Messin’ With China

You’d think that baiting the second largest economy on earth, run by an autocrat who knows that kowtowing to America puts him on a short list to be deposed, would be a challenge even for an accomplished bully. Donald Trump’s proud to say, “I know China very well.” And indeed, his dealings with Chinese/Hong Kong investors suggest that indeed he does. You think he might have learned his lesson. It started a long time ago, when Trump needed some financial rescuing in connection New York City real estate in desperate need of refinancing. HK investors came up with the cash.

Here’s the way the May 30, 2016 New York Times tells the story: “‘I beat China all the time,’ Mr. Trump declared in a speech the day he announced his candidacy. ‘I own a big chunk of the Bank of America building at 1290 Avenue of the Americas that I got from China in a war. Very valuable.’… Mr. Trump does have an investment in the building, an office tower near Rockefeller Center. But court documents and interviews with people involved in the deal tell a very different story of how he ended up with it.

“It began when a group of Hong Kong billionaires, including one who has been called the Donald Trump of China, helped rescue Mr. Trump from the verge of bankruptcy by investing in one of his properties in Manhattan… Their partnership began in 1994, after the collapse of the real estate market left Mr. Trump deeply in debt. He could not afford to make the bank payments on a 77-acre swath of land near Lincoln Center known as Riverside South, let alone to develop the property…

“In need of cash, he agreed to meet with intermediaries from a consortium of Hong Kong billionaires who were willing to buy the land, assume Mr. Trump’s debts and pay him 30 percent of the profits, as well as fees for helping to manage the development of the site, which they agreed to finance. It was by far the best offer he received. The group included Henry Cheng Kar-shun, one of the world’s richest developers, and Vincent Lo, who is Mr. Trump’s Chinese counterpart in more ways than one… 

“The project proved extremely profitable, as the New York real estate market rebounded. In 2005, the Hong Kong partners sold the development for $1.76 billion. Although it was believed to be the largest residential real estate transaction in the city’s history, Mr. Trump was furious, and contends to this day that his partners did not consult him first… ‘I said: ‘Why didn’t you come talk to me? Whatever price you got, I could have gotten more money,’’ Mr. Trump recalled in an interview... Mr. Lo said that Mr. Trump had been informed of the decision, and that in any case it would have been very hard to shop such a large property around without Mr. Trump’s becoming aware of it.

“Instead of accepting his share of the proceeds, Mr. Trump sued his partners for ‘staggering breach’ of fiduciary duty in a lawsuit that demanded $1 billion in damages. Mr. Lo, who felt that Mr. Trump should have been appreciative of the deal he had received, called the lawsuit ‘a shock.’

“And when the Hong Kong partners sought to invest the proceeds from the sale in Bank of America buildings in San Francisco and New York, Mr. Trump sought an injunction to scuttle the deal… The judge ruled against him. Instead of receiving the cash he wanted, Mr. Trump had to accept a 30 percent share in the profits from the two Bank of America buildings, tied up in a partnership that is slated to last until 2044. But today, Mr. Trump counts that legal defeat as a victory.” A quarter century from now. That same Donald Trump believed he could bully China by slapping them with tariffs, his most recent foray added a further 10% duty on roughly $300 billion worth of Chinese goods that is supposed to take effect on September 1^st.

So how’s that effort going, Donny? China cowering at your feet yet? Begging for mercy? Or did they have a little surprise for Donald “I didn’t do so well at Wharton” Trump? Not exactly what he expected. The PRC announced a 7% devaluation of their currency, supposedly simply a reflection of the marketplace. Hmmmm. So not only does the 7% currency cut offset a chunk of that new tariff, but it (a) makes Chinese goods even cheaper all over the world where PRC sellers compete with American companies, and (b) it makes US goods, particularly agricultural exports, that much more expensive in China… without China’s lifting a finger to impose a new tariff. 

It’s already considered unpatriotic for Chinese to buy US goods, and China has adjusted its buying habits to import farm goods from other countries, easily filling the void left when they stopped buying US foodstuffs, particularly soybeans. Their recent pledge to buy more American farm products? Yeah, well, how do you make people buy stuff? Oh, and anyway they reneged after the new tariff was announced. As Trump has been doling out his corporate socialist dollars to farmers caught in his trade wars, China’s just adjusting to living with a whole lot less US trade, which is making friends with a lot of countries who stepped in to fill our shoes.

“The potential loser in this international game of chicken is the U.S. economy. Both long term and short term, the White House is playing with fire — and it could end up burning Trump’s reelection bid… ‘Being tough on China in pursuit of an imaginary deal that fixes everyone’s problems is a very safe political space to be in,’ said David Loevinger, an analyst for TCW Emerging Markets Group in Los Angeles and a former senior Treasury Department official for China affairs. ‘Once you move from an imaginary space to a real deal, it makes a lot of constituencies unhappy, and you’re taking a bigger political risk.’” Los Angeles Times, August 7^th.  The US stock markets plunged in response.

“Longer term, the trade war could cut off many U.S. companies, including producers of materials for high-tech industries, from a lucrative market… The conflict may also increase pressure on Beijing to move away from dependence on exports and increase its efforts to supply its domestic markets itself. For American companies, that would probably curb their opportunities for future growth in perhaps the richest future market for consumer goods in the world.

“On Monday [8/5], Trump added a gut punch to his tariffs by making good on his campaign promise to label Beijing a ‘currency manipulator.’… If that’s just a hardball negotiating tactic, it has the downside for Trump of making it harder to accept less than total victory… He would risk a big backlash if he were to accept anything less than a comprehensive deal that includes not just hefty purchases of American goods but major structural reforms to China’s state-run economy.

“And this week’s swift response from Beijing to Trump’s new tariffs made it clear that President Xi Jinping isn’t going to cave to U.S. demands, which include the Chinese legislature writing changes into its laws… Beijing promptly announced it would stop new U.S. farm purchases and let its currency drop against the dollar.

“‘Up until the latest salvo from Trump, the strategy was working out pretty well,’ said Sung Won Sohn, a business economist at Loyola Marymount University in Los Angeles. Trump got an economic boost from tax cuts, and then the Fed shifted its interest rate policy that eventually led to rate cuts last week, all of which buoyed stocks. ‘But the latest salvo, 10% tariffs on $300 billion, was a significant policy mistake.’” LA Times. Are you tired of winning so much?! Hey, Trump knows China. Just ask him. It gets worse from here. A whole lot worse.

              I’m Peter Dekom, and a shoot-from-the-hip bully president with a deeply flawed understanding of how tariff wars tend to end up and an unwillingness to listen to experts is pretty much getting to see “up close and personal” what happens when you mess with sasquatch.