More Than Trade War – Full Tech War With 5G Blacklisting

Trump is banning China’s Huawei in 5G. US companies will not sell components for China’s 5G. Qualcomm, Micron and other companies will not be selling to Huawei.

Cisco is a big winner and is up 6.6% today.

This is more than the Trade War. This will be full technology war with the US blacklisting China for 5G.

China will have to try to recreate key technology. China was able to get around US restrictions on supercomputer technology.

The US still has the upper hand in technology and consumer purchasing power.

This is engaging a full technological and economic competition.

The US still has twice as much consumer spending as China and China is behind in critical technology of semiconductors, materials and jet engines.


44 thoughts on “More Than Trade War – Full Tech War With 5G Blacklisting”

  1. The hell with copyrights… the American copyright system a a major scam. If it was a fair system i would agree but its not, it doesnt work with equal costs to all countries. Its not that the American students are so intelectual its because it costs them next to nothing to pattent something. Sorry to say i like what China does on this front, braking it open. (i’m from Europe).

  2. Fun until you realize the most electronics have international parts, your TV isnt from a single brand, it might use texas instrument chips, and amd, phillips, and shingyeng or whatever… so yea lets kill the international electronic markets and go back to the stone age. Or just be fine with 4G (i dont see a reason to go 5G), 3G was fine as well.

  3. So let’s see.. A sample of your comments so far:

    About americans:
    “Oh, you are such a nice bunch of good guys.
    Really, the world should love you.
    We shall all chant your hymn when we woke up int he morning and before going to sleep at night”

    “Dont waste your time
    Americans are just like spoiled babies, they see just what they want to see”

    About Trump:
    “Me too Drumpf is the perfect man to crash the US”

    “From Iran to China, from NK to Syria good ol` Prez Drumpf is losing big time. No, Iran will not negotiate their deal.”

    About the USA:
    “A couple of years more and China will take over in tech and the US products will be dumped. Not a nice end for the once-almighty US empire, but a good new er for the rest of the world.”

    OK, I’m going to go out on a limb here, and claim that regardless of what you say you really hate the USA, president Trump and americans in general. That, in turn, probably means that you are french…

  4. And even if you don’t believe that IP-theft has any effect on the trajectory of the economic growth of the west and China (I would not agree with this idea), you must at least acknowledge that this can have a profound effect on an individual company.

    You can argue that there is no IP-theft going on, but you can hardly defend a one way street in terms of theft if it indeed happening. What would be the moral justification that a Chinese company can steal western technology without punishment, but a western company cannot steal from a Chinese company? And you are against making a level playing field, because of what? Western companies would loose anyway, so therefore China must be allowed to steal as much as they want? Is that it?

  5. Obviously, this has great impact on the individual capitalists. Elon Musk is one of the very few (the only one, as far as I know) capitalists that have gotten an exception to the 50% ownership rule. Tesla owns a 100% of the new gigafactory in China. If this rule had no consequence on an individual company – for instance, in terms of technology transfer and control of your own company – he would hardly have fought to obtain the right.

    I think that *all westerners* should have the same right to ownership in China as *all chinese* have a right to ownership in the West. Don’t you?

  6. You are still not getting the point. Let’s for a moment pretend that the tariffs or ownsership rules would not matter in terms of what country would produce more of the worlds products.

    It would still be the case that a chinese bank can buy a western company to extract whatever technology they find interesting, whereas a western company cannot set up a wholly owned factory in China to fully exploit their lower salary levels. All such deals has to be set up as a joint venture between a chinese owner (50%) and the foreign owner.

    And even if this would not affect the “macro state” of being, it would certainly affect individual companies. And it would also be unfair. Why should Chinese capitalists have greater rights than western capitalists?

  7. I am not really taking sides here, regarding “winning” or “loosing”. I am simply asking if your bile towards the USA may not be causing you to loose you objectivity. Or do you deny hating the USA?

  8. If you read my posts, you will notice – if you possess a modicum of reading ability anyway – that I am not claiming that asymmetric trading rules are the major cause of trading imbalances. Nobody is denying hat cheaper labor in China compared to the USA results in more being built in China.

    I am arguing that asymmetric trading rules are bad by themselves. I am arguing that we – westerners – should have just as much right to own chinese companies as the chinese have a right to own companies in the west. I am arguing that tariffs should be the same in both directions. Also, China should not be able to steal intellectual property from the USA. Is these points really so difficult to grasp?

  9. The 5G debacle was our own fault though. Hardly anybody bothered to show up to the meetings consistently except Hauwei. But the technical details aren’t horrific or anything to be honest. There were some serious lapses though, in defining Diameter as a followon to SS7 for the baseline, they left a number of security standards as “optional” because the costs of upgrading core networks for full security Diameter rather than SS7 bridging would be serious for some countries due to forklift level upgrades required. Which basically means as long as some third world country still is running in low security mode, it’s really no better than SS7, and allows the same attacks.

  10. Yes, as per your last paragraph, “the plumbing is way more complicated, and it can actually become very tricky to define what “money” actually is, for what its worth.”

    The big problem is that it is hard to explain without getting into derivatives, CAMIs (complex aggregate monetary instruments) and the twitchy markets of futures and time-value-of-money cross purposes. 

    It takes one heck of an Econ masters degree to really get arms around the whole enchilada. When one is limited to 1500 characters-at-a-go (which is sadly mostly beyond most readers’ attention spans!), well … its hard. 

    Just saying,
    GoatGuy ✓

  11. If dumped, would be deflationary, not inflationary.

    … “ambiflationary”: some depreciate, some appreciate. A LOT would realign, internationally

    (when) “Dumping at once” the change in interest rates would only affect new issuance (not existing) issuance.

    … yep, and nope: even tho’ the effective yield was X at Y% nominal interest AT PURCHASE, when X drops while Y% stays the same – you nailed that. Remember that FTNs are fiduciarily “fungible”, normalizing yields to a couple of basis points on TVoM, etc.

    The Chinese would be taking a massive haircut …

    … yep.

    New issuance relative to all government debt issuance is actually quite low.

    … maybe.

    Average maturity stands at 68 months.

    … cool.

    The big buyer (likely would) be the ECB.

    … possibly, but it’d depend heavily on their having cash to call.

    The Federal Reserve saved the European Banking system in ’09 through currency swaps.
    Europe loan market seized up.
    Trichet asked for $1 trillion USD, exchanged for EUR.
    They injected dollars into the loan market.

    … yep.

    EUR sitting on the Fed’s balance sheet is technically a liability of the ECB so, ideally, they would have USD denominated collateral to post against that liability and discounted USTs being dumped the the Chinese would be ideal.

    … if they actually do have collateral. The long-winded economic malaise of Europe means they no longer have much collateral.

    Just saying,
    GoatGuy ✓

  12. These are completely unrelated things. The average salary of China compared to the average salary of the USA has absolutely nothing to do with the asymmetric trading rules. Nothing.

  13. If the Chinese were to dump their Treasuries all at once the effect would actually be deflationary, not inflationary.

    Another thing to realize about the absurdity of “dumping it all at once” the change in interest rates would only affect new issuance not existing issuance. The Chinese would be taking a massive haircut on their bonds while every bank, broker dealer, etc. in the world would be buying the debt at a discount to face value. The rate of new issuance relative to all government debt issuance is actually quite low. Average maturity currently stands at 68 months.

    The big buyer in such a scenario, interestingly, would be the ECB. A lot of people don’t know this but the Federal Reserve single handedly saved the European Banking system in ’09 through currency swaps. Europe has a massive dollar denominated loan market which seized up. Trichet called up Bernanke and basically asked for just over $1trillion USD which was exchanged for currency rate adjusted amount of EUR. The ECB then injected said dollars into the European loan market. You have to remember that the EUR sitting on the Fed’s balance sheet is technically a liability of the ECB so, ideally, they would have USD denominated collateral to post against that liability and discounted USTs being dumped the the Chinese would be ideal.

  14. You’re very close with your assessment of money growth.

    First, it’s important to distinguish between high powered money, reserves, and the supply of money (which is not the same thing as the money supply).

    Reserves are generated through credit creation and most of that occurs in private banks. Intrinsically, this part of the monetary ecosystem is two entries in the ledger: “money” is created on one side of the ledger and debt on the other. The “money” disappears upon repayment of the debt so the money has an “expiration date” if you will. The system automatically drains itself unless the credit is recycled.

    The “supply of money” (some disambiguation is needed here but not enough space) is the monetary base multiplied by the velocity of money (how many times each dollar is spent in the economy in a given year)

    High powered money is *sort of* created by “paying interest” but in a very circuitous way and the rate of growth of high powered money is the difference between IOER and the ONRRR which is 25bps.

    The plumbing of modern monetary systems is *way* more complicated than most people think and it can actually become very tricky to define what “money’ actually is fwiw.

  15. You clearly never studied monetary economics or macroeconomic. The barrier to Renminbi becoming a reserve currency is two fold: 1.) it runs a closed capital account and 2.) its legal system is opaque to say the least. It doesn’t matter how large its economy grows so long as either of those hold true. As to #2, it takes decades if not centuries to build global trust. As to #1, China has tried to cleverly work around this issue by pushing for the IMF SDR to become a “reserve currency” but the only way that SDRs will become a reserve currency is if countries accept SDRs for payment of taxation (likelihood=nil)

  16. I am surprised that a relatively intelligent chap like yourself is parroting this Department of War talking point. Perhaps you think the regime has 800 military bases around the world for “keeping sea lanes open” and “protecting democracy”? No, surely you’re not that naive, are you?

    Please take a look at the books, if not, at least the descriptions and some reviews.–Updated/dp/1567512526/

    Here’s a quick look at some of their fine works in defense of “liberty” and “democracy”

  17. “I still have to see an economy where every person of working age, male and female,
    is able to find a decent job at will, thanks to the demographic shrink. Not even Japan.”

    the words “every” and “decent” are doing the heavy lifting there.
    Most of the time in my experience you will get a job if you bother looking… and turn up, on time, every time, sober, and ready to do what you are asked without complaint, and no fighting, or sleeping with, or drug dealing with your coworkers.
    Unless you have skills the job will involve physical effort and boring tasks, but that’s why you want skills. “skills” covers everything from a PhD in chemistry to a personality that can do sales.

  18. The Chinese are heading for a High Velocity Crash? Join the crowd:

    1990. China’s economy has come to a halt. The Economist 
    1996. China’s economy will face a hard landing. The Economist 
    1998. China’s economy’s dangerous period of sluggish growth. The Economist
    1999. Likelihood of a hard landing for the Chinese economy. Bank of Canada
    2000. China currency move nails hard landing risk coffin. Chicago Tribune
    2001. A hard landing in China. Wilbanks, Smith & Thomas 
    2002. China Seeks a Soft Economic Landing. Westchester University 
    2003. Banking crisis imperils China. New York Times
    2004. The great fall of China? The Economist
    2005. The Risk of a Hard Landing in China. Nouriel Roubini 
    2006. Can China Achieve a Soft Landing? International Economy
    2007. Can China avoid a hard landing? TIME
    2008. Hard Landing In China? Forbes
    2009. China’s hard landing. China must find a way to recover. Fortune
    2010: Hard landing coming in China. Nouriel Roubini
    2011: Chinese Hard Landing Closer Than You Think. Business Insider
    2012: Economic News from China: Hard Landing. American Interest 
    2013: A Hard Landing In China. Zero Hedge 
    2014. A hard landing in China. CNBC 
    2015. Congratulations, You Got Yourself A Chinese Hard Landing. Forbes 
    2016. Hard landing looms for China. The Economist
    2017. Is China’s Economy Going To Crash? National Interest
    2018. China’s Coming Financial Meltdown. The Daily Reckoning.

  19. He has no long-standing grievances against China, those that whisper in his ear does. Don’t confuse his showmanship and ability to read and play his audience as deep political waters or even simple interest.

    Like all his predecessors, he is pushing the short term interests of money and power. Those interest may or may not intersect with your own. Remove the theatrics and the world is still on the same trajectory, no amount of wishful thinking could ever change it.

  20. It isn’t actually substantial IMO. Like $250 billion per year at this rate.

    It would take 4.5 years for them to exit their position. That’s as orderly a financial strategy as it gets.

  21. The question is, how long would it take China to develop what they need for 5G? China has managed to take a lead in the supercomputer race, and they use chinese processors (correct me if I am wrong), so they are clearly capable of developing technology themselves when needed…

  22. Well, the question is why didn’t the USA deal with this problem a decade ago when the outcome would have been a given?

    Kudos to Trump for dealing with it, and shame on Obama and Bush for kicking the can down the road. Let us hope that USA can force China to change. Why, for instance, is Chinese banks allowed to buy companies in the West, but western companies must always make a partnership with a Chinese owner when buying something in China? And why should China be allowed to copy technology without paying the cost?

  23. I still have to see an economy where every person of working age, male and female,
    is able to find a decent job at will, thanks to the demographic shrink. Not even Japan.
    Moreover, China can import Nigerians if needed, their ideology is anti-xenophobic
    in priciple. China will leave behind the US because 3 or 4 people can generally make
    more work than 1.

  24. A translation to English. He is exaggerating, but makes an important point.

    When will the Chinese economy overtake the United States? According to Prof. Yi Pushian, the answer is never. The Chinese demographer explains that the official figures are wrong, and that his native population is already graying and shrinking. The result is fewer employees, less innovation and a problematic future. “As China gets older and loses its economic vitality, growth is only getting smaller”

    The consequences for China, so warns Yi, will be far-reaching. Yi has in recent years become the prophet of outrage over the damage of one child’s policy and he believes that the significant side effect of that policy – the aging of the rapidly growing population – will continue to haunt China for many years after it was abolished. It will cloud, for example, the economic growth of China. Most economists agree that China will overtake the United States soon and become the largest economy in the world, the only open question for them is when it will happen – within a few years, a decade or two. However, Yi believes that they are wrong and just do not weigh correctly the aging effect.

  25. Gosh… thinking like that is like saying “the US is a terrible dentist, always causing pain, costing money, removing teeth and employing expensive procedures to get nothing done”.  

    PERHAPS thinking deeper than the first-level knee-jêrk isn’t obvious, but there was (and remains) a large array of geopolitically critical things that The United States, all by itself, spearheads across the world that simply has no peer internationally.  

    For instance, while the US has been completely free from Mideast crude oil dependence, we have allies across the world who not only are, but are critically dependent on the Mideast oil channel. These would be Europe as a whole, China in a remarkably deep way, all of Africa, India, The Stans, Japan, Taiwan, Philippines, and so on. (Indonesia is a large supplier of the last bunch, though.)

    And we have represented since WW2 that we would invest our tax money in a super-potent blue water Navy, with expressed purpose of keeping open the Mideast oil-flow transport lanes. Which takes more than just a Navy. It takes an Army, an Air Force, and the Marines.  

    While this might exceed the depth with which one might analyze American military action, her action remains on the up-and-up. Depose despots, harry nefarious radical agencies, keep relatively open-capital investments by foreign powers secure in the countries they’ve engaged.

    So… Just saying,
    GoatGuy ✓

  26. Since the Bretton Woods System was implemented by the USA in 1945, we have allowed our friends and allies to sail anywhere in the world, bring back raw materials, manufacture them into finished or semi-finished goods and then export them into the US tariff free. Subsequently, we expanded this system to neutrals and then competitors. And, we paid the bill and we exported US wealth to the World.

    Global GDP expanded ten-fold and population three-fold.

    If you think we are the bad guys, you haven’t been paying attention. But, the US is pulling back and abandoning the process. Look for the entire world to revert to pre-1939 operations.

  27. Spending means nothing. The Chinese are an investment led economy and are currently injecting money at the equivalent rate of the ENTIRE Obama Stimulus every 28 days.

    It is unsustainable. They Chinese are heading for a High Velocity Crash.

  28. I have indirectly addressed your hypothesis points, above. Check ’em out. 

    BUT… to summarize, the United States enjoys a remarkable fiduciary hegemony internationally because it has almost without suspicion of side-channel cheating, kept strictly to its commitment to AUCTION without restriction, its t-bond paper. (Quantitative Easing has been the only “principled leak” engaged so far.)

    What this means is that the VALUE of t-paper is truly “up to the world market”, as it is, can, and remains something which can be bought by any entity with THE CASH to buy the sovereign bonds, every Tuesday at the Federal Reserve.  

    Even dear old Europe’s experiment with this strictly-uncompromised-by-politics system has with pölïtical intransigence, allowed her basis to become compromised by disallowed (politically motivated) fiduciary irresponsibility.  Thus she (Europe) no longer has a fast-rising world-reserve currency.  Holding, not rising. 

    But to your second point (Debt → GDP), according to macroeconomic theory, the current ratio isn’t actually bad at all. 


    Because the ONLY ALLOWED INJECTION OF “NEW” MONEY is by paying the interest chits on all those trillions of dollars of t-bonds. And when interest is 1.5% or less, it takes a LOT of paper to pay out the billions-in-new-cash that an economy such as America’s (and all other Dollar-dependent) economy requires.  

    Just saying,
    GoatGuy ✓

  29. Just as affirmative action has so empowered “minorities” that it can no longer be repealed, visa fraud has won the cyber war by exploiting the _real_ security hole: immigration. Infiltration of the US’s nervous system by south Asians has left Trump with no choice in the matter. The US a de facto client state of south Asians. The US will continue a trade war with northeast Asians until a deal is struck between NE Asians and S Asians.

  30. Toward HYPERINFLATION, a key waypoint passed (May 16): China has lowered purchases of US treasuries in the last 6 weeks. Substantial. 

    Although it “kind of made News”, the “smoke alarm” has The Administration’s economic advisors worried. Without China’s massive US Treasury demand, the auction price declines. 

    AUCTION price drops, effective yield goes up.  

    If precipitated without fundamental negative market predicates, dropping demand then reduces the real value of all extant t-paper held by China, AND all other holders. Bad news… when counting on a super-skinny 1.5% net yield, then to have the face-auction value drop, yielding NEGATIVE REAL INTEREST.  

    It can precipitate QUITE THE SELL OFF, as less sturdy t-bond holders begin to see their capital depreciate.  

    Which increases sell-pressure.  
    Which drops prices further.  
    Which increases PURCHASER yield, but at the cost of costing the seller yield.  
    Hyperinflation looms.

    By MICROeconomics, nominally self-correcting: as long as the value-basis isn’t otherwise compromised, the BUYERS walk away with a SWEET deal. Higher interest AND bigger coconut at the end.  

    Thing is — MACROeconomics — that the total FUND CASH POOL is finite, slow-to-grow when such opportunity pops up. Good for rapid-exchange speculators, terrible for Great Big Institutions.

    Just saying,
    GoatGuy ✓

  31. Apart from the Trade implications, let’s just consider the spying ones.

    The Chinese using Hauwei have been under bidding everyone else in order to provide the sales and servicing of the Internet Cores. This would allow they a point from which to intercept everything going across that subnet. All of the 5 eyes Intelligence services realized this and Hauwei was not allowed to take over Cores in their countries.

    Now, because 5G is different, Hauwei would not have to provide Cores in order to intercept everything going across. So, they are being barred from providing any significant parts or servicing.

  32. Two things (I agree with your first three):

    1. The federal deficit and the national debt is actually more of a problem for the rest of the world than it is for the U.S. as it acts to siphon dollars out of the global system. 72% of all foreign trade is settled in U.S. dollars and there is no viable alternative. At one point circa 2013, the USD was down to ~52% and the EUR had ~30% of foreign trade settlement but the Cypriot bank bail-in ended all hope of the EUR becoming a dominant trade currency. The EUR and GBP now have about equal share in foreign trade settlement. The CNY has grown in absolute terms for trade settlement but has actually declined in the share of global trade settlement. In order to be a reserve/trade currency, you have to meet three conditions: be fully convertible (no capital controls), have large and liquid financial markets, and have a transparent and fair legal system.
    2. Debt to GDP is certainly a problem but this will abate and reverse as baby boomers die off and Gen X moves toward retirement (assuming we don’t have insane policy… ahem New Green Deal… which might be wishful thinking).
  33. Trump’s move is a fake cure for a fake disease that hides the fact that China has outspent us in R&D since 2009 and currently outspends us 3:1.

    There is zero evidence of China cheating, finagling, double-dipping, four-flushing or illegally industry-undercutting.

    There is abundant evidence that the average Chinese worker has three more years education than his American counterpart, that China spends $30 billion annually in IP license fees, that China has honored its IP agreements across the board and its WTO obligations. There are currently 43 WTO complaints against China vs. the EU’s 85 and our 153.

    No, we’ve beaten ourselves fair and square and, until we own up to it, we’ll continue to decline.

  34. I believe several things are going on here at the same time.

    1) The strategic military issue of China’s IT based spying is being addressed. FINALLY! (One can understand why the prior administration wouldn’t touch it, there’s a reason Democrats are always yelling “Russia!” as a distraction.)

    2) Visibly unfair trade terms are being realigned. (China is still profiting from some asymmetric trade terms reserved for developing nations, which China no longer is. Why? See my parenthetical above. Chinese penetration of our government makes what the USSR achieved during the Cold War look minor by comparison. )

    3) Trump is pushing for greater national economic self-reliance, as a matter of national self-preservation.

    I believe that last needs some amplification. In economic terms, the US is sort of like Wile E Coyote, in the moments after the cliff has fallen out from under him, but before he has looked down and thus started to fall. Our national debt to GDP ratio has gotten too high to recover from without the sort of black swan event one simply does NOT rely on; Either hyper inflation or debt repudiation are in our future now, almost unavoidably so.

    It follows that we are at some point going to lose both our trade currency status, and ability to borrow, and our rather large foreign trade deficit is suddenly going to vanish whether we want it to or not.

    Trump is, I believe, working to cushion this blow, by arranging for the US to become as functionally independent as possible.

  35. China is an aggressive and hostile strategic foe. Once it became undeniable that Chinese IT firms were working with Chinese intelligence services to spy on foreign customers, (And China is a totalitarian state, they have no choice about it.) how could this move sensibly be avoided?

  36. I would suggest also looking into the language of the International Economic Emergency Act. Not only was the executive order aimed at China it was also a dagger at the heart od Big Tech. Apple, Google, Facebook and Twitter were just put on notice as well by the Executive Order.

  37. On the one hand: Trump is acting out a rash, irresolute, unpredicted and market-quashing fashion. To push along the restart-of-negotiations, to GET SOMETHING out of the Chinese.  It is his “negotiating style”.  

    On the other hand, his long-standing grievances of China cheating, China finagling, China double-dipping, China four-flushing and China illegally industry-undercutting considered, well … “Game on!”. This move might be brilliant.  

    It opens opportunity, allowing ALLIED interests to research, develop, refine and standardize systems without the detriment of Chinese IP subterfuge, and cyber-agent injection into our upcoming vital 5G networks.  

    Could be.  

    One thing is for sure: it is a surprisingly potent and yet sophisticated gambit.  

    Just as I wouldn’t (couldn’t and DID NOT) predict anything like this cunning parry, I find I can’t even find a plausable reposte will be.  

    The one giant pry-tool export-dependent sides can use is to cut off vitally needed products upon which the adversary has become dependent.  

    For instance, the rare-earth magnets, or the almost total monopoly in NEMA (a kind of standard) electrical motors. Or their near-monopoly on far more mundane — but personally visible — products. Socks, reading glasses, LED house, industrial and street lights. PV solar cells. Wind farm generators. Container after container of cosmetics, drug-store off-the-shelf items. Billions of machinery parts. 

    Just saying,
    GoatGuy ✓

Comments are closed.