Beautiful Park Avenue Afternoon – copyright 2019 Neil Siskind
Beautiful Park Avenue Afternoon – copyright 2019 Neil Siskind
By: Neil S. Siskind
President Trump should be inclined to secure any promises by China to make, and to have Chinese firms make, future agriculture product purchases in exchange for his present tariff levy forbearance the same way that he, as a real estate developer, would secure any promise by a counter-party to pay monies due following his performance under a contract, where that counter-party has previously shown to be unreliable: with a purchase and sale contract with China (or with Chinese state-owned firms), signed simultaneously with the signing of a trade agreement, that spells-out the products being purchased by China (or by state-owned firms), and the prices, quantities, purchase dates, delivery dates, payment terms, etc., for such, with the monies for payments to come due from China (or from state-owned firms) put in escrow by China (or by state-owned firms), for delivery by the escrowee when due.1 The funds could even be held in an interest bearing escrow account, with the interest paid to China (or to state-owned firms).
Or, the President could consider accepting a letter of credit from China or from Chinese state-owned firms (issued by a United States bank, of course) securing the payments.1
Alternatively, the parties could agree that the escrow or letter of credit mechanism be used only to establish secondary liability (or guarantor liability) of China or China state-owned firms, rather than being the primary source of payments for purchases, in which case, if Chinese firms’ imports of delineated U.S. agriculture products should fail to reach the agreed quantity at or by the end of a given year, the escrow or credit letter could be drawn on, to the extent of any shortfall. This would leave China and China state-owned firms financially responsible to the U.S. (and its agriculture product sellers and payment assignees) only if private and state-owned Chinese firms fail to meet a trade agreement’s requirements with their own respective purchase contracts and payments in a given year.
(Either of the above payment mechanisms should name the United States Department of the Treasury as the payment beneficiary, with the right of the Department to assign to another party, such as a farmer, the right to receive an escrow payment or draw on the credit letter when a payment becomes due.)
It would be like any other commercial transaction.
If China declines to allow us to secure future payments through one of these mechanisms, what would that tell us about China’s intention to perform? Not only would tariff rollbacks be entirely untenable in such case, holding-off on the new tariffs would, also, be sans a solid rationale.
Without one of the above payment mechanisms in place as to the agriculture purchases portion of a deal (if an agreed amount of purchases can even be reached, which, as of now, is uncertain), regardless of the existence of any dispute resolution or enforcement process for the purchases, or for any other deal point, “President Trump” should not agree to a deal, at all- just as “Donald Trump the real estate developer” wouldn’t.
1. Because imports normally require working through private companies, trade related import agreements can be hard to implement; but, in China, the government has state-owned companies it can direct to make the promised purchases and payments. Further, in order to reach and perform under an agreement with the United States, China’s government, itself, for financial purposes, may have to directly participate in the purchases to meet an agreement’s purchase requirements.
1. To roll-back existing tariffs or forebear from levying new tariffs in phase 1 only to use those tariffs as a threat to secure terms in a phase 2 negotiation would be a ridiculous result. Phase 1 would immediately be under constant threat of being canceled.
2. China needs a deal that helps it dig itself out of the deep financial hole in which it has placed itself. China is unlikely to make a deal to spend money, and direct its private and state-owned firms to spend money, and change its laws, without tariff roll-backs. The “possibility” of lower tariffs “someday” will not be enough for China. This requirement by China could be a deal-breaker for both sides.
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About the Writer
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Neil Siskind is: President of The Siskind Law Firm, https://www.debt-solutions-attorney.com/, focused on debt negotiation and restructuring, debt collection, debt investing, product investments, trademark licensing, and product distribution; Founder & Chairman of The Fatherhood Assignment™, a think tank and advocate for children with absentee fathers; Founder of the global charity marketing initiative, Caring is Free®; Founder of National Fatherhood Day™; Owner & Conservator of The Neil S. Siskind Nature Preserve, over 9 acres of conserved waterfront land along New York’s majestic Hudson River; and author of The Complete Guide To The Ways To Manufacture & Sell Your Products. On December 11, 2017, in his article The Yield Curve Speaketh: Why Stocks Might Crash in Early 2018, Neil Siskind accurately predicted the February, 2018 stock crash, the largest single-day point drop in the Dow Jones Industrial Average’s history. All the stock indices are down approximately 6% for 2018. In his September 26, 2018 article, Lots of “Bull” In The Bull Market: Let’s Look At What’s “Really” Growing, Neil Siskind explained that, despite Wall Street’s bullishness, the economic data and stock market underpinnings were in decline, and the economy and stocks were at imminent risk. By the closing of markets on October 23, 2018, the S&P 500 had fallen approximately 7%, with October being the S&P’s worst month since August 2015 (and December being the S&P’s worst month ever), the Nasdaq continues to have its worst month since 2016, and is down approximately 8% from article publication, and the DJIA is having its worst monthly performance since 2008. In 2018, Neil Siskind coined the phrase “synchronized global slowth™” (or “synchronous slowth™”) to describe the occurrence or condition of multiple emerging market and developed market economies commencing a downward trajectory of economic and GDP growth, or actually contracting to a point of slow, stagnant, or negative economic and GDP growth, at simultaneous, or nearly simultaneous times, largely, or, at least in part, due to rising interest rates and/or stricter lending regulations (such as higher bank reserve requirement ratios and stricter bank balance sheet requirements) in the larger, more developed or fully developed economies, such as the United States and China, resulting in diminished liquidity in those economies, and, thus, diminished liquidity in smaller, or emerging economies, in turn. If you are in need of office space in South Florida, contact Neil Siskind about space availability at The Siskind Executive Office Complex in Boca Raton, FL.
Other Recent Articles by Neil S. Siskind:
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