TRUMP TARGETS CHINA INVESTMENTS - REVISTED & UNLOCKED

Capital Controls Are Coming

The Trump Administartion is very likely putting into play the TAX on foreign holdings of US financial assets I warned CLUB/EDGE clients about on Feb 22nd and wrote about here:

At the time, I was most interested in protecting clients’ out-sized gains from trading long Chinese ADRs with precision into the run-up: BABA, KWEB, FXI, JD, BIDU

I even posted this little diddy from my live trading room: PROTECT CHINA LONGS !

That served as great timing given $KWEB -20% with $BABA -30% down since that call.

Now, as the trade war between US and China heats up on the eve of Trump's threat to levy an additional 50% tariffs on China if they do not accept his demands to remove their tariffs, we have Chief Economics Advisor, Stephen Miran, giving a speech Tuesday that implies follow through.

Michael McNair highlights:

Miran outlined 5 forms of "burden sharing" for countries benefiting from the US dollar reserve system:

Four of these deal with reducing trade surpluses (more US exports, less US imports, etc.) - essentially reducing their net accumulation of US financial assets.

But the 5th proposal is the bombshell: Countries "could simply write checks to Treasury that help us finance global public goods."

Translation: You can keep holding US Treasuries and dollar financial assets, but you'll now pay a tax for the privilege.

It's now almost a slam dunk that the administration's upcoming tax bill (likely in May) will include a provision bringing back the 30% foreign withholding tax on interest income that was eliminated in 1984.

Many will push back on this thesis, but I can absolutely see it. And if nothing else, it not only represents a clear and present danger for equity and bond holders, BUT it also would help explain why I still see (big picture) no buyers stepping in yet.

"One way of doing this is to impose a user fee (ie tax) on foreign official holders of Treasury securities, for instance withholding a portion of interest payments on those holdings." Stephen Miran

McNair again:

He sure didn't mean, buy more US Treasuries. His entire speech – and his ‘users guide’ - is about how foreigners buying US financial assets is why the US runs a trade deficit.

Miran again:

“The reserve function of the dollar has caused persistent currency distortions and contributed…to unsustainable trade deficits."

McNair with last word:

And he has consistently stated that the goal is for foreigners to buy fewer US financial assets and more US goods & services.This is fundamentally different from a tariff. It's a payment for the privilege of holding dollar assets, regardless of trade flows. A direct tax on financial asset holdings.

All of the above supports my MONEY GOES HOME mantra since coming up with this tagline in the February article above.

And every time I hear Trump, Bessent, Navarro, Miran et al speak about both military security AND dollar reserve status, I think they are going to put in place "Pay-to-Play" foreign financial taxes in place and/or capital controls.

Either way, this is only going to hurt US stocks and bonds as the longer we have uncertainty the more bearish the outlook.