{"id":171756,"date":"2020-06-08T07:22:46","date_gmt":"2020-06-08T11:22:46","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=171756"},"modified":"2020-06-07T16:31:06","modified_gmt":"2020-06-07T20:31:06","slug":"trumps-final-gamble-from-chinagate-to-hybrid-wars","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/06\/trumps-final-gamble-from-chinagate-to-hybrid-wars\/","title":{"rendered":"Trump’s Final Gamble: From Chinagate to Hybrid Wars"},"content":{"rendered":"
June 8, 2020<\/div>
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By Dan Steinbock
\n<\/b><\/strong><\/p>\n

– The disastrous failure of the Trump administration to contain COVID-19 will result in catastrophic 2<\/b><\/strong>nd<\/b><\/sup><\/strong>\u00a0quarter data. As a result, Trump is risking his re-election on domestic unrest, fatal geopolitics and a global depression.<\/b><\/strong><\/p>\n

The cold reality is that the Trump administration learned about the virus already on January 3, when CDC Director Dr. Robert R. Redfield informed Secretary of Health Alex Azar that China had discovered a new coronavirus. Yet no mobilization was initiated until toward late March (see my report here<\/u><\/a>):<\/p>\n

Indeed, the Trump White House missed three opportunities to contain the virus outbreak; in January (between CDC alert and WHO\u2019s international emergency), the 1st<\/sup>\u00a0quarter (between the WHO emergency and the pandemic alert) and the 2nd<\/sup>\u00a0quarter (since social distancing began 6-8 weeks late and inadequately).<\/p>\n

Instead of virus mobilization in early January, a long debate began within the White House over \u201cwhat to tell to the American public,\u201d while\u00a0Azar and Secretary of State Mike Pompeo began repeated attacks against China. The consequent economic carnage is evident in the 2nd<\/sup>\u00a0quarter free-fall (Table<\/b><\/strong>).<\/p>\n

Table <\/b><\/strong> Human Costs and Economic Damage of the Pandemic <\/b><\/strong><\/p>

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<\/div>\n\n\n\n\n\n\n
Human <\/b><\/strong><\/p>\n

Costs<\/b><\/strong><\/td>\n

Q4 2019 (#)<\/b><\/strong><\/td>\n\u00a0<\/b><\/strong><\/td>\n\u00a0<\/b><\/strong><\/td>\nQ1 2020<\/b><\/strong><\/p>\n

(#)<\/b><\/strong><\/td>\n

\u00a0<\/b><\/strong><\/td>\n\u00a0<\/b><\/strong><\/td>\nQ2 2020 <\/b><\/strong><\/p>\n

(#)<\/b><\/strong><\/td>\n

\u00a0<\/b><\/strong><\/td>\n<\/tr>\n
 <\/p>\n

Cumulative Cases<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/p>\n

China:<\/i><\/em><\/p>\n

US<\/i><\/em><\/p>\n

 <\/td>\n

\u00a0<\/i><\/em><\/p>\n

1<\/i><\/em><\/p>\n

0<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/td>\n\u00a0<\/i><\/em><\/p>\n

China: <\/i><\/em><\/p>\n

US: <\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/p>\n

82,500<\/i><\/em><\/p>\n

140,600<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/td>\n\u00a0<\/i><\/em><\/p>\n

China:<\/i><\/em><\/p>\n

US: \u00a0\u00a0\u00a0<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/p>\n

85,000<\/i><\/em><\/p>\n

2.3 million+<\/i><\/em><\/p>\n

\u00a0<\/i><\/em><\/td>\n<\/tr>\n

Economic Damage<\/b><\/strong><\/td>\nQ4 2019 (%)<\/b><\/strong><\/td>\n\u00a0<\/b><\/strong><\/td>\n\u00a0<\/b><\/strong><\/td>\nQ1 2020 <\/b><\/strong><\/p>\n

(%)<\/b><\/strong><\/td>\n

\u00a0<\/b><\/strong><\/td>\n\u00a0<\/b><\/strong><\/td>\nQ2 2020 <\/b><\/strong><\/p>\n

(%)<\/b><\/strong><\/td>\n

\u00a0<\/b><\/strong><\/td>\n<\/tr>\n
\u00a0\u00a0<\/i><\/em><\/p>\n

GDP <\/i><\/em><\/p>\n

Growth<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/p>\n

China: \u00a0\u00a0\u00a0\u00a0\u00a0<\/i><\/em><\/p>\n

US: \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/i><\/em><\/p>\n

\u00a0<\/i><\/em><\/td>\n

 <\/p>\n

6.0%<\/i><\/em><\/p>\n

2.1%<\/i><\/em><\/p>\n

 <\/td>\n

\u00a0<\/i><\/em><\/td>\n\u00a0<\/i><\/em><\/p>\n

China: \u00a0\u00a0<\/i><\/em><\/p>\n

US: \u00a0<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/p>\n

-6.8%<\/i><\/em><\/p>\n

-4.8%<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/td>\n\u00a0<\/i><\/em><\/p>\n

China: \u00a0\u00a0\u00a0\u00a0<\/i><\/em><\/p>\n

US:<\/i><\/em><\/td>\n

\u00a0<\/i><\/em><\/p>\n

3% to 4%<\/i><\/em><\/p>\n

-38% to -45%<\/i><\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: WHO, IMF, Goldman Sachs, Morgan Stanley, Difference Group.<\/i><\/em><\/p>\n

At the end of June, the US is likely to have more than 2.3 million cumulative cases and over 130,000 deaths. In the 1st<\/sup>\u00a0quarter, US annual GDP growth contracted (-4.8%) but the real carnage will ensue with the 2nd<\/sup>\u00a0quarter plunge (-38% to -45%), as I projected in April and major US investment banks have warned. The Atlanta Fed\u2019s model expects a -52% plunge, however.<\/p>\n

To survive its pandemic and economic failures, the Trump White House has initiated a series of measures in a hybrid war against China. In the absence of timely countervailing actions, these measures have potential to undermine global economic prospects in the short term and the promise of the Asian Century over time.<\/p>\n

Southeast Asia will not remain immune to such headwinds.<\/p>\n

From Chinagate to hybrid China Wars<\/b><\/strong><\/p>\n

As\u00a0the Trump White House has targeted China as a its re-election scapegoat, the early victims include US-Sino high-level bilateral dialogue, trade and investment relations, US treasuries, military relations and destabilization in East Asia.<\/p>\n

High-Level Dialogues. <\/b><\/strong>Undermining decades of US-Sino bilateral progress, President Trump has let US-Sino high-level economic, law enforcement and cultural dialogues freeze since fall 2017; the diplomatic and security dialogue since fall 2018.<\/p>\n

Trade. \u00a0<\/b><\/strong>Trade tensions are re-escalating. After the Phase-I deal, China is obliged to buy $200 billion in additional US imports over two years on top of pre-trade war purchase levels. The truce would require 18% annual import growth from the US, which is challenging to China amid Trump protectionism and dire global prospects.<\/p>\n

Investment. <\/b><\/strong>Before the trade wars, US investment to China averaged $15 billion per year, whereas Chinese investment in the US soared to $45 billion. US investment to China has persisted, but Chinese investment in the US has been forced to plunge to $5 billion. Thanks to Trump decoupling, over a decade of progress has been reversed. Nevertheless, seven of ten US companies do not plan to leave China.<\/p>\n

Treasuries. \u00a0<\/b><\/strong>For years, Beijing invested much of its foreign exchange reserves in US assets, particularly US Treasury securities. In another low-probability but high-impact re-election scenario, Republicans are threatening Beijing with unilateral $1.1 trillion debt cancellation, while Democrats hope to de-list Chinese companies from US markets. As a result, Beijing is diversifying investments away from the US, while pumping over $1.4 trillion into the tech sector over to 2025.<\/p>\n

Military Relations. <\/b><\/strong>Despite political differences, US-China military exchanges used to feature high-level visits, exchanges between defense officials, and functional interactions. According to Pentagon, these engagements have fallen by two-thirds in the Trump era, while bilateral tensions are rapidly escalating in South and East China Sea. Whether accidental or provoked, a conflict is a matter of time.<\/p>\n

Special Administrative Regions.<\/b><\/strong>\u00a0\u00a0Destabilization efforts in Chinese mainland\u2019s proximity have escalated dramatically since 2017.<\/p>\n