Okay, now USTR Robert Lighthizer’s cautiously worded enforcement testimony starts to take on a fuller context.  When Ambassador Lighthizer was testifying before the mostly decepticon House Ways and Means Committee, he started to outline his newly designed trade enforcement mechanism… but he stopped; he didn’t want to reveal too much.

Now listen to Larry Kudlow describe “enforcement”.  WATCH:

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If you watched the USTR testimony you would have seen how the “enforcement” mechanism within the U.S-China trade negotiations was the priority for Lighthizer’s focus; and he specifically mentioned “layered” enforcement triggers, specific to each sector, and issue.

CTH has never seen a U.S. Trade Representative so structurally willing to clear-cut the entire bamboo forest if needed. Lighthizer is intensely focused on enforcement.

Congressional reps were focusing most questions around Chinese purchases of U.S. goods. Lighthizer was blowing through those questions like annoying gnats.   That’s not the focus of his structural engagement with the Chinese team. Lighthizer is going much deeper, into issues of much greater consequence than simply purchases via imports/exports.

While increased Chinese purchases to lower the deficit are a part of the goal, they are a very small part of the goal.  The protection of U.S. intellectual property; the removal of non-tariff trade barriers; the protection of U.S. ownership rights as Americans operate inside China; the confrontation of currency manipulation, and the sector by sector enforcement provisions are Lighthizer’s primary objective.

If you overlay the comments by NEC Chairman Larry Kudlow (above), with the insightful commentary about ‘enforcement’ by USTR Lighthizer earlier, we can see the picture emerging.

Lighthizer wasn’t specific, Kudlow gave more detail.

What Kudlow is outlining is what Lighthizer hinted toward.

Each of the sectors within the U.S-China trade agreement will have their own specific multi-staged enforcement mechanism that triggers one-way tariffs if China violates the terms; and China cannot retaliate.

Each trade sector will be protected on: [1] intellectual property rights (copyright, patents etc); [2] non tariff barriers (artificial Chinese regulatory hurdles); [3] private ownership external to the controlling reach of Chinese state-owned dictates; [4] as well as financial access and larger currency manipulation schemes.

Within each trade sector; and upon each protected aspect; Lighthizer is building-in a multi-tiered tariff system that would immediately punish the Chinese State-Owned system (all companies therein) with staged, one-way tariffs and countervailing duties that cannot be avoided and China cannot retaliate against.

In essence, and in practice, it sounds like the sector-specific American product protection means: if China violates the sector-specific terms, any terms, the equivalent (or closest equivalent) Chinese product would automatically cost more…. and the U.S. product would cost less.  An enforcement system giving U.S. producers and owners an immediate benefit; and giving China an immediate punishment.

[This would also likely apply to U.S. companies with Chinese controlling interests.]

This sounds like the enforcement framework within a heavy MOU; that is then guaranteed to transfer into the final, legal and binding agreement; and be applied to every element, within every sector, across the entirety of the U.S. commerce relationship with China.

Lighthizer described “steps” and “layers” of this protection at every level, and across every element, of commercial engagement with China.  However, Lighthizer didn’t describe the punishment; it sounds like Larry Kudlow did.

En route to the White House from Hanoi, Vietnam, Air-Force One stopped in Alaska for refueling.  During the stopover President Trump delivered remarks to U.S. troops stationed at Elmendorf AFB.

President Trump was greeted by Alaska Governor Mike Dunleavy who accompanied the president to a base hangar where U.S. troops were gathered.

White House Council of Economic Advisers Chair Kevin Hassett discusses the U.S. economy’s 2.6 percent growth in the fourth quarter, and the outlook for the U.S. economy through the rest of 2019.

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Notice how most of the financial pundits are focusing on what the “global economy” needs; specifically what the EU and China need to do to gain economic growth.  From that position, the U.S. trade reset is adverse to their financial interest; those financial interests are driven by Wall Street not Main Street.

Economic nationalists who understand the concept of ‘America First’ focus on what the USA economy needs, and do not accept a position that the U.S. should acquiesce our position to benefit the economic needs of other nations.  That’s the primary difference.

Few understand the MAGAnomic reset and what was predicted to happen in the space between disconnecting a Wall Street economic engine (globalism and multinationals) and restarting a Main Street economic engine (nationalism/America-First).  In 2016 CTH explained where we would be today.

President Trump’s MAGAnomic trade and foreign policy agenda is jaw-dropping in scale, scope and consequence. There are multiple simultaneous aspects to each policy objective; however, many have been visible for a long time – some even before the election victory in November ’16.

♦ When U.S. banks were allowed to merge their investment divisions with their commercial banking operations (the removal of Glass Stegal) something changed on Wall Street.

Companies who are evaluated based on their financial results, profits and losses, remained in their traditional role as traded stocks on the U.S. Stock Market and were evaluated accordingly. However, over time investment instruments -which are secondary to actual company results- created a sub-set within Wall Street that detached from actual bottom line company results.

The resulting secondary financial market system was essentially ‘investment markets’. Both ordinary company stocks and the investment market stocks operate on the same stock exchanges. But the underlying valuation is tied to entirely different metrics.

Financial products were developed (as investment instruments) that are essentially wagers or bets on the outcomes of actual companies traded on Wall Street. Those bets/wagers form the hedge markets and are [essentially] people trading on expectations of performance. The “derivatives market” is the ‘betting system’.

♦Ford Motor Company (only chosen as a commonly known entity) has a stock valuation based on their actual company performance in the market of manufacturing and consumer purchasing of their product. However, there can be thousands of financial instruments wagering on the actual outcome of their performance.

There are two initial bets on these outcomes that form the basis for Hedge-fund activity. Bet ‘A’ that Ford hits a profit number, or bet ‘B’ that they don’t. There are financial instruments created to place each wager. [The wagers form the derivatives] But it doesn’t stop there.

Additionally, more financial products are created that bet on the outcomes of the A/B bets. A secondary financial product might find two sides betting on both A outcome and B outcome.

Party C bets the “A” bet is accurate, and party D bets against the A bet. Party E bets the “B” bet is accurate, and party F bets against the B. If it stopped there we would only have six total participants. But it doesn’t stop there, it goes on and on and on…

The outcome of the bets forms the basis for the tenuous investment markets. The important part to understand is that the investment funds are not necessarily attached to the original company stock, they are now attached to the outcome of bet(s). Hence an inherent disconnect is created.

Subsequently, if the actual stock doesn’t meet it’s expected P-n-L outcome (if the company actually doesn’t do well), and if the financial investment was betting against the outcome, the value of the investment actually goes up. The company performance and the investment bets on the outcome of that performance are two entirely different aspects of the stock market. [Hence two metrics.]

♦Understanding the disconnect between an actual company on the stock market, and the bets for and against that company stock, helps to understand what can happen when fiscal policy is geared toward the underlying company (Main Street MAGAnomics), and not toward the bets therein (Investment Class).

The U.S. stock markets’ overall value can increase with Main Street policy, and yet the investment class can simultaneously decrease in value even though the company(ies) in the stock market is/are doing better. This detachment is critical to understand because the ‘real economy’ is based on the company, the ‘paper economy’ is based on the financial investment instruments betting on the company.

Trillions can be lost in investment instruments, and yet the overall stock market -as valued by company operations/profits- can increase.

Here’s the critical part – Conversely, there are now classes of companies on the U.S. stock exchange that never make a dime in profit, yet the value of the company increases.

This dynamic is possible because the financial investment bets are not connected to the bottom line profit. (Examples include Tesla Motors, Amazon and a host of internet stocks like Facebook and Twitter.) It is this investment group of companies that stands to lose the most if/when the underlying system of betting on them stops or slows.

Specifically due to most recent U.S. fiscal policy, modern multinational banks, including all of the investment products therein, are more closely attached to this investment system on Wall Street. It stands to reason they are at greater risk of financial losses overall with a shift in economic policy.

That financial and economic risk is the basic reason behind Trump and Mnuchin putting a protective, secondary and parallel, banking system in place for Main Street.

Big multinational banks can suffer big losses from their investments, and yet the Main Street economy can continue growing, and have access to capital, uninterrupted.

Bottom Line: U.S. companies who have actual connection to a growing U.S. economy can succeed; based on the advantages of the new economic environment and MAGA policy, specifically in the areas of manufacturing, trade and the ancillary benefactors.

Meanwhile U.S. investment assets (multinational investment portfolios) that are disconnected from the actual results of those benefiting U.S. companies, and as a consequence also disconnected from the U.S. economic expansion, can simultaneously drop in value even though the U.S. economy is thriving.