Chinese Cars now at a Dealer Near You!

No I’m not kidding and no they are not crackerjack box cars, but Volvos.  And expect more to come.  On Nov. 2, 2016, days before the surprise election of a certain Donald Trump as POTUS, partly on trade issues, Volvo made the following announcement:

“… production capacity will be increased and China will be developed into a global manufacturing and export hub servicing growing demand for its new range of cars in the US, Europe and Asia Pacific.”

Volvo S90 – Made in China – Sold & driven in the U.S.

The U.S. has a record of suspicion at letting China directly import cars, or generally letting China own stakes in major U.S. industries.  But there is no bar on them buying companies that sell here.  China owns $1.157 Trillion in U.S. Treasury Bonds, mostly long term, and the market value of that is about to plummet because the Fed is raising U.S. interest rates.  Indeed, 30-year bond rates have already risen from 2.25% to 3% since about the first of October.  To find the price of bonds you have to use a price calculator like this one.  If the Chinese bonds were all 30-year, this would be a 20% or $231 billion loss in value.  Even if they were all 10-year holdings (pretty much all the Chinese holdings are at least that), they have taken an $80 billion “haircut” in the last two months.  It must be dawning on them they should use that money to buy companies in Europe which sell us things.

There was a glimmer of hope today with the announcement Trump had talked with the leader of Taiwan, Tsai Ing-wen, breaking “decades of diplomatic tradition” (since Nixon I presume) and risking China’s anger.  I have no confidence there is the economic will to resist cheap trinkets from China, especially if they have quality Swedish nameplates on them.  But if the debate can become a diplomatic one, with military overtones, then we might get tough.  Americans understand military threats much better than economic ones.

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