National Economic Council Chairman Larry Kudlow appears on Fox News to debate Chris Wallace over the U.S-China trade reset.  As customary Wallace completely ignores the dynamic of communist China as a state run economy, and not a free market system; thus presenting the fictitious Wall Street position about bad tariffs.
Chairman Kudlow notes the bigger issues of President Trump confronting the enforcement mechanisms that must be in place if a trade agreement (FTA) between a free-market system (USA) and a state-run system (China) are going to work…

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Washington, DC – U.S. Trade Representative Robert Lighthizer today released the following statement regarding additional action under Section 301 of the Trade Act of 1974:
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Great interview segment between Lou Dobbs and Michael Pillsbury discussing the status of the U.S-China trade conflict.  Pillsbury notes how the Chinese analysts likely fell into the trap of believing what most western financial media were saying about domestic opposition to President Trump’s policies.
https://youtu.be/pilqeV2aNeE?t=4m48s
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One of the aspects to President Trump that bears a continual reminder is the importance of actual economic victory over optical political victory.   President Trump is primarily focused on the former, and only concerned about the latter as it relates to his goal:

….to fundamentally restructure the way the American economy interacts with the global community. Economic security is national security.

That’s what President Trump cares about. President Trump’s outlook on economic security is only superseded by one measure: his willingness to use the U.S. military to protect U.S. persons from physical threats of harm.
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Giddy up… President Trump has fulfilled another campaign promise to confront China and hold firm.  As promised, three decades of Donald Trump’s intense commitment to stop the exfiltration of Amerian wealth is on display today.

When you plant your tree in another man’s orchard don’t be surprised when you end up paying for your own apples….

U.S. Trade Representative Robert Lighthizer; U.S. Treasury Secretary Steven Mnuchin; U.S. Commerce Secretary Wilbur Ross and U.S. President Donald Trump are confronting Chinese Chairman Xi Jinping and Vice-Chairman Liu He… and now consequential things get economically very serious.
There are going to see multiple geopolitical background moves now as the confrontation shifts to the painful phase…. who can outlast the economic standoff.

WASHINGTON DC – Negotiations to end the US-China trade war came to a surprisingly early close in Washington on Friday with no signs of a deal – reportedly just hours before the Chinese delegation will return to Beijing.
US Treasury Secretary Steven Mnuchin told reporters at noon that the talks had been constructive as he left the US trade representative’s office, where negotiators held their latest round of talks in an attempt to end a months-long trade dispute. (more)

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Today President Trump outlines an approach to head-off the anticipated retaliation from China over the increase in U.S. tariffs that began today. Whether this is structurally possible, or whether this is Trump’s attempt to diminish the leverage carried by Vice-Chairman Liu He, is an interesting question. However, the strategy is clear.
Overall U.S. inflation remains low relative to the economic gains from MAGAnomic policy. [Current CPI HERE].  GDP and wage growth are both exceeding inflation. As such, now is indeed the best time to confront China. President Trump notes this today in a tweet:

Inflation in the U.S. remains low overall at 1.8%…. now is the perfect time to hit Beijing with expanded tariffs.  However, President Trump knows China will retaliate through the multinationals on Wall Street.  President Trump knows China will specifically target the U.S. Agriculture sector. China will likely attempt to put pressure on Trump by refusing to buy U.S. farm product. The BIG AG multinationals will go bananas.
The BIG AG multinationals, those who control food/farm production, also control key Senators; they have been purchased through lobbyists. This is part of the Big Club approach/strategy.  Wall Street and the U.S. Senate will be aligned to support China; as a consequence President Trump needs to counteract their effort.
President Trump’s approach to counteract China’s strike against the U.S. agricultural community is visible in a series of tweets today.  I don’t necessarily agree with the proposal long-term, BUT I do understand the short-term objective…. optimum expediency.
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The Southern District of New York has released a criminal complaint to accompany the seizure of a North Korean freighter “Wise Honest” (Full pdf below). The freighter was seized by Indonesian authorities on/around April 2, 2018 [media story here]. However, the background story of Wise Honest is more interesting.

The indictment outlines how the freighter was used to transport coal from North Korea to China and Russia and back-haul heavy equipment from Chinese ports into the DPRK. However, the transport network changed with the timing of increased sanctions on the DPRK.  Simply, the ship was routed to avoid being caught for violating sanctions.
The indictment also outlines how Chinese entities in Hong Kong assisted with routing the vessel to avoid maritime surveillance. There’s an aspect here that overlays a prior set of CTH discussions surrounding U.S. Navy training for a potential U.S. maritime blockade.
You might remember November 2017 CTH discussions about U.S. vessels conducting training exercises in/around shipping lanes. In 2017 and 2018 there were some maritime collisions that seemed to align with the possibility of these training exercises. In June 2017 The USS Fitzgerald was one such example near the coast of Japan.
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This is the big one.  This is the inflection moment.  Tonight around 5:00pm Chinese Vice-Chairman Liu He will engage with team U.S.A. on the substantive issues around the future of the U.S-China trade relationship.   Trillions at stake.
At midnight tonight the tariffs on Round One of Chinese goods are scheduled to increase from 10 percent to 25 percent.  Round Two is yet determined.  The background for the disposition of TEAM USA was outlined HERE.

Mnuchin – Trump – Lighthizer and Ross

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnunchin previously worked a 150-page outline agreement with China on seven chapters of trade issues covering: Theft of U.S. intellectual property; protection for trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.  Last week China reversed course on all of the substantive agreements. 
Today Vice-Chairman Liu He is going to try to justify to President Trump why China can no longer accept the commitments they made over the past three months.
It cannot be overstated how everything in/around DC must first be filtered through the prism of this inflection point.  At the heart of U.S. politics, the majority of the Senate Chamber is aligned with the Chinese through purchased multinational lobbying interests. Again, there are trillions at stake.  Wall Street through K-Street has paid the Big Club to defend their multinational/financial interests from President Trump.
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USTR Robert Lighthizer has filed the official notification with the federal register for the increase in Section 301 tariffs from 10% to 25% effective Friday (full pdf below).  Additionally Reuters has exclusive details of the collapse in U.S-China trade talks.
As most CTH readers are aware, Lighthizer has focused heavily on the enforcement mechanisms within the trade talks. [Previous Bookmark] Apparently, when the 150 page draft agreement was presented to the Chinese politburo, Beijing balked at allowing the U.S. to hold controlling enforcement over the trade agreement terms.

The fallback presentation from Vice-Chairman Liu was: we cannot put the binding enforcement mechanisms in writing, you’ll have to ‘trust us’ to honor the agreement; at which time Lighthizer said no-way.

WASHINGTON/BEIJING (Reuters) – The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks.
The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters.

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We have discussed the Chinese outlook toward trade and negotiations at great length.  One of the overriding issues has always been the zero-sum disposition of China as it relates to any engagement. To wit: if it does not benefit China, it simply is not done.

Peace or war. Win or lose. Yin and Yang. Culturally there is no middle position in dealings with China; they are not constitutionally capable of understanding or valuing the western philosophy of mutual benefit where concession of terms gains a larger outcome.  If it does not benefit China, it is not done. The outlook is simply, a polarity of peace or war.  In politics or economics the same perspective is true.  It is a zero-sum outlook. (link)

Against the collapse of trade negotiations, the ideology of Chairman Xi Jinping is showcased today in the first official responses from the Chinese government toward the U.S. initiating tariffs due to Beijing’s duplicitous reversal on prior commitments.

(SCMP) Beijing will not make concessions in trade talks in response to Donald Trump’s latest tariff threats, Chinese state media said in a commentary published a day after the US president announced increases in duties on Chinese goods.
“Things we think are advantageous for us, we will do it even without anyone asking,” People’s Daily reported on its WeChat account on Tuesday.
“Things that are unfavourable to us, no matter how you ask, we will not take any step back. Do not even think about it.”

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To say there are conflicting reports of the U.S-China trade discussion, and possible breakdown therein, would be an understatement.  However, mining through the various U.S. and China news agencies, a more clear picture emerges.

U.S. Trade Representative Robert Lighizer is quoted today: “We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China. That in our view is unacceptable.”  This statement appears to be in line with reports from Beijing about Chinese negotiators: “with sources suggesting that President Xi Jinping vetoed additional concessions proposed by his negotiators.”

(Bloomberg) […] Lighthizer and Treasury Secretary Steven Mnuchin told reporters on Monday that the Chinese backsliding became apparent during their visit to Beijing last week, but that they had been reassured by their Chinese interlocutors that everything would turn out.

That changed over the weekend when China sent through a new draft of an agreement that included them pulling back on language in the text on a number of issues, which had the “potential to change the deal very dramatically,” Mnuchin said.

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Well, it looks like all suspicions are now confirmed. The dragon dance of 2017 and 2018 has extended into 2019. DPRK Chairman Kim fires rockets, Trump smacks Chinese Chairman Xi. Yes, we can officially put the remaining bits of skepticism to rest…
The meeting last week between Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and their Chinese counterparts including Vice-Chairman Liu, was especially important.  Mnuchin and Lighthizer said they would debrief President Trump on the likelihood of whether a successful trade deal with a communist regime was structurally possible; or whether Beijing was playing a game of delay.
The ongoing dance with the dragon has been a series of cunning manuevers between the Panda mask and the Dragon face. At the conclusion of the Beijing visit by Mnuchin and Lighthizer, Chinese Chairman Xi sent a proactive response using his familiar proxy North Korean Chairman Kim. The DPRK test-fired three missiles.
Today President Trump responds:

The increase of the Round-1 tariffs from 10% to 25%, previously delayed after discussions between Xi and Trump in Argentina, will now be triggered. Additionally, the Round-2 tariffs (25% on $325 billion of different goods), originally scheduled for March 1, also postponed after the Argentina dinner, will now be implemented.
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