One week ago, the House of Representatives voted overwhelmingly -- 348 to 79 -- to give the Obama administration expanded authority toimpose tariffs on nearly any Chinese import. This move is, of course, aform of retaliation against China for the country's refusal to let theyuan appreciate.
Now, don't get me wrong -- trade between China and the U.S. is significantly lopsided. Last year, joint trade between the twocountries amounted to nearly $300 billion, but the U.S. trade deficitwas more than $220 billion.
However, the current bill passed by the House is a clear case of election-year politics, and it shows just how desperate Congress is tolook as if they are doing something to fix the economy. Now, if coolerheads prevail, this bill may not pass the Senate. But if it does passthere, and is then signed into law, it could be the first major salvo ina trade war that would do significant damage to both the U.S. and Chinaeconomies.
One reason why is because China is unlikely to sit idly by and watch its exports face high tariffs without its own form of retaliation. Buteven though this bill would hurt Chinese exporters, I think thehardest hit by a trade war would be millions of cash-strapped U.S.consumers, as tariff-laden goods from China would end up costingconsumers more money at nearly every major retailer in the country..
In the end, it would be U.S. consumers who would be hurt and end up footing the bill for Congress' so-called "solution."
So, how does this affect the companies in the China Strategy portfolio that I so often discuss here in Asia Insider?
Well, to be honest, this latest political action emphasizes just why it is so important to understand the differences between Chinesecompanies -- and is a big reason why I have largely stayed away fromChinese companies that rely on exports. In addition, I'm also notentirely comfortable with using multinational companies that are sellingto China as a way to play the China growth story.
I've discussed this in great depth with my China Strategy readers, but it boils down to that these types of companies will likelycome under significantly increased pressure in the near future as thebrewing trade and currency issues pick up steam.
As a result, my China Strategy portfolio focuses on Chinese companies that cater to China's burgeoning internal demand -- companiesthat will be the least affected by any new politically-imposed tariffrules.
In fact, a retaliatory restriction on imports from the U.S. could ultimately lead to more demand for China-based goods -- adding to the bottom line of China-based companies selling in China, such as the ones that I recommend in China Strategy.
I think we're going to see some very significant gains in the near future in several domestic-demand driven companies. Several of our topdomestic consumption plays have performed exceptionally well:
- China's Number-One Online Travel Company, soaring a whopping 356%;
- The Google of China, already giving us 284% gains, with more to go;
- China's Leading Offshore Oil Corporation, up 227% and heading higher with the price of oil.
Just in the past two week, we've seen some significant gains in some of my other latest China Strategy recommendations:
- Our China Clean Water Play, up 33%
- Leading Probiotic Producer in China, up 17%
- Chinese Oil and Biofuel Company, up 16%
- Largest Private Printing Supplier in China, up 14%
- Chinese Aluminum Giant, up 12%
And that's just a sampling of the profits my China Strategy subscribers have seen by focusing on Chinese domestic consumption.
So, even though the prospect of a new trade war is disturbing, our select China Strategy portfolio companies are doing just fine. To learn more about business strategies and receive weekly and monthly updates with my mostrecent advice on our investment opportunities check out my blogs http://www.9jabook.com/profiles/blog/list?user=26kfovjx02akt
Comments