Sad Panda increasingly frustrated as disruptor Trump heaps vociferous praise on Chairman Xi, while simultaneously out maneuvering Beijing’s geopolitical economic strategy.

China expert Michael Pillsbury discusses the current environment around the Beijing leadership with Fox host Tucker Carlson.  This is really important. WATCH:

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What Pillsbury outlines is exactly what CTH predicted last year when we shared how the Red Dragon would be caught entirely off-guard.  They’ve never seen this approach before.

NOTE: The upcoming Chinese trade delegation is not showing up at the end of this month as a matter of scheduling happenstance.  What no-one in the financial/trade/economic media is connecting is the timing of their visit with USTR Lighthizers’ Section 301 Tariff hearings –SEE HERE.  August 20th through August 27th, you can guarantee the Chinese delegations will be all over those hearings; including dispatching their paid lobbyists to provide input on their behalf.

Each time China takes aggressive action (red dragon) China projects a panda face through silence and non-response to opinion of that action;…. and the action continues. The red dragon has a tendency to say one necessary thing publicly, while manipulating another necessary thing privately.  The Art of War.

President Trump is the first U.S. President to understand how the red dragon hides behind the panda mask.

It is specifically because he understands that Panda is a mask that President Trump messages warmth toward the Chinese people, and pours vociferous praise upon Chairman Xi Jinping, while simultaneously confronting the geopolitical doctrine of the Xi regime.

In essence Trump is mirroring the behavior of China while confronting their economic duplicity.

President Trump is putting on a MASSIVE economic squeeze.

♦Squeeze #1. President Trump and Treasury Secretary Mnuchin sanctioned Venezuela and cut off their access to expanded state owned oil revenue. Venezuela needs more money. China and Russia are already leveraged to the gills in Venezuela and hold 49% of Citgo as collateral for loans outstanding.  China and Russia now need to loan more, directly.

However, China cannot engage in economic commerce with Venezuela or they risk losing access to the U.S. banking system.  Therefore all current Chinese aid to Maduro comes in the form of IOU’s.  These ongoing loans are likely impossible to be repaid.

♦Squeeze #2. China’s geopolitical ally, Russia, is already squeezed with losses in energy revenue because of President Trump’s approach toward oil, LNG and coal. Trump, through allies including Saudi Arabia, EU, France (North Africa energy), and domestic production has influenced global energy prices.  Additionally, President Trump is demanding NATO countries, specifically Germany, stop supporting financial dependence on Russia.

Meanwhile, and directly connected, Russia is bleeding out financially in Syria. Iran is the financial reserve, but they too are energy price dependent and President Trump is now putting pressure on Iran vis-a-vis new sanctions and new demands on allies.

♦Squeeze #3. In 2017 Trump and Secretary Tillerson, now Secretary Pompeo, put Pakistan on notice they need to get involved in bringing their enabled tribal “extremists” (Taliban) to the table in Afghanistan. Pakistan’s primary investor and economic partner is China. The U.S. removed $900 million in financial support to pressure Pakistan toward a political solution in Afghanistan, China has to fill void.  [NOTE: Last month the World Bank began discussions about a financial bailout for Pakistan.]  Again, more one-way bleed for China.

♦Squeeze #4. China’s primary economic threat (competition) is next door in India. President Trump has embraced India as leverage over China in trade and pledged ongoing favorable trade deals. The key play is MFN (Most Favored Nation) trade status might flip from China to India. That’s a big play.  It would have massive ramifications.

♦Squeeze #5. President Trump launched a USTR Section 301 Trade Investigation into China’s theft of intellectual property. This encompasses every U.S. entity that does manufacturing business with China, particularly aeronautics and technology, and also reaches into the financial services sector.

In March of 2018 U.S. Trade Representative Robert Lighthizer completed a section 301 review of China’s trade practices.  [SEE HERE] Section 301 of the U.S. Trade Act of 1974 authorizes the President to take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.  However, as talks with China progressed, President Trump shelved the 301 action to see where negotiations would end-up. The May and June, 2018, negotiations between the U.S. and China provided no progress.  The 301 review of China is now pulled back off the shelf, and President Trump assembles his trade-war strategy.  The 301 tariffs/sanctions are currently being worked out with U.S.T.R Robert Lighthizer.

♦Squeeze #6. President Trump, Secretary Ross, Secretary Mnuchin and USTR Robert Lighthizer are dissolving NAFTA in favor of two bilateral agreements; one with Mexico and one with Canada.  One of the primary objectives of team U.S.A. is to close the 3rd party loopholes, including dumping and origination, that China uses to gain backdoor access to the U.S. market and avoid trade/tariff restrictions. [China sends parts to Mexico and Canada for assembly and then back-door entry into the U.S. via NAFTA.]

♦Squeeze #7. President Trump has been open, visible and vocal about his intention to shift to bilateral trade renegotiation with China and Southeast Asia immediately after Team U.S.A. conclude with NAFTA. [Current discussions with Japan are ongoing]

♦Squeeze #8. President Trump positioned the U.S. relationship with the E.U. as a massive potential loss for Europe (via Steel, Aluminum, and Auto tariffs) if they did not: (A) shift their trade relationship toward greater reciprocity; and (B) reconsider the size of their trade relationship with China.  After initially trying to push-back, Europe acquiesced.

♦Squeeze #9. President Trump has positioned ASEAN (Association of Southeast Asian Nations) as trade benefactors for assistance with North Korea. Last year the KORUS (South Korea and U.S.) trade deal was renegotiated, and announced in March. The relationship between ASEAN nations and the Trump administration is very strong, and getting stronger. Which leads to…

♦Squeeze #10. President Trump has formed an economic and national security alliance with Shinzo Abe of Japan. It is not accidental that North Korea’s Kim Jong-un fired his last missile over the Northern part of Japan. Quite simply, Beijing told him to.  However…

♦Squeeze #11. President Trump cut-off the duplicitous Beijing influence over North Korea by engaging directly with Kim Jong-un.  The open exchange and ongoing dialogue has removed much of the ability of Beijing to leverage the DPRK nuclear threat for their own economic benefit.  This dialogue was as much, if not more, about dismantling the Beijing geopolitical influence as it was about denuclearizing the Korean peninsular.  However, no-one caught on to that part of the strategy.

Add all of this up and you can see the cumulative impact of President Trump’s geopolitical economic strategy toward China. The best part of all of it –as we previously stated– is the likelihood China never saw it, meaning the sum totality of “all of it”, coming…. at first.

Now they do, and, as Mr. Pillsbury notes from his travel and engagement, China is not quite sure how to respond.

Only President Trump could use economic leverage with such incredible insight and strategy toward achieving dual results benefiting the U.S. economy and U.S. national security position.  It really is stunning when you stand back and look at how it has all played out…. in the open…. and yet seemingly no-one saw what he was doing.

Just brilliant.

Freight hauling trucks are like the lymphatic system within a healthy economy.  As the economy writ large needs to move stuff around, it’s the truckers who git-r-done; and no time in U.S. economic history has there been such a demand for haulers.

In a stunning Wall Street Journal Report they note Analyst group ACT Research says manufacturers are on track for 450,000 orders for heavy-duty trucks this year, easily breaking a 14-year-old record. In July alone, North American fleets ordered more than 52,000 trucks, the largest order in history.   Whoot, Whoot !!

(Via WSJ) An unprecedented run of orders for big rigs has pushed the backlog at truck factories to nine months, according to industry analysts, the largest since early 2006, when truckers stocked up to get vehicles in place before tougher environmental restrictions would take effect. Typically the backlog is about five months for the truck industry’s manufacturers, analysts said.

Economic analysis can get weedy…. so a simple way to look at productivity is to think about baking bread in your kitchen.

If you were going to bake 4 loaves of bread it might take you 2 hrs start to finish. However, if you were going to bake 8 loaves of bread it would not take you twice as long because most of the tasks can be accomplished with simple increases in batch size, and only minor increases in labor time.  Your productivity measured in the last four loaves is higher.

Economic Productivity is measured much the same way, within what’s called a production probability equation.  Additionally, if two hours of your time are worth $40, each of four loaves of bread costs $10; but if you make 8 loaves in the same amount of time the labor cost is only $5/per loaf.

From 2007 through 2017 the average rate of productivity increase was 1.3%.  However, in the second quarter of 2018 productivity jumped to 2.9%.  That means total business output increased significantly as more product was demanded from within the business operation.  Throughout the economy people just wanted more stuff.

Improved gains in efficiency/productivity (more bread needed) supports faster economic growth without generating higher inflation; no need to raise prices because your cost to make each loaf of bread decreases the more you make.  Higher sales and lower per unit cost means more profit for the bread-maker.  No need to raise prices.  Without inflation, there’s no motive for the Fed to raise interest-rates.

Increases in productivity generally means the economy is generating more stuff.  The more stuff generated the higher the value of all economic activity; this increases GDP growth.

When we see higher productivity in direct alignment with GDP increases, the increased production indicates sustainable GDP growth.

BLS Report: “Nonfarm business sector labor productivity increased 2.9 percent during the second quarter of 2018, the U.S. Bureau of Labor Statistics reported today, as output increased 4.8 percent and hours worked increased 1.9 percent.” (link)

We made 4.8 percent more stuff, and only worked 1.9 percent longer.  The net is a 2.9 percent productivity increase.

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The future’s so bright…

…he’s gotta wear shades!

Departing the White House for New York and New Jersey, President Trump delivers impromptu remarks and holds a brief unscheduled presser prior to climbing aboard Marine-One.

Earlier today Secretary of State Mike Pompeo introduced the newest geopolitical strategy from the U.S. Department of State, the Iran Action Group.  The goal of the coordinated effort is to assemble a unified action front from all allies toward the destabilizing activity stemming from within the Iranian regime.

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[Transcript] SECRETARY POMPEO: Good afternoon, everyone. Today I am happy to announce the creation of the Iran Action Group.

The Iran Action Group will be responsible for directing, reviewing, and coordinating all aspects of the State Department’s Iran-related activity, and it will report directly to me.

For nearly 40 years, the regime in Tehran has been responsible for a torrent of violent and destabilizing behavior against the United States, our allies, our partners, and indeed the Iranian people themselves. In May of this year, President Trump withdrew from the flawed Iran nuclear deal, which failed to restrain Iran’s nuclear progress or its campaigns of violence abroad. In its place President Trump has instituted a campaign of pressure, deterrence, and solidarity with the long-suffering Iranian people.

Our hope is that one day soon we can reach a new agreement with Iran. But we must see major changes in the regime’s behavior both inside and outside of its borders. The Iranian people and the world are demanding that Iran finally act like a normal nation.

The Iran Action Group will drive daily progress on these objectives and I hope do much more.

We are committed to a whole-of-government effort to change the Iranian regime’s behavior, and the Iran Action Group will ensure that the Department of State remains closely synchronized with our interagency partners. The IAG will also lead the way in growing efforts with nations which share our understanding of the Iranian threat. President Trump is making our Iran strategy a true multinational undertaking, and the Iran Action Group will be key to further progress in that regard.

I am also announcing that Brian Hook will lead the Iran Action Group with the formal title of Special Representative for Iran. Brian has served as the Director of Policy Planning here since February of 2017, and he has worked tirelessly to advance President Trump’s foreign policy priorities across multiple domains. Brian’s diplomatic expertise and broad experience with Iran policy makes him an outstanding choice to lead the State Department’s Iran Action Group.

Since the President’s decision to withdraw from the Iran deal in May, Brian has played an important role in shaping our strategy of maximum diplomatic and economic pressure.

We are going to continue to rely on him and his team to lead our efforts to counter the Iranian regime’s malign activity, to support Iranian voices, and to galvanize international support for our efforts.

And with that, I’d like to introduce our new Special Representative for Iran, Brian Hook.

When we elected a successful businessman as President of the United States and leader of the executive branch, we elected a person who fundamentally changed the framework of accountability and transparency in government. President Donald J Trump holds an average of two to three full cabinet meetings each month where the cabinet members give direct updates on execution of policy priorities.

No President in modern history has put that much accountability into the position of each cabinet member. No President has ever coordinated strategic objectives with such a high level of expectation and scrutiny. No President has folded transparency into the cabinet with full media access over White House cabinet meetings. This is a new executive branch standard.

NEC Director Larry Kudlow break-out discussion on the economy at 03:45. WATCH:

National Economic Council Director Larry Kudlow appears on Fox News to discuss the incredible strength of the economy and how the media is refusing to cover the story.

Chairman Kudlow goes through a series of economic Key Performance Indicators (KPI’s) to stress how this specific set of MAGAnomic Main Street policies is delivering real, tangible, financial benefits to the middle-class and average Americans.

Rasmussen did a survey of U.S. voters and discovers a significant jump in black support for President Trump from 19% last year to 36% now.   Not coincidentally, the DNC media apparatus has been pushing a recent racist narrative against President Trump.

(Rasmussen Link) (President Trump Tweet Link)

Remember that 2016 conversation about retail inflation, Q2 wage growth, durable goods spending and non-durable goods expenditures…  Well, in a growing economy; a bigly expanding economy; with wages actually increasing as an authentic outcome of expanded hiring and jobs, jobs, jobs… in conjunction with lowered tax rates…. you get more money in your pocket.

This natural Main Street dynamic leads to increased consumer spending, specifically in the retail sectors influenced by who?… Oh, yeah, those middle-class economic beneficiaries of all the above.

The expert financial pundits are shocked, shocked I tell you… shocked; when, all of a sudden, the convergence of MAGAnomic Main Street policies delivers results.  DUH!

The Commerce Department – Economic and Statistics Administration – released the figures from July 2018 retail sales today (full pdf available here), showing an incredibly strong .5% increase in spending in July, bringing a 6.4% increase year-over-year;  and the results have dropped the jaws of the “experts”:

“Economists polled by Reuters had forecast retail sales nudging up 0.1 percent in July.” (link)

“Retail spending in the United States increased a half-percent during the month of July — well beyond what experts predicted.” (link)

“U.S. retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong” (link)

(pdf link)

With expanded jobs available; higher wages and the highest workforce in the history of the country currently; and with more U.S. workers re-entering the workforce again; and with expanded optimism and opportunity; the retail sector is a natural benefactor.

Notice the drop in the “sporting goods, hobby, etc.” sector?  Americans love to work… when you’re working, you’re earning…. when you’re earning you ain’t playing as much etc.

Retail sales growth is directly related to the middle-class.  Retail store volume is directly related to the wealth of the middle class.  Build a strong Main Street and you simultaneously build a strong, financially secure, middle-class.  It is a self-fulfilling economic prophecy; this is common sense.

Remember, two-thirds of our GDP, and the subsequent economic growth measured by GDP growth, is directly influenced by retail sales.  The more goods Americans purchase, the higher our GDP growth in the making, manufacturing, distribution and selling of those goods.   This is the Main Street growth cycle dynamic never discussed when all of the economic emphasis is on a service-driven economy (Wall Street).

BIG PICTURE – As a direct result of President Trump’s multifaceted economic strategy, manufacturing companies are having to look at TCO which is “Total Cost of Ownership”. You see, President Trump is not only approaching manufacturing growth policy from the trade-agreement and investment side, his policies also approach the larger impacts on raw material, energy and labor.

This multi-pronged policy approach forces companies to look at transportation and location costs of manufacturing. In combination with more favorable tax rates; if domestic costs of material and energy drop, in addition to drops in regulatory and compliance costs of operating the business, the total operating cost differences drop dramatically.

This means labor and transportation costs become a larger part of the consideration in “where” to manufacture. All of these costs contribute to the TCO. Transportation costs are very expensive on durable goods imported. If the durable goods are made domestically, the transportation costs per unit shipped drop significantly. The TCO analysis then further reduces to looking at labor.

U.S. Labor is more expensive, yes. However, if material costs, energy costs, regulatory costs, taxes and transportation costs are part of the TCO equation – then higher labor costs can be offset by the previously mentioned savings.

… […] Chinese wages have been rising by about 15% a year since 2000. As a result, the Chinese labor cost in dollars per unit of output is now about four times what it was in 2000. We estimate that about 25% of what is now offshored would come back if companies quantified the total cost. These products would generally have characteristics such as high freight cost vs. labor cost, frequent design changes, volatility in demand, intellectual property risk, and regulatory and compliance requirements. (link)

For two years CTH has repeatedly stated that under Trump’s proposals “total costs” drop so dramatically, that off-shored manufacturing is no longer the best play. We are seeing that shake out right now. For the first time in 30 years companies are reviewing the TCO of products and finding less and less financial reasons for off-shore manufacturing.

Their response?….  Well, we need more workers !!

Winnamins baby… moar winnamins.