A Great Power and the Super Power

By David Stockman  |  September 3, 2019

Numbers crunchers at JPMorgan Chase have boiled down the Trade War to its most basic element: The new round of tariffs that just kicked in will cost an estimated average of $1,000 per American household.

As I noted last Friday, the U.S.-China relationship is already defining the 21st century. It’s of critical importance to the geo-macro situation. It could be the catalyst for the chain of events that transforms the Donald into The Great Disruptor.

And we’ve brought Chris Scott aboard to focus on it.

My Position on the Trade War

My position on the basics of the confrontation are clear. The Red Ponzi can only be kept churning with massive and increasing state intervention. The Donald’s negotiators – a team of hawks and lobbyists – want to take the Chinese state out of the equation.

These goals are irreconcilable at this late stage of the game. So, Xi will try to wait out the Trump. That means nothing will happen until November 2020, at least.

Xi’s position here is not a function of his geopolitical savvy. He’s simply a tyrant who can’t imagine “not power” in a “power/not power” world. It’ll be that way when/if a Democrat occupies the White House come January 20, 2021, too.

At the same time, Xi’s people are at least as incompetent as the Donald’s; they can’t/don’t see that Democrats are flexing their own protectionist creds to re-impress Rust Belt voters.

The most critical issue is that both parties – Xi and Trump – are negotiating from positions of weakness. And the geopolitical and macroeconomic consequences of their hubris will define the 21st century.

Chris recently completed a two-year stint as U.S. editor for the Hong Kong-based Asia Times. Before that, he was a foreign policy researcher on Capitol Hill. And he also lived in East Asia for nearly a decade.

Here’s his first Tuesday dispatch on the Trade War, Trump and Xi, and the subtleties of a relationship that precious few of us really understand…

The Tortured Soul of US-China Relations

By Chris Scott

As I noted in the special report I filed for David on August 19, the U.S.-China trade dispute will not be resolved any time soon. And, in fact, the continuing broadsides from President Trump, paradoxically, help Chinese President Xi Jinping politically.

China’s Scapegoat

It’s quite simple: China’s economy is slowing, Trade War or not. And, now, Xi has a scapegoat. He’s convinced his critics in China that the Trade War is a scheme to keep the rising power down, not an honorable attempt to get them to play by the rules.

Make no mistake, the authoritarian leader at the helm of the world’s second-largest economy is not out of the woods. But trade is not his biggest fear.

If the (fully derailed) trade negotiations are the beating heart of the conflict between America and China, the unrest in Hong Kong is the soul.

Protests in Hong Kong

Protests driven by local Hong Kongese lament of their fate – being absorbed into a Beijing-designed Orwellian nightmare – turned violent again over the weekend.

The ongoing protests in the longtime Asian financial center put anything we’ve seen in the United States in at least a generation if not in modern history to shame in terms of scale and persistence.

It’s a rebellion on Chinese soil that won’t die. It’s roiling with less than a month to go before the 70th anniversary of the founding of the People’s Republic of China. (I was in Beijing for the 60th anniversary and, believe me, a decennial celebration is still a very, very big deal in the Middle Kingdom.)

Xi is Boxed Into a Corner

He knows a violent crackdown in the former British colony will incite a global backlash. But he won’t stand by and watch the protestors take over the city – which they’re now doing in much the same way pro-democracy protestors took control of Beijing in 1989.

This unrest represents Xi’s greatest fear. It represents a competing vision of China’s future. On the Mainland, Chinese are generally supportive of the Communist Party’s rule – for the time being.

Likewise, they’re generally resentful of those fighting for freedom in Hong Kong. But that will change as soon as the steelworkers and iPhone factory girls get left behind in the dust.

China is set to suffer the same fate that created the discontent we see in America today. And they’ll do so at the speed of light.

Xi is scared. Nevertheless, the Hong Kong situation – which, just like the Trade War, is a CIA plot to keep China down, or so he’s convinced his domestic critics – is another reason he can’t afford to cave in the standoff with the U.S.

A Violent Climax

Events in Hong Kong may be about to come to a dramatic – we hope not tragically violent – climax. Beijing said Tuesday that it has the legal right to declare a state of emergency in the city, for the first time detailing how they might directly intervene. There are thousands of People’s Liberation Army troops stationed inside of Hong Kong, with many more throngs waiting just outside.

Just as is the case with the Trade War, Beijing has had numerous opportunities to make concessions.

In fact, Reuters reported last week that Hong Kong’s local leadership wanted to acquiesce to some protestor demands, which include scrapping a law that would permit extradition to the Mainland, and the resignation of the city’s chief executive, Carrie Lam. A leaked tape revealed that Lam herself wants to resign.

But the Communist Party of China won’t let her back down. That’s because they see this as a battle for their legitimacy in the 21st century.

And, rest assured, they see the Trump administration’s trade demands the same way.

Calming Influence

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR