A PLAY ON WORDS.
JOINING ME TO DISCUSS,
UNIVERSITY OF MARYLAND
ECONOMIST, PETER MORICI.
PETER THAT IS MY TAKE ON ALL OF
THIS.
THIS IS WHY WHEN PEOPLE GO TO
TARGET THIS WEEKEND THEY WILL
NOT SEE A MASSIVE INCREASE IN
PRICES BECAUSE IT HAS BEEN
ABSORBED ALL THE WAY BACK TO
CHINA?
>> WELL BASIC TAX SHIFTING.
YOU KNOW IN FRESHMAN ECONOMICS
WE SHOW PEOPLE SOME PRODUCTS THE
CONSUMER PAYS A TAX.
FOR EXAMPLE, IF YOU PUT A TAX ON
INSULIN, IT IS MADE HERE THE
CONSUMER WILL PAY A LOT MORE FOR
INSULIN.
IF THEY PUT A TAX ON THE FOREIGN
PRODUCT, THEY DEVALUE CURRENCY,
THEY HAVE ROOM TO ABSORB OR
RESUES PROFITS, THE PRODUCER
ABSORBS IT.
CHINA'S ECONOMY NOT DOING AS
WELL AS IT WAS BEFORE BECAUSE IT
IS SO DEPENDENT ON THE EXPORTS.
A LOT OF MANUFACTURERS ARE IN
TROUBLE.
CHINA IS HAVING TROUBLE
UNWINDING ITS CREDIT BUBBLE.
MEANWHILE THE U.S. ECONOMY IS
DOING FINE.
LOOK AROUND.
DOES IT LOOK LIKE THE U.S.
ECONOMY IS DOING BADLY?
INTO NO.
NO INFLATION AND JOBS BEING
CREATED.
CHINA IS OUT OF BULLETS BUT THEY
CAN HIT US WITH MUCH MORE.
THERE IS A LOT OF MORE
DONALD TRUMP CAN DO TO CHINA TO
MAKE ITS LIFE MISERABLE.
THE TRADE NEGOTIATOR COMING OUT
ALMOST DAILY WE'RE VERY CLOSE TO
A DEAL.
IT BOOSTS STOCK MARKET, PUTS
PRESSURE ON MR. TRUMP, IF THERE
IS NO DEAL LET'S FACE IT THE
STOCK MARKET WILL ADJUST DOWN A
BIT.
IT IS HIS WAY OF SAYING I'M
READY TO DEAL, I'M READY TO
DEAL.
CHARLES: THE BLUSTER TO YOUR
POINT CHANGED DRAMATICALLY LAST
SIX MONTHS.
SIX MONTHS WHEN THIS WHOLE THING
BEGAN, CHINA CAME OUT, WE'LL
FIGHT YOU BACK.
NO BIG DEAL.
AMERICANS ARE SAYING CHINA IS
PLAYING THE LONG GAME.
THEY CAN CHILL OUT FOR 100 YEARS
BECAUSE THEY'RE SO WEALTHY.
YOU KNOW WHAT?
100 YEARS AGO MAO WENT INTO THE
MOUNTAINS WITH A BUNCH OF RAGTAG
REVOLUTIONARIES AND THEY COULD
DO THE SAME THING NOW.
NO, THEY CAN'T.
THEY WON'T GET OUT OF THESE
MERCEDES-BENZ.
THEY WON'T GO BACK TO BUYS
SELLS.
THERE IS NO WAY THEY CAN DO THAT
NOW.
>> I THINK THE PRESIDENCY OUGHT
TO LOOK AT HONG KONG.
THAT COULD HAPPEN IN SHANGHAI.
CHARLES: YEAH.
>> BUT THE THING IS, THERE IS
NOT MUCH MORE THEY CAN DO TO US.
THEY BASICALLY SCREWED DOWN OUR
EXPORTS.
THEY REALLY CAN'T CUT THEM DOWN
MUCH FURTHER.
THEY HAVE HURT FARMERS.
WE HAVE BANKRUPTCIES IN THE FARM
BELT AND THAT'S VERY SAD BUT
THEY CAN'T DO IT A SECOND TIME.
SELLING OFF THE BONDS, HECK,
THEY SOLD OFF A LOT OF BONDS
FROM 2014 AND 2016.
A TRILLION DOLLARS WORTH.
IT HAD NO IMPACT.
OTHER PEOPLE BROUGHT THEM UP.
RARE EARTH MINERALS TINGE.
THEY TRIED THAT WITH JAPAN IN
2010.
GUESS WHAT HAPPENED?
JAPAN DEVELOPED ALTERNATIVE
SUPPLIERS.
SUPPOSE WE TREAT CHINA LIKE
IRAN, CUT THEM OUT OF THE
PAYMENT SYSTEM?
HOW HOW DO YOU THINK CHINA WOULD
FARE IF IT COULDN'T GET THEIR
HANDS ON DOLLARS.
WE CAN FREEZE THOSE BONDS.
THEY ARE ON ACCOUNT AT FEDERAL
RESERVE.
IF THEY'RE TRADED WE WON'T PAY
INTEREST ON THEM.
SO WE CAN MAKE IT SO THEY'RE NOT
NEGOTIABLE.
CHARLES: I MEAN --
>> I UNDERSTAND.
CHARLES: IT WON'T GO THAT FAR.
>> I LOOK AT THE QUILL, IT IS
EMPTY.
I LOOK AT TRUMP'S QUILL, HE HAS
TWO DOZEN ARROWS LEFT.