Why is chicken causing a furor between the US and China? It seems that there is a long standing feud over chicken imports to the US. According to Etter and Power, in 2006 the USDA issued a rule that permitted China to export cooked poultry products to the US as long as the raw poultry meat originated in the US. A bruhaha erupted, and lawmakers inserted a provision in the fiscal 2008 spending bill that prohibited processed chicken from being imported into the US.

Now, in retaliation, China is expected to ban imports of US chicken, a move that would cost US chicken exporters $370 million dollars over the next six months.

Sometimes a seemingly small issue is transformed into a much larger problem. This is what happened between the U.S. and Mexico. The U.S. had a "pilot program" allowing Mexican trucks to cross the U.S. border and use U.S. roads. The program was halted last week on the grounds that the Mexican trucks were unsafe.

Mexico retaliated and said they would raise tariffs on $2.4 billion worth of U.S. exports. Mexico's tariffs would be increased on 90 industrial and agricultural products. These tariffs are set to be imposed later this week.

Just call it 'two steps forward, one step back' for the global trade talks.

The collapse of the World Trade Organization's trade talks this week without an agreement is a setback, economists contacted by BloggingStocks agreed, but it is not likely likely to prevent international trade from growing in 2009.

The nine-day talks in Geneva -- aimed at completing the Doha Round -- collapsed Tuesday after the United States and the European Union could not reach an agreement with China and India on what constituted acceptable tariffs for food imports, The New York Times reported Wednesday. The U.S. and E.U. say China and India wanted to impose prohibitively high tariffs. China and India counter that they were insisting on safeguard rules to protect their food supplies.

Economist Glen Langan told BloggingStocks the elimination of food import tariffs would have resulted in more-efficient deployment of resources, and, ultimately, lower food prices for consumer around the world, along with increased the increased commerce that trade brings. "The failure of the talks is a real loss for consumers in China, India and in the U.S. and Europe," Langan said. "It will also really hurt low cost food producers in Brazil, Argentina, Australia, New Zealand and South Africa. Ultimately, China and India will have to relent, or the west may begin to complain about free trade conditions for manufacturing and services. That manufacturing free trade policy has been the source of a considerable amount of China's and India's economic growth."

In the weeks ahead, BloggingStocks will take an in-depth look at China's economic expansion, its impact on the global and U.S. economies, and also review a few stocks likely to benefit from China's development.

China's announcement that its economy grew at annualized rate of 11.5% in Q3 has done nothing to quell economists' concerns that its economy is growing too fast for both the betterment of its mainland citizens and international markets/commerce.

China's government points to a "successful" slowing of the economy in Q3 to 11.5% from 11.9%. But the minor GDP drop was not what economists were looking for. Economists would have rather seen a Q3 GDP growth rate of 8% or 9% -- i.e., a 15%-25% drop in the rate of growth as evidence of a slower economy. Further, little in China's Q3 report indicated that the country is correcting macroflaws in the economy -- namely, too much heavy industry, high energy use, and a dependence on export sales, to go along with another serious flaw: domestic underconsumption.

Regarding the latter, China has taken some measures to help its middle class expand, and domestic consumption is rising. But domestic consumption still is not large enough: China said domestic consumption has accounted for about 37% of economic gains so far in 2007, down from 39% in 2006. In other words, China is still not at a point where consumer spending can support its economy, and also stimulate growth in other countries through the purchase of foreign goods and services.

I wrote yesterday about the recent Chinese veiled threat to dump its dollar holdings if the U.S. raises tariffs in hopes of coercing them to let the Yuan rise against the dollar. Today I had the opportunity to pick the brain of an expert on the topic, Brad Setser, Chief Economist at RGE Monitor and former acting director of the Office of International Monetary and Financial Policy at the U.S. Treasury.

My first question to him was, is this a credible threat? Setser didn't believe so, because it would represent a huge shift in China policy. The Chinese government, he explained, has shown a consistent bias toward supporting the country's exports, even at the cost of holding onto dollars as their value drops against other world currency. In fact, China continues to bolster its dollar holdings, adding $350-400 billion this year alone.

Setser went on to explain that, in his opinion, the Yuan was currently undervalued against the dollar by approximately 30%. If such an imbalance were abruptly corrected it would dramatically disrupt their export market.

He went on to say that China is in effect swallowing huge losses by holding dollars in order to support their exports, but the current regime has not indicated any likelihood to change that position.

However, he cautions, tensions between the two countries are growing, as the Chinese government takes umbrage at the growing movement in the U.S. to address the trade imbalance with legislation.

My take from this discussion: a change in the status quo is not in the offing, but the trade discussions in Congress are being watched carefully by the Chinese government. In the political season we are entering, pro-tariff campaign rhetoric could bring about more threats of reprisal.

Today's Democratic Party is not the Democratic Party as your grandfather knew it. If you think that the Democrats are all about working peoples' needs and how best to serve them, you may wish to think again. The days when the powerful labor unions were backed by legislation-wielding hot-dogs who were ready to step into the gap to protect the working class in wages, safety, and working conditions have faded away. In fact, I'm of the mind that the decline actually began way back with the disappearance of Jimmy Hoffa and the slow ugly death of that empire once known as the American steel industry.

Fast forward to NAFTA and GATT, and you'll find two of the most damaging pieces of paperwork that the American economy has ever endured. Do I need to mention the one name most closely associated with both of those documents from the American side? I'll give you a hint, his ex is now looking to plant her feisty butt in the oval office.

Take a look, if you dare, at the link I have provided. It's an article called "Dems Sell Out on Trade" and surprisingly enough it's written from a slightly Democratic perspective. Read it, digest it, and then look at the past three decades in light of it. No, today's Democratic Party is not the Democratic Party that your grandpa supported. The new breed means business . . . in a stinkingly non-American, global sense.

The S&P 500 closed today at 1530.23, a new all-time closing high. The S&P 500 had been flirting with a new high these past 10 days, but now it is done and official. So, what does all this signify? Where do we go from here?

The United States stock markets have proven to be resilient and strong so far in 2007. The first quarter saw general corporate earnings to be quite healthy and, even more important, sustainable for the remainder of the year. The market was knocked -- before it even opened -- this morning by the news out of China. The government of China, trying to cool off the wild ride its market has provided this year, introduced a higher transaction tax. The government raised the rate from 0.1% to 0.3%. The Chinese market took a hit, but appears ready to plow right back through the pre-tax announcement.

The US market, and the S&P 500 specifically, is not generally viewed as "expensive." With the S&P 500 trading at 16 times 2007 expected earnings, the consensus is the market is fairly priced -- not over-priced. Coupled with strong corporate earnings experienced the first quarter, investors are feeling and showing confidence in the US economy. After all the stock market is the voice of near term confidence -- or lack of it.

The private equity world is keeping investors interest at a peak. The game of "who is next " on the acquisition block is keeping stocks afloat, and almost any company under $50 billion in market capitalization could be "in play." The share buyback programs are actively in place with almost $150 billion committed during this second quarter. It's a strong vote of confidence by American corporations in the value and merits of their own stocks.

So, we see strong corporate earnings flow, private equity activity at fever pitch, active share buy-backs, net in-flows into equity mutual funds and relatively low interest rates ... the S&P 500 is reflecting all of these positive factors.

Georges Yared is the CIO of Yared Investment Research. For more growth ideas please visit the web site