Market Overview

Is China Launching a Trade War?

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Today's report that China has added additional tariffs to US automaker SUVs and midsize and large cars suggests that they certainly are.

The new tariffs, which add up to nearly 22 percent of the import prices, are a slap in the face to both American automakers and the Obama Administration. They also make a joke of the so-called "free trade" policies that have been pursued by the last handful of American administrations.

China already is one of the worst offenders of one-sided trading rules, and these new tariffs today are just another in a long list of offenses. You can just look at the impact. These tariffs, despite their size, are unlikely to have much effect on the marketplace in China. Why? Because the Chinese government has already made it almost impossible for American companies to sell their goods in China.

Other tariffs and current taxes limit the sale of American imports in China by raising the retail price of American cars by about three times what the same cars and S.U.V.'s sell for in the United States.

Meanwhile, China exports its crappy, dangerous, and sometimes deadly products here all the time. Apparently, we call that "free trade" — they sell whatever they want here, at whatever low, dumping price they want, while we cannot sell our goods there without facing massive tariffs and taxes.

“We are very disappointed in this action by China,” said Carol Guthrie, a spokeswoman for the Office of the United States Trade Representative. “We will be discussing this latest action with both our stakeholders and Congress to determine the best course going forward.”

Yeah, no kidding, Carol. It'd be nice if, for once, we had an administration that told China to get bent. Between their ridiculous trade policies that force their goods into our marketplace, and their currency manipulation, China is already engaged in a trade war with the United States. Unfortunately, we're too puritanically attached to this self-defeating notion of "free trade" that we don't even notice, or care to call out, that the Chinese are cheating.

We're so mesmerized by the game theory that shows free trade is a winner for everyone that we ignore blatant evidence (lowered standard of living at home, manufacturing jobs that go overseas) and we just take it. We bend right over and let the Chinese do as they please, and then thank them for the right to participate in their economy.

We're like pacifists who get punched in the face over and over and over and never once stop to think that maybe, just maybe, "turn the other cheek" should get swapped out for "kick the other ass". Given the trade imbalances between our nations, and given that we could easily walk away from trillions in debt we owe to the little commies, perhaps it's time America grew a pair and slapped major import restrictions on every good coming from China.

Sure, it'd mean no more $1 bath towels at Walmart (NYSE: WMT) or China-Mart or whatever you want to call it. But it'd also put a stop, quickly, to these aggressive moves by the Chinese government to dictate the rules of the trading game.


ACTION ITEMS:

Bullish:
Traders who believe that China's aggression will only mean more trade and more deals might want to consider the following trades:
  • Buy Walmart (NYSE: WMT), as they get their goods from China and make a lot of money off the nation.
  • Invest in growth commodities, like oil, which are needed to fuel economic growth in regions like China. There are oil ETFs (NYSE: OIL) that could give you broad exposure.
Bearish:
Traders who believe that Obama is about to pimp slap China may consider alternative positions:
  • Go short USD against the yuan, as we'll stop their currency manipulation in its tracks, driving the dollar down.
  • Buy any American stock, as the American economy could boom if it got China to start playing fair. Consider an ETF that covers the market, like the S&P 500 index (NYSE: SPY).
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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