All the Naked Emperors

By David Stockman  |  September 24, 2019

Life in China is getting harder. And it’s probably past the time for President Xi Jinping to start worrying about his domestic situation.

As Bloomberg details, “Shopkeepers in Shenzhen. Pork sellers in Nanning. Factory workers in Dongguan. All across China’s southern industrial belt, the working class is under pressure…”

It’s an ominous piece a week shy of the October 1 anniversary celebrating 70 years since the Communist Party took power in the Middle Kingdom.

Of course, we’ve been discussing exactly how unwell is the Red Ponzi for months now. Its “miraculous” growth story is coming undone, as grotesque malinvestment yesterday reveals itself in soaring prices, food rationing, and riots in the streets today.

One would think Xi is a ripe target for a negotiator schooled in the art of the deal…

Alas, as Chris Scott notes in his Tuesday dispatch, the U.S. is itself crippled – because of a deteriorating domestic situation as well as by a multiple-minded Tweeter-in-Chief.

How these two leaders respond to pressures gathering in their respective backyards will determine whether in fact the 21st century has the same sort of beginning that marked the 20th.

The Blind and the Blind

By Chris Scott

Last week, we talked about why the likelihood of an “interim” trade deal with Beijing has increased considerably over the past month.

Don’t hold your breath. That increase in probability is from a starting point of zero.

Today, we’re going to take a look at the reasons why even a temporary truce to alleviate political pressure on both sides may prove elusive.

Wait, I’m So Confused…

A conversation between President Trump and Treasury Secretary Steven Mnuchin in front of reporters on Monday laid bare a key point of confusion that has plagued the U.S.-China trade drama.

Remember the headline over the weekend alerting us that China “canceled its planned U.S. farm visit”?

Mnuchin: “That was actually at our request that they delayed that… Purely at our request.”

Trump: “Why was that at our request, just out of curiosity?”

Mnuchin: “We didn’t want confusion around the trade negotiations.”

 Trump: “Yeah, but I want them to buy farm products.”

Mnuchin: “There was no confusion. We want them to buy agriculture. They’ve committed to buy agriculture.”

What “confusion” was the administration (excepting the Donald) worried about?

One of the most obvious explanations is simply that the officials in charge of negotiations (Mnuchin and trade chief Robert Lighthizer) aren’t confident that a temporary fix – the only outcome which would see China buy large amounts of agriculture products quickly – is in the cards.

If that’s the case, Chinese officials promising relief on a campaign-style tour of the heartland is not a good look.

Trump vs. Trump

There’s a tension inside this administration causing the confusion.

On one side, you have people laser-focused on a singular goal of getting China to stop stealing from America and to implement market reforms at home. On the other side, you have demands that China pressure its own businesses – primarily state-owned ones – to ignore market forces and make deals to buy U.S. products to lower the bilateral trade deficit.

Beijing loves the latter. In fact, the two sides at one point looked very close to sealing a deal for China to buy liquefied natural gas and soybeans in exchange for ending tariffs. And why wouldn’t our greatest strategic competitor want us to turn slowly into an economy that looks like Brazil’s?

That tension is not just playing out between administration officials, it appears to be playing out inside Trump’s head. He wants to make a deal, and he really wants to lower the bilateral trade deficit. But he also wants to do something that no other president could do and ink the “granddaddy” of all trade deals.

The interim deal is the trade deal “light” that Beijing loves but the U.S. has already passed over. If they agree to something like that it buys more time for China to shore up its economy and batten down the hatches in case the administration comes back with another escalation to force them back to the negotiating table.

Expect More Confusion

The Chinese side has had no idea what’s going on from the start of the Trump administration, and they’re probably more confused now than before.

President Xi Jinping and his cadre cheered the Donald’s election because they thought he’d be amenable to one-off deals that ignored Beijing’s designs to take over high-tech industries with intellectual property stolen from the America.

Now that the U.S. president is clearly listening to people in Washington who want to hold Xi’s feet to the fire, Communist Party leaders have come to another misguided conclusion.

Erstwhile Trump aides Steve Bannon and John Bolton have been running around saying that the U.S. and China can’t coexist and that this fight is about overthrowing the government in Beijing. They are part of a growing coalition in Washington that wants to fully decouple the two economies, plunging the world into a new cold war.

That’s clearly not what Trump wants. He wants more trade with China. But from 7,000 miles away it’s hard to separate the president from the company he keeps (or kept).

The mixed signals coming from Washington will make it very hard for Chinese negotiators to make big concessions that hardliners in Beijing can argue are designed to contain China’s rise.

After “Peak Trump”: Charting Uncharted Waters

It’s my pleasure to be delivering the Keynote Address at the 2019 Irrational Economic Summit.

Please join me October 10-12 at the Gaylord Resort & Convention Center at National Harbor, Maryland – right outside Imperial Washington – for what promises to be three days rich with ideas about how to protect and grow your wealth.

The stakes are already high heading into 2020. The U.S. presidential campaign is already underway. And the Tweeter-in-Chief is tied up in the day-to-day movements of the major stock indexes like no president before him.

And the increasingly desperate incumbent will do anything he must to hold the White House.

That’s why I’ve titled my Keynote Address, “After ‘Peak Trump’: Charting Uncharted Waters”.

Leviathan gets bigger, Wall Street gets richer, and Main Street… well, Main Street gets more and more little every day.

We’re rapidly approaching the end of the oldest, weakest economic “recovery” in American history. At this major tipping point, there’s no telling what the Donald’s great disruptions could do to your wealth.

The 2019 Irrational Economic Summit is fast approaching too. To reserve your spot today, simply click here, email our team at, or call 866-765-7506.

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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