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August 19, 2019

How’s that China Trade…uhhh…Tariff deal going?

China is always a fascinating case study. Consider that this is a “communist country”. Consider it was China’s influence in Vietnam that lead us to committing troops to support the South Vietnamese government back in 1963. Who says we lost the Vietnam war? Certainly no one with an idea of why it was started and how it has worked there since. Since 1974 it has been a capitalist takeover of the entirety of Southeast Asia – not a communist one.    

Does China’s road to economic domination show others – Iran and North Korea are you there? – that to prosper is to shift sails from conflict to cooperation with the US capitalism model? The chart illustrates that the Chinese are once more spreading their vision more than aggressively and this time it’s capitalist domination.

The chart above tells a fascinating story of how it’s been and how it’s going now. The how its going now part can be seen by looking to that green line on the far right. When you extrapolate how that chart plays out over an extended time frame the Chinese economy is in for a thorough ass whupping.   

The dream outcome is that the red imports line becomes more balanced with the blue exports line. Getting to balance is complicated by the number of significant factors – social, economic and cultural and all of which account for the Chinese “slow rolling” negotiations. Not much of a surprise – most folks don’t like change; negotiated, imposed or otherwise. 

However, China is not an island of quiet serenity. The poor of China are not a sit down and shut up bunch. The recent dust ups in Hong Kong only scratch the surface of what is possible and may already be in remote provinces with zero media availability. Our man Xi no doubt can see the possibilities illustrated below and hopefully the light is coming on that a new balance must be struck. When – is the next critical calculation.  

That calculation starts with a date – Tuesday November 3, 2020. Can Xi hold out for the 2020 elections to move Trumps hardball stance overboard? He knows that historically no US politician has had the foresight and/or will to stand up to the Chinese global power calculations and  maneuvering until now.  Indeed, “times are a changin”. Joe Biden is a layup for the Chinese – but Elizabeth Warren is definitely not. Does the implied trajectory of this chart allow Xi to gamble on a new President that will grant China relief upon inauguration?  Such relief, in the best case scenario for the Chinese, is 7 quarters from now!  If the calculation turns to negotiation in good faith and to actually making a deal there are tremendous positive global growth implications. Stand by and count on a regular update of how this chart is moving.