Trump is still playing to the disgruntled crowd who voted him into office. He is threatening to break up the North Atlantic alliance that has kept the peace in Europe since World War II. He is threatening to undercut the alliances in Asia that have kept China in check. And he is threatening to increase tariffs on virtually anything made offshore and imported into the USA. As his inauguration approaches we see the first effects of a pending trade war. Market Watch notes that in the markets the Nikkei is down as exporters drop and Chinese stocks sell off.

The Nikkei Stock Average on Monday closed at its worst levels of this young 2017 and Chinese stocks saw a last-hour slump which some considered akin to panic selling as Asian stocks continue to sag after start-of-year strength.
With a lack of significant data releases to anchor moves and U.S. markets to be closed later Monday for a holiday, the choppy trading conditions from last week prevailed. Increasingly skittish investors have displayed caution ahead of U.S. President-elect Donald Trump taking office Friday.

Markets are likely to “remain cautious ahead of the inauguration, as any concrete announcements are only likely to follow in the subsequent week,” said Mixo Das, southeast Asia equity strategist at Nomura.

No matter how much of what Trump says is pure hype he will be the next president and markets take his pronouncements seriously. People to stand to lose money when US tariffs go up are already hurting. The fragility of the post Great Recession global economic recovery is such that the mere threat of tariffs may be enough to set off a destructive trade war across the globe. What is next?

When Talk Becomes Reality

The Daily Beast wonders what happens when Trump’s tirade war turns into a trade war with China.

But what exactly does being “tough on China” mean? Trade wars are fought on paper, in cargo ports, in factories, and even in supermarket aisles. Punitive tariffs-like those promised by Trump during his improvisational presidential run-and import quotas are the basic weapons that can be deployed. A devastating scenario would be a devaluation of the Chinese currency by Beijing.

The rule of thumb is that the country with a trade surplus-in this case, China-has more to lose in a trade war, but the circumstances we face are anything but common. If Trump and his cronies indeed do decide to slap the People’s Republic with punitive measures, Beijing will feel pain, but it will not go down without a fight.

Chinese economists have spent decades honing their craft, and have taken their nation’s economic model through a rapid evolution. Their countermeasures for retaliation are elegant for one reason: China remains the largest financier of American debt.

If China decides to sell its US treasuries it would devalue T-bills. The global economy would slide. The USA would see inflation and recession at the least and perhaps depression. The USA as the world’s largest economy would be hurt the worst. And remember, we have at four years of this administration ahead of us!