Trump's Ultimatum with China

by Jim Rickards, DailyReckoning: The Mar-a-Lago meetings between President Trump and Chinese President Xi have now brought geopolitical, economic, financial and other issues all to a convergence.

The worlds of defense and diplomacy are now converging on global capital markets — stocks, bonds, derivatives, commodities, currencies, gold, etc.

The significance of the Mar-a-Lago meeting extends beyond the historic property and the fact that it is Donald Trump’s main winter residence. Presidents have a protocol of meeting locations with heads of state. They tend to reserve the most important meetings for exclusive venues.

In April, President Xi and President Trump met at Mar-a-Lago. It was a significant one-on-one bilateral conference where trade was always front and center.

Looking back to the campaign, Trump signaled his problems with China on three fronts — trade, tariffs, intellectual property — while also having a financial and currency component.

Since the inauguration, Trump has not been forceful on any of those issues. He has not started a trade war with China. He has not labeled them a currency manipulator. He has not done anything. Why? The answer is that Trump wants and needs China’s help on an even bigger issue — North Korea.

North Korea is pursuing nuclear capabilities that would have an intercontinental ballistic missile (ICBM) program. If you were to combine those two facets by putting a miniaturized nuclear warhead on a missile, it would be possible to kill millions Americans in Los Angeles.

As of today North Korea has achieved the capability of hitting Alaska. This is a threat that presents clear and present danger to the United States.

The conventional wisdom is that China has more economic leverage over North Korea than any other country. While there’s also good reasoning that Russia also has a lot of influence over the North, Trump is first looking to China for help to a solution.

At Mar-a-Lago, on April 6th, 2017, privately, what President Trump said to Xi is believed to be that he would lay off criticisms and accusations currency manipulation, tariffs and trade subsidies if China was to help with North Korea. In exchange China would need to pressure the North Korean regime to change their behavior in such a way that we can avoid a war.

President Xi then indicated he would need a little more time.

This response was a typical Chinese approach to play for time. Building from Trump’s “Art of the Deal,” the president say that he would give 100 days.

The 100 days extending from April 6th is July 15th. That will be when time is up.

While we’re not going to wake up on the morning of July 15th and the world has come to an end it’s a very important date. Trump is going to live up to his word.

It’s become apparent that China has not done anything. In fact,President Trump has even sighted statistics that show trade between China and North Korea has actually increased. In the first quarter along trade is up nearly 40 percent from a very low level.

The 100th day marker might come and go, but the significance once we pass it is that the gloves come off.

The first signs of change have already begun. In aseries of Tweets, President Trump has already to signaled that the Chinese are not living up to what they said at the Mar-a-Lago summit.

At the recent G20 meeting all eyes were on Trump and Putin during their first face-to-face meeting. By nearly all reports, it went well, was cordial and productive.

However, that was not the only take away from the G20 side meetings. It became clear that going forward, the relationship between Xi and Trump was becoming colder because of China’s failure to deliver.

The expectation now is that the U.S will hit China hard on economic, financial and trade fronts. The Chinese can see this coming, and this is going to get very ugly, very fast.

This friction is of big significance for investor portfolios. The history and timeline leading to the Mar-a-Lago 100 Days that end July 15th could signal a major shift in the administration’s approach to China.

Although the United States has not given up hope that China will help with North Korea, the White House will now have greater freedom to act. What that means is the U.S will go after China in two major ways.

China, Sanctions and North Korea

North Korea now has the ability to fire ICBMs, two-stage liquid-fueled rockets, with pretty good accuracy, based on this last test. They’re now in immediate range to have ballistic missiles. Their nuclear enrichment programs are using plutonium right now and making strides for highly enriched uranium.

The question is, where are they getting all the materials? If you can’t get high precision components, you can’t build these types of weapons. The answer is that they’re buying it from all over the world.

The next question becomes, how are they paying for it? They’re paying for it with dollars and gold. However, North Korea has been shut out of the banking system.

So how is North Korea actually conducting business? The answer is that Russian and Chinese banks are fronting for North Korea and have access to the Global Payment Systems that are running accounts for the benefit of secret Northern accounts.

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