When you read stories about how the Chinese don't want or seek a broad agreement on trade you should immediately get suspicious that there can be any trade agreement at all. That's because the White House has a set of seven principles it will not sacrifice to get a deal done. The U.S. has not budged on these seven issues and the Chinese have shown no signs of even understanding what I think are deal points that every American would admit makes a ton of sense to stick by. It's only because we are in such a polarized, politicized and ideological era that investors don't even get what's really going on.
Why don't we go over the seven, often propounded by Peter Navarro, the president's director of trade and manufacturing policy, so you know what the Chinese mean when they don't like the broader principle approach. These are the seven sticking points -- and it is disheartening to any U.S. investor that the Chinese aren't willing to concede a thing on any of the seven. At least that we can tell.
1. The president wants to see the end of the stealing of intellectual property. Hard to understand? Go Google "Micron Technology (MU) Trade Secrets, China," and you will read a story about how the Chinese Communists wooed Micron engineers to build plants like Micron's after Micron rejected a $23 billion bid from a Chinese enterprise. It's all there in the Justice Department's pleadings and it's just out and out theft. There's no other explanation. Oh, and the theft is described not by Presidential Tweet but by the New York Times, hardly a Trump press organ.
2. The president wants an end to forced technology transfers. Can you imagine if we demanded that any company that comes here from overseas be in partnership with a made-up institution that's allowed to take their technology and give it to the government to spread out to our companies? Republican Party, Democratic Party, Pajama Party, who would ever allow that? It's routine in China, though. Almost no company can operate independently unless it makes coffee, sneakers or Kentucky Fried Chicken.
3. The Chinese have to stop hacking our computers. I talk to every single publicly traded company about cyber theft: China remains the number one culprit. No diminution whatsoever.
4. No more targeting of our businesses for exploitation and shuttering. This one's hard to understand unless you worked at a mill or represented (repped) a mill that makes something tangible. My father repped gift wrap in Philadelphia. He was a jobber. One by one, the Chinese wiped out the American gift wrap industry.
I think, in our basement, we have some of the last big rolls made here. They are museum pieces. The Chinese crushed our industry. Go try to find some American paper now. Pop ended up working for the Chinese who were incredibly gracious in victory.
5. Stop subsidizing state-owned industries. I have no idea how in hell the Chinese are ever going to let this happen, as it would mean a major rollback in employment. But if the Chinese had to compete -- if they would compete fairly on the merits -- then, arguably they would never sell much here at all. Take Nucor (NUE) . It has the best, most up-to-date technology and it is the lowest cost producer. Does that mean it wins in the U.S. marketplace? Not without tariffs. No way. The Chinese identify the price and come in drastically underneath it to keep people working. If that's a shock to you, then go into cash.
6. Stop currency manipulation. One of the main reasons why China hasn't outright collapsed is that it can make its currency cheaper to offset the tariffs. If you listen to the conference calls of American companies that have to buy Chinese goods, they will often say that they aren't that impacted because of a weaker yuan. Well, there you go.
7. The easiest: There are ne'erdowell Chinese companies that dump poisonous fentanyl into our country. The Chinese have pledged to crack down on this and made fentanyl a controlled substance back in May of this year. But there's been no crackdown. Fentanyl continues to come in unabated. Our government seeks arrests and harsh punishments. We've seen none of note meted out.
Now you know what's included in a broader agreement. unless China caves on some of these sticking points.
But if they are off the table, as China says, then what's the point of talking at all?
