Let’s discuss a pair of articles from ZeroHedge and Politico.
Who Holds the Cards?
ZeroHedge asks Who Holds The Cards In The Trade War: U.S. Or China?
He who produces or he who consumes. Who holds the power? If China cut off the United States, shelves could go empty in weeks. If the U.S. closes its doors to China, the country’s income would collapse ushering in a severe depression.
So should American’s count their blessings as they are showered with inexpensive goods or is “the customer always right”?
ZH is holding a debate between Carnegie Endowment’s Michael Pettis and Z-Ben Advisors’ Peter Alexander.
The event will be moderated by Michael Green of Simplify Asset Management.
Each has studied China for decades and will provide the respective bear and bull case for the burgeoning superpower’s economic growth prospects. They will also weigh in on the ongoing U.S.-China trade war.
Unfortunately, the debate is subscriber only. But we have these opening positions.
Case Against China by Pettis
- China’s past economic success was driven by strong supply-side growth, especially during the 1980s to 2000s.
- The current major constraint is on the demand side, particularly domestic consumption, which is historically low.
- Weak consumption makes it difficult to grow the supply side without:
- Increasing investment, which China is reluctant to do.
- Expanding the trade surplus, which other countries are unwilling to accommodate.
- China is caught in an “Albert Hirschman trap”:
- Successful growth models eventually become obsolete.
- Countries often struggle to transition away from outdated models due to political and economic barriers.
China Case by Alexander
- Massive leaps in automation and AI: DeepSeek, fully autonomous Shanghai port, etc.
- Influx in private capital investment from abroad, which continues to persist.
- Recent demand for fixed income products — bonds from the government and banking sector — has naturally suppressed interest rates as opposed to artificial suppression by western central banks.
- Pundits calling for Chinese collapse for decades. Never materialized and in fact the opposite has been true.
- Chinese consumers are beginning to purchase Chinese products, which will lead to a higher standard of living domestically while reducing the amount of available goods for international consumers (like the U.S.).
Tariff Carve-Outs Underscore Weak US Position
Politico comments Tariff Carve-Outs Underscore Weak US Position in China Trade War
The White House says it has the upper hand in its trade war with China. Its actions suggest otherwise.
Top administration officials spent the weekend trying to defend a carve-out of consumer electronics from the astronomical 145 percent tariffs it levied on China last week. The carve-out was neither an exemption nor a policy rollback, the White House argued, because those electronics are still subject to a separate 20 percent tariff on China and some electronic components could face sector-specific tariffs in the future.
But to some White House allies, the exceptions are indicative of the relatively weak position the administration is in as it wages a trade war with China, which has spent years making preparations for an escalation with the U.S. on trade. The carve-outs also reveal the conundrum facing the administration: The U.S. is imposing new tariffs on Chinese goods in an attempt to move manufacturing back to the U.S., but those tariffs are particularly painful for U.S. manufacturers because they are currently so dependent on Chinese parts.
So far, the U.S. has demonstrated that it is more willing to bend than China is in this burgeoning fight.
“Xi Jinping will not back down,” said one former Trump administration official, who like others in this story was granted anonymity to share their candid assessment of the U.S.-China relationship, adding that “the CCP will lose confidence in him” if he does, using the acronym for the ruling Chinese Communist Party.
But to some White House allies, the exceptions are indicative of the relatively weak position the administration is in as it wages a trade war with China, which has spent years making preparations for an escalation with the U.S. on trade. The carve-outs also reveal the conundrum facing the administration: The U.S. is imposing new tariffs on Chinese goods in an attempt to move manufacturing back to the U.S., but those tariffs are particularly painful for U.S. manufacturers because they are currently so dependent on Chinese parts.
So far, the U.S. has demonstrated that it is more willing to bend than China is in this burgeoning fight.
“Xi Jinping will not back down,” said one former Trump administration official, who like others in this story was granted anonymity to share their candid assessment of the U.S.-China relationship, adding that “the CCP will lose confidence in him” if he does, using the acronym for the ruling Chinese Communist Party.
“This is going to get really ugly,” the former official added.
The stalemate reflects China’s careful preparations for this showdown long before Trump announced his so-called “Liberation Day” tariffs earlier this month. Beijing’s prompt countermeasures underscore that readiness: a cross-domain mixture of tariffs, export restrictions on critical minerals essential to U.S. industry and targeting of American firms with official probes or sanctions that press multiple economic pain points.
The Trump administration’s decision to exclude key tech items has also quietly irked some members of the president’s inner circle, who expect any sector-specific tariffs on semiconductors and possibly other electronic products to be much lower than the 145 percent tariffs on China.
“You have to be firm and consistent with the policy,” said one person close to the White House. “And a 25 percent tariff is going to do absolutely nothing,” they said, referring to the figure Trump floated in February for future semiconductor tariffs.
“I spent most of March in China prior to the tariff announcement and it was clear the Chinese aren’t going to pay tribute to another emperor,” said Rick Waters, former inaugural coordinator of the State Department’s China House —the U.S. government’s focal point for China policy — and now director of Carnegie China, an arm of the centrist think tank the Carnegie Endowment for International Peace “It’s now a waiting game to see who blinks first — Xi would probably take Trump’s call but won’t pay up front or initiate. And lower level channels are unable to accomplish much without some area of consensus at the top.”
But the White House is equally unmovable in its position that Trump won’t be the one picking up the phone and initiating talks with Xi.
“We view [Trump] making a call to President Xi as an extension of an olive branch,” said a person in the Trump administration. “They’re a bad actor. We won’t be extending that branch.”
Trump continues to make conciliatory overtures to Xi, telling reporters on Monday that he doesn’t “blame China at all” for the U.S.’s economic dependence on the country and emphasizing his respect for the Chinese president. Over the weekend, he called Xi a “very good leader, very smart leader” of a “very big great country.”
But Beijing’s not budging.
“The U.S. uses tariffs as a weapon to exert maximum pressure and seek selfish gains, and puts its own interests over the public good of the international community,” Chinese Foreign Ministry spokesperson Lin Jian said Monday. Walking back China’s 125 percent tariff on U.S. imports will require the Trump administration to “resolve issues through dialogue on the basis of equality, respect and mutual benefit,” Lin added.
The administration has been focused on curbing what it says are large-scale illegal shipments, effectively laundering Chinese goods through third countries, including Vietnam and Cambodia. It also sees the countries as a potential alternative trading partners as it looks to wean itself from its dependence on China and shift manufacturing back to the U.S.
Xi is seeking to counter that move with state visits to Vietnam, Cambodia and Malaysia this week, where he’s pitching China as the more reliable trading partner amidst Trump’s widening trade war. Xi’s topline message to Vietnamese Prime Minister Pham Minh Chinh: the two countries “should ensure a smooth flow of trade,” Chinese state media reported Monday. Xi didn’t mention the U.S. or its president. But his hosts in Hanoi couldn’t miss Xi’s implicit jab at Trump by urging Vietnam to work with China in opposing “hegemonism, unilateralism and protectionism.”
Trump got the message. The Xi and Pham meeting is all about “trying to figure out, ‘How do we screw the United States of America?’” Trump told reporters Monday.
“Look, I’m a very flexible person,” Trump said in the Oval Office Monday. “I don’t change my mind — but I’m flexible.”
Actions Speak Louder than Words
For now, actions speak louder than words.
Trump portrays his weakness as “I don’t change my mind — but I’m flexible.”
Yeah right.
We have seen a dozen flip-flops and tariff changes in just two months.
Pettis 100% in Theory
In theory, I side with Pettis 100 percent.
The case by Alexander, as presented above, is very weak. It’s mostly China hasn’t blown up yet, so it won’t. And Influx of investment in China is waning.
Note that Alexander says “Chinese consumers are beginning to purchase Chinese products.” But that is something Pettis wants to happen and needs to happen.
So we have a bit of “violent agreement” as well.
The Mixed Bag of Practice
The reality is China (the world) needs to rebalance. But how? When?
None of the articles discussed either question. Nor did they discuss political ramifications.
As a practical matter, for now, and for totally different reasons than Alexander lists, I think Xi is in a position to wait out Trump.
Trump has to worry about midterm elections. Xi does not. Trump also has to worry about agricultural retaliations, rare earth elements, and inflation. Xi does not.
China controls 80% of the supply of rare earth minerals needed for military guidance systems, cell phones, wind turbines, car engines, and computer chips.
Moreover, Trump treated Canada and Mexico worse than China until the recent, and massive escalation.
Instead of seeking cooperation from allies to go after China, Trump went after the whole world! This was a seriously stupid mistake, even if one believes in tariffs.
Longer term, I side with Pettis. But the key questions are still unanswered, when and how? And Trump does not even understand the problem.
What’s the Real Problem?
Trump is fixated on bilateral trade in a multilateral world.
And the roots of trade imbalances have noting to do with trade.
The real problem is unsound currency.
Flashback November 1971
John Connally, President Nixon’s Treasury Secretary, bluntly told a group of European finance minsters “The dollar is our currency, but it’s your problem.”
Nixon Shock
Connally’s statement is part of what’s now labeled as “Nixon Shock“.
The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, in response to increasing inflation, the most significant of which were wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold.
Nixon did not want to hike interest rates for his guns and butter policies (War in Vietnam and social spending), and as a result the US was rapidly losing its supply of gold.
Nixon said the move to end gold convertibility was temporary. It wasn’t.
Ever since Nixon killed convertibility of gold there has been no checks on fiscal deficits. Countries could spend at will and did, especially the US.
Prior to ending gold convertibility, countries that had huge fiscal deficits had to jack up interest rates to stop outflows of gold.
US debt held by the public is now $28.96 trillion. Total credit is almost unbelievable.
Real GDP, Government Debt, and Total Credit Market Debt Owed (TCMDO)
How Much Credit Expansion Does It Take to Grow Real GDP?
On April 2, 2025, I asked How Much Credit Expansion Does It Take to Grow Real GDP?
Detail Since 2019 Q4
- GDP: +2.55 Trillion
- US Government Debt Held by Public: +11.67 Trillion
- US Government Debt: +13.00 Trillion
- TCDMO: +27.33 Trillion
To grow GDP by $2.55 trillion since 2019 Q4, TCMDO went up by over $27 trillion.
This would not happen with sound currency. And it is nothing tariffs can possibly fix, even if Trump understood trade (which he doesn’t).
Dear Jerome Powell, Is Everything Under Control?
On January 31, 2025, I asked Gold Hits New Record High, Dear Jerome Powell, Is Everything Under Control?
Gold does not believe the Fed has things under control and neither do I.
Conclusion
Long term, Pettis is correct. Meanwhile, we struggle with an unsound currency that tariffs cannot fix.
Since tariffs will not and cannot fix the problem, Trump would not win, even if elections were not a factor.
That brings us to this important revelation.
Ultimately, the question of who has the cards is moot. A currency crisis is the likely resolution. Just don’t ask me when.
Related Posts
April 13, 2025: China Halts Rare Earth Exports Desperately Needed by the US
I have been warning about this for years. It’s now happening.
April 14, 2025: Trump’s Plan to Make Manufacturing Great Again in Pictures
The share of manufacturing employment keeps declining. What role did NAFTA play?
Please read the above post. It highlights the major problems with Trump’s promise to restore manufacturing greatness.
zelensky has the cards. he said so himself.
The US needs to produce and save/invest. Yes the economy will take a hit short term, because it’s currently driven by consumption, that’s irrelevant though, since its consumption is unsustainable. There’s no ”lose” scenario since the US was heading towards hyperinflation due to accelerating national debt. Long term reducing trade deficits and debt accumulation is the only economically sound policy.
There is no organization using “Chinese Communist Party” as its name.
Hence, the CCP cannot be an acronym for a non-existent entity.
This underscores the delusions of grandeur & ignorance, when people insist that they have the the power to decide how other people should be naming themselves.
Yes, there is no CCP. There is a CPC – Communist Party of China.
The warmongers use “CCP” instead of “CPC” because they want to get the oldies crapping their pants about China. The warmongers know that “CCP” would remind the geezers of “CCCP” – which is “USSR” when written in Russian language.
Trump may hold the cards, but the cards are made in China.
Pettis is correct long term?
What is your idea of long term?
unless it is less than two years there is no long term in this battle.
The US consumer will not stand for shortages and higher prices and by the mid terms democrats will control the senate and the house.
china is going to be doing some sabre rattling in Asia to discourage its neighbors from cutting deals with the US.
China is not going to play fair and will likely win. Right now China is more popular with the rest of the world than the US so there is not going to be much outside help unless you count Israel.
Trumps art of the deal is simply mafia style brute force. A Total lack of sophisticated thought in terms of even one move ahead let alone 4 or 5.
no surprise that this the hole he has dug for the US.
US has the cards. China wants the US consumers. China has the cards short term but US long term. Trump will hold out as long as it takes.
just like they were going to cave according to you last week. I think you will find China is in for the long haul. There will be no ass kissing from Xi.
all the gold crap in the oval office? guess where it came from ? https://sherwood.news/power/shop-this-look-buy-cheap-faux-gold-dupes-of-oval-office-decor/
The oval office now looks like the office in the presidential palace of any third world dictator. True class of a clown. What a shit show.
One thing that’s clear about Trump tariffs is that there is no policy process. Individual officials — Scott Bessent, Peter Navarro, Howard Lutnick — keep floating policy ideas in public, hoping that putting them out there will somehow create facts. But a day or two later another official will go on TV, or Trump will post something on Truth Social, completely contradicting what the last official said.
China’s national debt is a little more than $10T, US national debt is a little more than $31T. Begs the question which country is in a better position to support their population in a financial depression? The other question is how high can these debts go before it’s obvious they will never be paid off or are we already there. If we are already there what’s the point of even keeping track?
im not sure what your ultimate point is here but if you’re assuming that each country has the same goal regarding stimulus, then the fact that china has 3x our population becomes relevant.
comparing china to usa is silly. they are more akin to usa in the 1800s. still going gangbusters building RRs and airports and getting millions off the subsistence farms into factories. the 1800s in usa were huge booms and busts, too. china’s civil war with taiwan is also still not over. usa had a civil war too over farm techniques like slavery and the tariff wars in senate leading up to the war.
What you wrote was the situation 20 years ago. There are now far fewer young people left in the rural areas to move to the cities. Mostly old folk and the grandchildren they are raising are in the villages now. As for those who moved to the cities many are losing their jobs. Sucks to be a construction worker in an economy 30% reliant on construction where the population is declining and there may be over 100 million empty apartments. Many of which are owned as an investment by the average middle class family who despair that their investment is declining in value, might never be finished as the builder went bust and the building is falling apart due to corrupt tofu dreg construction.
Railroad construction is now at the bridge to nowhere stage with all the heavy passenger profitable lines built years ago and what they have been building for at least the past 5 years are so uneconomic that the fares don’t even cover the operating costs let alone the capital costs.
I’ve been to China and many things there are impressive. But Chinas problems and the CCP are why it will likely attack Taiwan and then start its move on the rest of the world. The West must painfully wean itself off relying on China. At least Trump is trying, though how he is doing it is not very well.
Need to rip the bandage off with one painful pull and not mess about with tariff exceptions which will just prolong the pain.
Go to WW2 like conditions by rationing whatever is scarce. Give the military first call on the rare earths as it’s a weak society that needs new mobile toys every year.
And go Manhattan Project speed on building a complete rare earth mining and processing industry both in the US and in reliable partners countries..
as i said, it will be boom and bust for quite some time if history of nations in different stages of development means anything to you. we haven’t had any significant booms and busts in usa since the 1920s and 30s.
ps. i do agree with what you wrote. i think Xi is channeling Mao due to his life and family. top down planning is dangerous. i cannot believe folks in amerika are now allowing Trump to attempt to do the same. live long enough and you see crazy stuff
Good info. Various internet sources state that Chinese agriculture is 23 to 40 percent of employed workers. What do you think the percentage is?
In the 1800s the US population was doubling every 20 years. China’s population now is halving at the same rate. That changes everything when it comes to economics. Not gangbusters but gangbusted.
china has been around thousands of years. sure they were ruled by mongols for awhile and the opium wars too. but net net net they are doing better than ever in past 500 years. usa, not so much. our world wide warmongering has made us pariahs like israel. trump has made us hated now by even canada.
Hell Trump has made us hate ourselves! MAGA hated the govt now MAGA and real Americans hate their govt. MAGA = AINO (American In Name Only)
Two years of falling house prices in China says they do not have a domestic economy capable of a consumer lead recovery. Much of Chinese wealth is tied up in real estate which is losing value.
As consequence Xi will be targeting exports which he is already doing by weakening Renminbi. Ramping up stimulus is his other option which will lead to more excesses in China’s native situation.
In a world choking on exporting Nations, USA still has a strong consumer. Evidenced by today’s retail numbers exceeding expectations. Europe a hugely export reliant economy had inflation numbers higher then forecast.
Trump administration is in cat bird seat for making trade deals.
Xi is holding a pair of twos vs Trumps full house.
No exporting Nation will be accepting China dumping excess capacity into their own backyard.
US housing is also on verge of a comeback as federal lending institutions have been ordered back to office and to get to work. Housing will create significant US consumer demand via a rebirth of US Middle Class.
lower energy already taking the meat cleaver to inflation in US and is instrumental in lowering interest rates.
Treasury now will be preempting a Politicized Federal Reserve.
Rubio is busy pushing China out of Latin America.
“USA still has a strong consumer”? I did not hear this same parroting from you when Biden was in control over the past four years when economic statistics routinely showed the strength of US consumers.
“US housing is also on verge of a comeback”? Because Trump has ordered people back to work at federal lending institutions?
It’s sad so many posters here can’t see three feet in front of their face due to their political bias. I hope someone else is in charge of your family’s long-term financial investing.
Where do you think the US GDP and employment will be in one year? How many home sales do you think will happen within the next year?
I’ll take the under on all your (politically-motivated) bets
So what is your point if you have one?
That your comment is nonsense is my take.
What are you tasking issue with.
China real estate statement?
US Consumer numbers are posted this morning.
Euro inflation numbers posted this morning.
Xi weakening currency?
Trump getting started on reinvigorating Housing?
Reality just not measuring up to your take?
Xi can weaken the currency but we can increase the tariff to cover the weakness.
After 40 years of Globalization US citizen just needs to be shown there is a way out for them to prosper once again.
That there is someone in charge in Government who places the best interests of US Citizen higher then those outside US.
This is Trumps message and his administration is actively pursuing those goals.
Trump’s only goal is self aggrandizement. He has no actual interest in the average citizen except that they adore him or at least pay attention to his every waking moment. Trump is mentally ill and ascribing any normal thought or motivation to his actions is a fools game. Wake up and face reality.
As far as the people in his administration they are simply on their knees to the “king”, wanting only to prosper from his graft. They have no self respect or they would stay as far away as possible.
So, tell me again – who pays the tariffs? I seem to have forgotten! 😉
I think China has the biggest real estate bubble in history. They have built more real estate than they can use, for a long time. Japan’s bubble took 30 years to recover from. China may have the same problem.
Also, if we don’t buy things from China, they lose the income, and are poorer for it, but we still our money, it didn’t go to China.
Our real estate market is a mess. Trump can’t do anything to fix it. The problem is the same inflation that increased prices in everything else. People can no longer afford houses, rent, cars, health care, higher education, and even food. How many organizations are now giving out food to people. Entire school system sending bags of food home with kids. Feeding America with semis filled with food, in small towns, like mine. Many service organizations doing food drives. Just how many people are now food poor? You are not going to find anything out from MSM, they just provide entertainment.
If you are MAGA this is the world you wanted, you got it. If not it will soon be time to take a stand and put it all on the line.
i’ve lived through 3 distinct booms and busts in r/e. i cannot wait to again, purchase some high cap rate properties in a couple of years after this idiotic depression trump team is setting us up for.
I live in a small town in Eastern TN, in March 2025 the average listing price of a house was $189 per sqft. At that price the home I purchased in 2020 for $246,000 is now valued at $567,000. We’ve made improvements, added a room, deck and new flooring but who could afford this house if I wanted to sell? Average wage in this area is $18.00 top wages are around $27 an hour even with two people working, the monthly mortgage would be about $4000 with a 20% down payment and a 30 year fixed. That is about half of what a working couple’s annual income would be making $27 and hour each.
So how many home sales do YOU think will happen within the next year in a town that is very desirable, low crime, good safe weather, beautiful countryside near bigger cities?
China irrationally refuses to purchase repair parts for Boeing aircraft. That tells you Xi had a panic attack. Chinese are at wits end. No help that the sky is falling is a Chinese cliche and three days ago hurricane winds and hail swept through China destroying crops and damaging structures. In card play terms China is holding two deuces and USA has a royal flush. A dollar crash makes US exports competitive.
OMG….Lol. Do you ever read your own statements? In order for the US to be successful, it’s currency needs to become worthless. Wow….sheer genius!
ha ha ha. i am betting Trump will drop huge amounts of computer currency in all our accounts like covid years. we’ll all be billionaires in 5 years
He already promised $5,000 dollars as an incentive to vote Republican at the midterms. Call it a DOGE rebate. I call it taking a page out of the Democrats playbook.
Debasing the currency is the time honored method to default on national debt that cannot be repaid. An added benefit is reducing the value of transfer payments until the welfare class have an incentive to take manufacturing jobs.
Until Trump factors services into his “unfair trade equation” his words are all hot air. Our Services surplus is quite meaningful in the big picture. Why does he want to drag us all back to the factory? I’d rather sit at a cushy desk and make more drinking coffee than I can breaking my body down with hard labor. He thinks that’s progress?
you are spot on, but miss one important fact. trump cares about only one thing. being in spotlight. now he is world wide spotlight with tariff wars……….8 billion humans talking about him.
Trump is mentally ill he has Narcissistic Personality Disorder and should not be POTUS. Before you “but Biden, Biden Biden”, yes hiding Biden’s mental state was wrong and possibly illegal but that’s no excuse to continue the same with Trump. As your mommy told you, two wrongs don’t make a right. It seems that Republican pols in general hate everyone, especially average Americans.
=china usa , competitiveness
we are not in Kansas anymore!! USA of 2025 is not of 1950xxx
china is more free than USA in some places!!
=====
just couple weeks ago Bill Maher tv-live complained he ( rich dude and VIP dems ) could not get house repairing approval.
lets some black dude got injured or god forbids died during job (esp w/ white people as CEO) hi or his family would sue company for hundred of millions!
just recently some random schmuck got $ 50 mil for getting hot coffee in his pants .
by some coffee chain
IT IS NOT POSSIBLE IN CHINA!!!
Warren Buffett International Metal corp (IMC), which own ISCAR, exported stuff to
Putin, thus violation US sanctions.
not all prohibited
only 2d usage
The root is that America is not competitive. Since, we can’t make products at a reasonable cost and quality, protection is needed. For example, I’ve owned American cars and never will again. Given all the maintenance problems, I wouldn’t take one for free. China would be well to develop a consumer class and forget dealing with an unreliable partner.
There’s a reason all the cars in SEA have China labels on them and not Made in USA, and that reason isn’t China’s reliance on the US as an export customer
I noticed the Taliban drove Toyota trucks. American cars have a well-deserved bad reputation.
Did you buy a Vega?
My sister had a Vega.
“US debt held by the public is now $28.96 trillion.” True statement but misleading. The rest of the $36 trillion is inter government IOU’s backed by nothing but future call on the citizen’s ability and willingness to pay taxes. There is no depositary account holding the funds so it’s more accounting smoke and mirrors.
I am a firm believer that U.S. free market capitalism is a far superior system than China’s use of central planning and autocracy. This means that I have always believed that the U.S. would win the economic supremacy competition against China in the long run. Suppose the current administration gets its way by putting up protectionist walls around our economy and practicing coercive negotiating tactics against friends and foes. In that case, the U.S. will surrender its long-term advantage and strengthen China’s hand.
If DX rises frontier nations currencies fall. Even with tariffs their products will be cheaper than Chinese “goods”. Many lilliputs will seek our protection from China Belt & Road. They will either be on our side, or become new US territories. Instead of shrinking our Superstate might grow. PR and Mariana Islands, which are facing China, are US territories. There are no reasons why Venezuela, Cuba, Santo Domingo and PR can’t do what China did.
is a far superior system than China’s use of central planning and autocracy.
===
we are not in Kansas anymore!! USA of 2025 is not of 1950xxx
china is more free than USA in some places!!
=====
just couple weeks ago Bill Maher tv-live complained he ( rich dude and VIP dems ) could not get house repairing approval.
do you even comprehend if some black dude got injured or god forbids died during job (esp w/ white people as CEO) hi or his family would sue company for hundred of millions!
just recently some random schmuck got $ 50 mil for getting hot coffer in his pants . by some coffee chain
IT IS NOT POSSIBLE IN CHINA!!!
“U.S. free market capitalism is a far superior system”
ergo you are dying on the anti-tariff hill, correct? Tariffs are the diametric opposite of free, after all.
Trump is the USA’s central planner. This isn’t free market capitalism.
China is not a capitalist country! Chinese companies don’t start by having to please investors and stock markets. Chinese companies start by getting loans from government controlled banks. They don’t have to even start paying back those loans until they’re profitable. If they aren’t profitable, the government will simply write down the loan (an provide them with business and customers) until they are. The government controls the Board of every major company. They force the companies to take a long-term view of investment. The government also builds the infrastructure necessary for these companies to thrive. The government also directs human capital investment to insure that industry has all the trained workers they need. And they do this with massive internal competition. They don’t have 3 car companies, they have 20. All competing like mad against each other. Improving their products daily.
There is no way the USA and traditional capitalism can compete with that. And tariffs can’t force a change of that fundamental system. In 20 years it won’t matter. No one will buy poor quality, high-cost American products. Everyone in the world will want high-quality, advanced Chinese products. The world will refocus on China, and the US will be the new Argentina, making $100,000, gas guzzling F150s that no one wants. In a decade or two, Americans will recognize that walling ourselves off from the world, instead of competing in it, was the greatest mistake ever made.
I think Americans will see the damage very soon, by the midterms, even.
American corporations seek monopoly not competition, maybe all corporations world wide do the same. Unfettered capitalism is detrimental to life as an average American. Little or no restriction is obvious for anyone to see. Some examples are subscription required to activate preinstalled options on your car like remote start, health care insurance that can arbitrarily deny medical service or prescriptions recommended by your doctor, the list is endless. The US has become a Corporatocracy, Trump and his henchmen are trying to change it into a flat out fascist state. Neither is desirable for the well being of the average citizen, we are living in interesting times that are sure to get more interesting if not much harder and more dangerous in the near future.
After Trump: either youngkin or Josh Shapiro.
I’m not sure that I agree with the comment “The real problem is unsound currency” – I suggest that the currency issue is simply a symptom of a deeper problem. The West just got lazy, didn’t want to work in factories and were happy to fund a lifestyle based on debt. By stating that the problem is “the currency”, it fools you into thinking that there is a monetary/fiscal solution.
Chose your solution – old style politicians who continue to deny the problem and peddle a story about how they have a recipe (usually related to the environment) for untapped growth or the populists who simply blame the foreigner. We are all missing good leadership at the moment 🙁
Currencies run relative to each other. Meaning we can only have a currency crisis relative to other currencies. Whose currency is ours going to collapse against? Every country on the planet has a fiat currency.
The Deutschmark, if it ever comes back.
Gold?
No nation on the planet uses gold as a currency.
That is because fiat is accepted as a means of exchange. When people no longer accept paper or worthless coins where else will they turn? Crypto, don’t make me laugh.
One aspect not discussed is the political landscape. The US is largely democratic and responds to the concerns of its people. China however, is largely a dictatorship and Xi can withstand any likely uprising from the populace. The Chinese plan long term and don’t like to lose face. The US leadership timeline is 4 years. I see China having the upper hand in this spat.
China doesn’t have a dictator. It has a God-Emperor.
Trump and MAGA are trying to do that in the US. It won’t be long before Trump is gone, MAGA is dead and Corporations control everything. Take the warning from “Rollerball”, the movie.
Thank you Mike, great article. Intelligent opinion and lots of facts in there.
I am a big fan of Michael Pettis
Additionally, does it matter if China backs down or not? If China doesn’t back down then what is lost?
We can find out but only if Trump stops caving on his master plan.
Trumps single most important goal is to have his likeness on every screen in every media outlet everyday. Trump has a mental illness called Narcissistic Personality Disorder along with a growing dementia. It’s only a matter of time before the 25TH amendment is invoked or he is somehow removed from office. Before you respond Biden, Biden, Biden let me say what Biden’s handlers did was abhorrent and probably illegal but that is over there is no sense in repeating past mistakes.
Um, most of the stuff we buy?
In economics you have to rely on theory because you can’t do large-scale experiments. Now thanks to Trump we have a large-scale experiment going on and it is far from over.
First of all let’s dispel the idea that China can just sell to other countries what they used to sell to the US but cannot do any longer. Other countries have manufacturing sectors too and they do not want to see China dumping products on their shores and destroying their local manufacturers as well. Europe is well aware of how China operates and will not absorb China’s excess production. Any country outside the US and Europe that has manufacturing and wants to keep it will by necessity have to limit Chinese imports one way or the other.
That leaves the rest of the world which contains a lot of consumers. The problem there is that they already consume Chinese goods. They could and probably will buy more Chinese and less US and European goods and that is bad for the US but also for Europe. Europe is the proverbial innocent bystander that catches a bullet in a shootout. The problem for China is that the countries left have limited money to buy China’s goods and China could loan them the money but many of them are not solvent and to pay would have to sell hard assets like minerals or land. China has a limited need for minerals now and selling or leasing land is politically charged. As anyone in business knows, when you lose your largest client by far you are in deep trouble.
Now on the other side can the US do without buying from China because essentially that is the key? In most products we can because the tech isn’t very high and many other countries can make them if we don’t want to. In tech it is more difficult. In a prior post I set out how iPhones are made in China and how China captures only a small amount of the value chain. Just about all of the high-margin stuff is made by non-Chinese companies like Sony, TMC and so forth. However many of these components are made in-country in factories owned and operated by those Korean, Japanese, Taiwanese and yes American companies so those countries will have to be convinced that it is better to manufacture in the US or at least out of China. That part is well underway and stared before Trump came into office. If that can be managed then yes the US can do without China.
Next we have to look at the problem of transshipment and the possibility of penguins becoming experts at trade finance but that is for another time.
it’s still stupid to start a world wide trade war.
That’s not what Trump is doing, but rather others are doing. Trump is simply asking for “Fair Trade” while most others don’t want to give up their lopsided trade. They are trying everything to coerce America not to mess with their current trade as it existed, as would You if you were in there positions.. All Other Countries not playing fairly, lose out in this equation, if it works out like Trump intends. MAGA is working, but it will take time and patience. Once these Countries realize it, they will settle down, take their lumps, and continue trade with America, their largest Customer. They will just make less profit off of us, that’s it…
Trump’s single most important goal is to keep his face on every media outlet everyday, he has Narcissistic Personality Disorder a mental illness.
It’s stupid to complain all day about Harvard and a Salvadorian “hostage” in San Salvador.
I can summarize your entire argument in a few words: “China is better than everyone else.”
And by virtue of your long well thought out analysis, you come up with all sorts of twisted solutions that end up costing people all over the world a better quality of life so that China is “punished” for being so good at it all.
Lots of comments here are along the lines of…
“China stole our jobs” – Nope China offered superior labor at a better lower cost, that’s why you lost your job. Perhaps not spend as much time guzzling beer watching NFL football but working extra hours might help?
“China steals our tech” – Nope, your tech wasn’t good enough so that it couldn’t be easily copied. The fiasco with ChatGPT and China’s lower cost clone come to mind. Once again, the comment can be distilled to “China is better than us”
“China doesn’t abide by environmental rules” – Well I thought climate change was a hoax so maybe so did China. But if climate change isn’t a hoax then China will pay a price for it eventually in terms of pollution and enviro disasters at some point.
And the “solutions” offered by Trump and his cult isn’t, “let’s take innovation to a new level” or “find new ways to be efficient” but “lets turn to communism and central planning to beat China.” I guess it’s fight fire with fire to solve the problem but it won’t work.
But I do get confused with Trumpers, one day China is on the verge of total collapse but the next day they are diabolical rulers taking over the world. Reminds me of Adolf & Co saying Jews were inferior but somehow Jews controlled the banking system and the world. The themes repeat over and over again and we all know what comes next.
Got exit strategy?
It’s Not: “China is better than everyone else.”
It’s “China is CHEAPER than everyone else.”
CSPAN is gone.
I said absolutely none of those things. Maybe you are confusing me with someone else like Mr. Straw Man.
Nicely put! The Key being “replacement theory” The U.S. cannot be simply replaced, and while it will hurt the U.S. for the most part it will hurt China far worse as time passes.
We can replace much of what China sells, at higher cost of course. China cannot sell to far fewer people at a much higher cost however, and there is the Key Difference IMO.
There are no empty shelves in Walmart or Dollar General. Consumers
didn’t pour in to buy Chinese Junk.
– There are no empty shelves in Walmart.
> I spent my life in “Supply Chain” Management, ending the last 9 of them in International.
Walmart has an amazingly efficient supply chain! There shelves are empty all the time, but the Customer rarely sees it. The way they stock their shelves is a good reason for it. The very top is for pull down to prevent what you don’t see (empty). If a shelf is empty then a delivery was late, a large unforeseen order came in, or the pull downs were not done yet (currently like everyone else, they need more workers).
Bad example, and for an excellent company in this regard…
Interesting. I was at Walmart yesterday and there were plenty of empty shelves.
Pettis believes tariffing is the ham-fisted way of resolving trade imbalances; should be taxing capital inflows instead:
https://carnegieendowment.org/posts/2019/08/5-smart-reasons-to-tax-foreign-capital?lang=en
Of course, Trump has had an idee fixe on tariffs since the 1980s (see his Oprah interview during the Reagan years)…
Capital flow is the next step. Listen to what Scott Bessent says. Pettis knows very well what is going on.
Are dark factories in China operating, building things that consumers want to buy?
Or fake news?
I haven’t seen one in person but if they exist in China then United States is toast.
Am I wrong?
We don’t buy perishable stuff – like tomatoes – from China. The stuff we buy can last for years. By betting Martingale with an opponent who plays Anti Martingale in the long run we can win. China is losing her biggest customer. A mfg which has 4/5 large customers can go bk after losing his largest one.China is trying to diversify, but the frontier nations might compete with China to gain share in the vacuum China created, in the shrinking global market. We can increase our market share by trading with Venezuela, Iran or Russia.The PRC creed, which ties Gulliver hands and legs, benefit the lilliputs. The Belt and Road system can scare the lilliputs, but not the US, After Trump era we need a few good managers to run our fragile economy loaded with debt.
Almost all the *profits* come from selling to the USA. US consumers are idiots, and overpay by a huge amount.
I just learned that some of my federal tax dollars go to BYD via their electric transit bus factory in Lancaster California.
SHOCKING!
Pun intended…
Someone wrote here China and US should merge.
I like that idea!
“Nothing to kill or die for, and no religion too”
I repeat, THAT POET IS DELUSIONAL, in a good way.
Some of your Federal tax dollars go to China and other foreign countries that own farmland. via farm subsidies
It’s all
THEATER,
Thanks 🤙🏼
politics might not matter to you, but you matter to politics. since the republic of plato was penned, this is true. also democracy always works. jerks elect jerks. amerikans are jerks
Today, Xi is in Malaysia, shoring up trade “by extending a hand, not a fist.” Those Chinese are clever.
Also China GDP just released. It expanded by 5.4%, vs the expected 5.2%. Apparently exports increased significantly, as companies all over the world were trying to front run Trump’s tariff war.
Winning.
“The statesman’s task is to hear God’s footsteps marching through history, and to try and catch on to His coattails as He marches past.”
–Otto von Bismarck
bismarck brought nihilism to germany. which we copied early 1900s.
The art of statesmanship is to foresee the inevitable and to expedite its occurrence.
Charles Maurice de Talleyrand
what is your take papa if trade with china goes to zero with usa. gotta be stagflation here in states. and boondoggle for others from canada to oz and europe………..
US trade with China won’t go to zero. We are far too dependent on China for so many critical items that we won’t let that happen.
The tech execs explained that to Trump and he backed off from tariffs on 100 billion of Chinese electronics.
To save face, Trump said the tariffs would apply later. But the reality is he hopes to negotiate a deal with China before that happens. China is playing it cool though. Patiently waiting while Trump grows nervous.
The same goes for autos. The auto execs have explained how the entire North American auto industry will shut down within two weeks of tariffs on auto parts. So Trump keeps delaying, and delaying tariffs on auto parts. Since those parts come from 50 different countries, I don’t know how he can negotiate his way out of that one. But I’m sure he will find a way to keep delaying them until he can find a win of some sort.
Many items will make it to the U.S. through backdoor routes through countries like (Mexico, Canada, Vietnam…)
thank you for the thoughtful answer. if he delays and distracts with something like war against cartel or persia or god knows what, the tariff war might just isolate us and make many folks boycott amerika and amerikan products. probably the best outcome. the worst is a great stagflationary depression. 1970s x ten.
Higher education is one area where the US is super-competitive. What does the Trump do? He destroys higher education’s ability to attract foreign students. Trump is putting his ego first (he can’t stand the fact that he himself is uneducated) and puts America’s higher education system last.
Usonians put higher education last by going after the humanities degrees far more than to STEM degrees.
I think it’s obvious that Trump has Narcissistic Personality Disorder a mental illness. That illness may lead to his removal if the Democrats can win the House and Senate in 2026 and get their act together. Thinking the Dems could EVER get their act together is a different kind of mental illness I would guess.
All the problems started from the reserve currency status of USD.
Mish said it is a curse.
Actually the problem started before 1970 when US has budget deficit due to Vietnam war. The problem was resuscitated and created the Frenkenstein Monster which is now almost impossible to tame or kill.
creature from jekyll island. the nyc bankers have been playing everyone for fools. go read the book. i’ll tip my hat to the NYFED when i walk past it next week. greatest scam of the past century
– He who produces or he who consumes. > Far too many variables to answer correctly, whatever that would look like. Of the top of my head, I would guess Consumers.
– If China cut off the United States, shelves could go empty in weeks. > While True, with Stock multiplying beyond imagination, to those workers over the past Decade, I could see massive disruptions, uncertainty, loss of trust, and a lot of other massive issues hitting the Chinese shore, instead of Greenbacks.
– If the U.S. closes its doors to China, the country’s income would collapse ushering in a severe depression. > With no control over it changing, if it’s possible, for a solution for Millions upon Millions of “New Customers”
>> The Producers have to produce for the Jobs to continue, the paychecks to continue, and their life’s to continue as they have now for over a decade in China. They are controlled by their population, and as such, they must have enough employment for a large enough percentage, or they will have REAL upheaval.
>> The Consumers can consume wherever, whenever, however, and from Whomever. They don’t have to consume much at all either. Sure people will bitch, but for the most part, you will be simply disturbed for the upheaval, and just spend more going out to deal with it. Eventually you figure things will go back to normal, as they nearly always do.
Case Against China by Pettis:
Love His Work!
– “The current major constraint is on the demand side, particularly domestic consumption, which is historically low” > How do you find the much needed consumption, if you’re cutting of the largest flow of “Consumption”
– Weak consumption makes it difficult to grow the supply side without: > Loss of Jobs to follow, and thereby reducing consumption even further. A sort of death spiral.
– Increasing investment, which China is reluctant to do. > they have so much sent out to be used for this purpose, and much of it has and seems to always disappear. Not nearly an adequate enough of a solution.
– Expanding the trade surplus, which other countries are unwilling to accommodate. > This could be worse for them in many ways. It would depend on which Countries, in what Currency & Terms, and a host of other unsure issues they will leave behind,
China Case by Alexander:
– Massive leaps in automation and AI: DeepSeek, fully autonomous Shanghai port, etc. > Need places to ship it to, or your ports will become idle real quick.
– Influx in private capital investment from abroad, which continues to persist. > ONLY Helps, if they can “Import Customers” too.
– Chinese consumers are beginning to purchase Chinese products, which will lead to a higher standard of living domestically while reducing the amount of available goods for international consumers (like the U.S.). > That’s not at all the stories I have been reading about China. I will obviously have to look harder.
– The White House says it has the upper hand in its trade war with China. Its actions suggest otherwise. > Actions change based on outcomes of prior Actions. With that, so do Agreements, and the potential outcomes of them as well.
– So far, the U.S. has demonstrated that it is more willing to bend than China is in this burgeoning fight. > So far the U.S. has been the only party to show the willingness to bend. That’s because it was their turn at this place in the negotiations. This can, and I highly suspect will, “Change Again” This time with the opposite being true, “For the Moment“ anyway…
– Trump portrays his weakness as “I don’t change my mind, but I’m flexible. > Some would say that’s a strength. Big Example: “The Border” He wanted a “Sealed Up Tight” Border Immediately. He was NEVER going to change His Mind on that, BUT IS FLEXIBLE on How to get it done, but it better “Get Done” As Promised. That’s not a lot to expect and ask for IMO.
trump is a nihilist. he cares about zero. just headlines.
That would be the MSM and Most (so called) Influencers. Headlines are for “Click Bait” mostly.
Good post Stu.
no any reasonable maker wont return in USA to serve only USA markets, and protected by tariffs, cause tariffs at some point will be called off, and you have stuff w/ uncompetitive price structure!
there is another problem w/
lets say USA cuts off china imports, so China will have huge surplus of goods, so what is solution??/ DUMP THEM ON MARKET!
USA IS ONLY 3% of world ppl , and 20 % of wold gdp! mostly financed by debt
so, what will happen next ? global deflation!
======
in this case any returned business in USA will be profitable if /when protected by tariffs inside USA cause businesses won’t be able to compete outside on world stage w/ China
so no any reasonable maker wont return in USA to serve only USA markets, and protected by tariffs, cause tariffs at some point will be called off, and you have stuff w/ uncompetitive price structure!
somehow the maga cult leader has turned usa into a pariah state hated by the world. even the people to our north, canada. almost would be impossible to comprehend this. people will boycott the unimportant amerikan products. the dopes out there that think economics and trade is like sports and write in terms of winners and losers is silly. trade is win/win. not trading is losing. the amerikan empire is very ill. we need to take a rest. and evaluate our ways.
Well said… well said
China is not a Democracy, so China holds all the cards. Stalin won a war at the expense of tens of millions of citizens. Xi can do the same, even at the expense of hundreds of millions of people.
he’s willing to have his people eat bark and die. his life story is one to delve into.
=China holds all the cards. Stalin won a war at the expense of ten
yeah and USA- Europe immigrants killed MILLIONS NATIVES INSIDE USA !
====
and dont get me started about apprx. 50 mil dead black people
i guess you did hear about this in your local hist. class???
Look what happened to the Soviet Union after Stalin. Look at Russia now. It’s a long game.
We and China should merge. So many problems would be fixed.
I’m willing to give China two senators, not 450 representatives.
That’s happening now. Just come to the SF Bay Area!
lol, I have opinions, a passing knowledge of macro economics, no real knowledge of how trade works at the nuts and bolts level and have no insight of how the CCP or Xi view the US, Trump or their appetite for any of this.
But let me opine anyway…..
None of us have anywhere near enough info to remark intelligently about this. Just go buy a lottery ticket. You’ll have a better chance at winning than being right on any of this.
If you’d like to see an uneducated moron opine on something he is remarkably ignorant about, but speaks as though he’s immersed in the topic, watch Dave Smith make a fool out of himself a few days ago on Rogan’s podcast. The last time I saw someone light themselves on fire like was another defender of Smith’s foolishness.
I can wait this out. I bought forty pair of heavy cotton Chinese socks to hold in reserve. I darn the socks in service with knitting yarn and they are still going twenty years later. I haven’t touched my stash.
I recently bought a dozen pairs of athletic socks at Costco. I assumed they were made in China, but I was surprised when I just read the label: made in USA.
Maybe they meant the label was made in America.
China has the cards. It kept a billion people quarantined for almost 2 years, long afer they wanted it to end.
Trump flinched after a couple of days of the bond market falling.
this is what it comes down to, and will decide who will “win”
there will be a deal. MAGA will proclaim victory, like the last time he worked a trade deal w China, and the result will be the same (higher trade deficit).
I think Tariff’s might magically disappear and Trump will never mention them again, just like he never mentions Canada since Carney cut him off at the knees.
I agree….Trump backs away when he meets an immovable object – like Carney, or China .
“Trump has to worry about midterm elections. Xi does not. Trump also has to worry about agricultural retaliations, rare earth elements, and inflation. Xi does not”
This is EVERYTHING. Nothing else matters relative to this.
Both countries have no leverage. They are both screwed. Both countries (and capital investment) are based upon pretend dept. It’s all a “story” like the King’s new clothes.
Something was wrong before Trump which brought Trump. Alas, even Trump can’t really help with any substance. We are all experiencing our global fragility.
China : 1 child policy, generations of sissy boy pampered princes (see lying flat), falling demographics, high debt levels, over production and reliance on exports to US, labor arb gives up advantage (Mexico is cheaper), automation and robotics will help production but bad for employment, employment achilles heel, still hundreds of millions of peasants. Pitchforks etc. Emerging mkt alliances are skittish at best, since China has eaten everyone’s lunch in production. Who really trusts China? Or the CCP?
US: Over consuming, over indebted and financialized (leveraged), under saving. I think inflation has people questioning their consumption values. And consumption is not quality of life, also questioned under Covid. There’s a lot to right the ship. But those like Yellen … wanna put y’all back in chains. Get rid of the continual psyops like trans, racism, dei, death by climate and the general corruption of the political class and secondly the gloabalized labor arb corporate class and there’s still millions of peeps who want to work. Reserve currency, better alliances and the revival of the middle class. Maybe pitchforks too.
Edge goes to the US.
I like your thought process but China has friends in the world. The US has Israel.
Have you ever been to China?
I think he visited Japan or maybe Korea and ran into some flower boys in Gangnam district of Seoul and think the Chinese are like that.
Hong Kong in the 80s along with SE Asia. Studied a semester of Mandarin. Spent a lot more time in Russian Studies and a summer at a language institute in Soviet Union. Big fan of Mike Pettis for over 20 years. Mr. China is something everyone should read.
Have you been to China? I lived and worked there in 2011 and those dudes are legit tough, like each one of them could whip an American and a Japanese at the same time with very little effort. It sounds like you may have visited Japan and are conflating the Japanese men with the Chinese men, when they’re not the same at all. And our boys in the USA are chubby, spoiled, and can’t even figure out what gender they are.
What alliances.
Wild Bill Hickok
In terms of real GDP China’s economy is 3X that of the US, less than 15% of their exports go to the US and less than 3% of their GDP depends on exports to the US. Hmmmm…….
Are you mixing up PPP and real GDP?
Even in terms of PPP which is fake, China’s economy is only marginally larger. Nominally, which is actual money, its 2/3 the size of the US economy, with a little over 4x the population.
It’s time to put an AI in charge of the world!
Said the AI.