So Many Moving Parts--Iran, China, Russia, NATO

This is another day with multiple appointments, but we need to take a look at the Big Picture surrounding Trump’s machinations. Obviously, we need to get beyond Trump’s ways of doing things—which are often (intentionally) distracting and, yes, sometimes unscrupulous. My guess is that Trump wants most people to be distracted, rather than looking at what his actual goals are. When that happens, he looks like the guy in fancy dress pulling a rabbit out of his hat. That’s when things work out, which, in fairness, they typically do.

Let’s illustrate that with the announcement of indirect talks with Iran. Yes, Trump called the talks direct, because, maybe that will happen. That’s the distraction part, dressed up to look like a big Trump win. Yesterday I sketched out what I think is going on with Iran. This morning I read a long tweet by Scott Ritter in which he reduces to written form what I’ve heard him saying for a long time. Scott gets over the top emotional at times and rants, but what he’s been describing is the shape of an Iran - US deal—a deal that Russia and China almost certainly support. Ask yourselves this simple question: What is the likelihood that Russia is rooting for Iran to go full nuclear? The answer that should be obvious—for historical, cultural, and geopolitical reasons—tells you that Russia (and China) will defend their interests with Iran but will support a reasonable deal.

A reasonable deal for Russia and China is one that doesn’t involve an Iran that is defenseless in the face of the Anglo-Zionists. That means Trump will need to climb down from his maximalist demands and will need to approach direct talks gradually by proving good faith through indirect talks, but Iran will make a concession that will also please Russia and China. Yesterday I suggested that the key Iranian concession might be to place limits on its uranium enrichment that exceed its civilian needs. Here are some key parts from Scott’s long tweet [edited] in which he supports that concept—as he has in the past:

For weeks I have been advocating for a negotiated settlement …

I have assiduously detailed the nature of the threat perceived by the US that, if unresolved, would necessitate military action, as exclusively revolving around Iran’s [enrichment] capacity that is excess to its declared peaceful program …

In short, I have argued, the most realistic path forward regarding conflict avoidance would be for Iran to negotiate in good faith regarding the verifiable disposition of its excess nuclear enrichment capability.

Here comes the Trumpian distraction ploy:

Even when Trump alienated Iran with his “maximum pressure” tactics, including an insulting letter to the Supreme Leader that all but eliminated the possibility of direct negotiations between the US and Iran, my stance remained unchanged: this crisis could only be resolved through negotiation, and that if Trump took direct negotiations off the table, then Russia and/or China would have to step up and nail down a settlement through third party talks.

…

Today we see the following:

Trump has softened his stance on Iran, narrowing his focus to exclusively nuclear issues—as I had predicted.

And that has always been an Iranian bottom line.

Iran has agreed to third party negotiations—as I predicted, and both Russia and China will be meeting with Iran in the coming days to discuss its nuclear program—as I predicted.

Iranian FM Araghchi:

"Iran and the United States will meet in Oman on Saturday for indirect high-level talks.

It is as much an opportunity as it is a test. The ball is in America's court."

That suggests that Israel will not get what it really wants—a neutered Iran. The disturbing part of this is that the Palestinians may pay the price for this deal. Did I say that Trump can be unscrupulous? But there are other moving parts in this region—duh!—including Turkey in Syria. Wait and see.

Russia may also be playing a cooperative role in Trump’s economic revolution. We see a hint of that cooperative role in the trip by Putin’s envoy to DC to explore specifically economic cooperation. Further confirmation could be coming in the form of reports of fairly large scale pullbacks of US forces in Europe, which translates—in the Big Picture—to Trump telling the Euros to come to terms with Russia. But there’s also the matter of suddenly falling oil prices—Russia again? As I wrote yesterday, we’re seeing a weird coalition of Wall Street grifters and “Chicoms” who are opposing Trump’s economic revolution. Both of those groups prefer the status quo—Wall Street out of self interested greed, but China because China faces major problems down the road (demographic collapse, with all that that involves for its economy and societal stability). China would prefer to prepare for that rainy day by maintaining the status quo, but Trump is in a hurry to get the US house in order. Keep all that in mind as we go impressionistic.

When China announced that they would fight the Trump Tariffs Trump warned them they were going down the wrong path. That appears to have been more in the nature of friendly advice than mere bluster. China hasn’t got it quite yet, although that could be happening starting very soon. Smart money in the US may be catching on, too—instead of Black Monday we had Shades of Grey Monday.

Chinese Commerce Ministry:

#China firmly opposes the #US's threat of 50% additional #tariffs. China will resolutely take countermeasures to safeguard its rights and interests should the #US escalate its #tariff measures.

James Kirkpatrick @VDAREJamesK

Giving Hollywood an economic body blow is another benefit of the tariffs

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BRICS News @BRICSinfo

JUST IN:  China to ban the import of US films.

Trump: "China also wants to make a deal, badly, but they don’t know how to get it started. We are waiting for their call."

JUST IN: The Wall Street Journal reports Apple is planning to send more iPhones to the US from India to offset the cost of China tariffs

Philip Pilkington seems a bit more based today, with some incisive comments. In particular, he makes persuasive points to Arnaud Bertrand, who is a China booster. Also, PP builds off the US Council of Economic Advisers (CEA) comments from yesterday, in which the CEA basically said, 'USD hegemony--who needs that?' Except where noted, all comments are by PP.

Clothes are already made in the West. Broadening out the industry after some robust currency devaluations

Jim Bianco @biancoresearch

No, foreigners were not selling Treasuries to punish the US (Trump)

...

If China or other foreigners were selling Treasuries to drive yields up to punish the US (Trump) for the tariff war, they would have to convert those dollars to a foreign currency. Otherwise, selling Treasuries and leaving the money in dollars in a US bank is pointless.

If they sold enough Treasuries to swing yields as wildly as they did today, the subsequent selling of dollars to exit the US would have driven down the dollar. Instead, it rallied more than usual.

This suggests that foreign money was moving into the US, not away from it. As I described above, the selling was more domestic and more concerned about inflation.

I am going to Ireland soon and have promised to buy my friend an Aran jumper/sweater. It will cost the same as a much lower quality branded item from a Vietnamese factory. The quality is not even comparable. The global apparel industry is just broken. It will soon be fixed!

PP responds to Chinese threats of retaliation echoed by Arnaud Bertrand. PP echoes Trump:

This is a terrible idea. The CCP are introducing enormous levels of uncertainty into their governance model. For what? To run a trade surplus they don’t even need that much anymore with the US. I expected a steadier hand.

Rumours of Chinese USD dumping have been greatly exaggerated. In fact, they are moving to weaken the yuan. Non-zero probability that the rhetoric out of Beijing is overheated. They are stability enjoyers.

This is an important point. For reasons listed above—and more—stability is a priority for China. Trump will offer them a face saving way out of a trade war if they will accept it.

Man on the Silk Road @silk_road_man

Multipolarists: "The US dollar is the tool of imperialism that sustains the US empire and allows it plunder the world. It must be abolished!"

Trump: "I agree, let's abolish it."

Multipolarists: "Nooooo, not like that, you can't just agree and abolish it!!1"

Goldman says oil could drop below $40/barrel. (Ritter says Russian production cost is way lower than Saudi, like about $9.)

This sort of fall in the price of oil could take a lot of the pressure off consumers caused by the tariffs. Very strong possibility the Trump administration is engineering this decline - likely with the Russians.

There appears to be some sort of Grand Bargain taking place. OPEC+ are ramping up production despite low prices. Something is going on.

Arnaud Bertrand @RnaudBertrand

Are you somehow under the impression that China is being the aggressor here? 

They're not going to let themselves be humiliated and bullied, no country with a modicum of self-respect would.

It’s irrelevant who the “aggressor” is. The trade situation will be remedied somehow. It will either be chaotic or managed. Hunkering down and “taking sides” is pointless and destructive.

Chinese accounts are starting to use justifications similar to Ukraine supporters in the war. If you get yourself into this mindset you’re not going to have good outcomes. Rise above. Don’t say I didn’t warn you.

China Perspective @China_Fact

The Chinese economy is a sea, not a pond." "Storms can overturn a pond, but never a sea," President Xi Jinping said

Xi is no doubt right. The US will take more pain in the trade war. But China will experience instability. A negotiated bilateral currency arrangement will reach much more equitable results without the need for a giant mess.

If the Chinese logic is correct then the trade surplus with the US is unnecessary and not worth the fight. If it is worth the fight then the trade surplus with the US is economically meaningful and the fight will do significant damage. You can’t have it both ways!

This is what tariffs and currency devaluations do. It is why China should come to the table and negotiate a managed decline in the value of the USD instead of engaging Trump in a messy trade war.