The US is threatening trade sanctions against China to prevent the total annihiliation of the US textile industry. If you go back and look at how many times the US has threatened sanctions against China, you'll see that all the threats are political grandstanding, and basically a joke. All these threats amount to nothing without swift and decisive action. I'll bet the Chinese are laughing in our face. The US is like a parent that constantly threatens to discipline a child and never follows through.
Ron Insana on CNBC brought up an issue we have been talking about for quite some time. If we take action against China, will they sell off our government debt and drive long term interest rates higher. My response would be, so be it. We cannot allow China or any other country hold a gun to our heads while we supply them with the ammo.
If China took any actions to damage the US economy, we should impose trade sanctions so severe that it would be a crime to eat chinese food.
If we continue down the current path with China, we will experience runnaway inflation and much higher energy prices. Its time to get tough with China, and except the fact that we may have to suffer through a period of higher interest rates and economic weakness for selling our economic souls to the Chinese.
In the short run, I believe the broader indexes will move higher as the energy and energy infrastructure stocks correct sharply back or near the January lows. The catalyst to this sell off will be the U.S announcement that the Strategic Petroleum Reserve is full and purchasing is complete. This announcement should be enough to drive oil prices below the $50 a barrel mark. We will use this pullback as a buying opportunity. Until then, don't bet on any meaningful sanctions by the US against China.
