Why China will win this trade war in the next 71 days..

Summary

In this video, the speaker discusses China's rapid economic growth over the past 30-40 years and its competition with the US, particularly in terms of GDP. The video explores the historical context of China's rise, from its low-income status to becoming a manufacturing powerhouse. It delves into the implications of the US-China trade war, China's export strategies, and its growing economic influence. The speaker highlights the shifting global power dynamics, the potential destabilization of the US dollar, and offers insights into future geopolitical and investment opportunities, stressing the importance of diversification in uncertain times.

Takeaways

• 😀 China's economy has grown rapidly over the last 30-40 years, going from a low-income country to a major competitor to the US, with projections suggesting it may overtake the US in the near future.
• 😀 In 1971, the US established itself as a global economic leader, setting up institutions like the WTO and the World Bank, which were largely US-dominated, influencing global economic systems.
• 😀 The US, as a global power, sought cheap labor and raw materials, including from China, which started focusing on agriculture and later manufacturing to support rising global demand.
• 😀 China became adept at reverse-engineering products from other countries, notably Japan, and using this strategy to improve its own manufacturing capabilities across various industries, including cars and electronics.
• 😀 By 2025, the trade war between the US and China represents two choices: the US seeking to rebuild its manufacturing base, and China finding new export markets to reduce dependency on the US.
• 😀 The US has been importing vast amounts of goods from China, leading to a growing trade deficit. China, in turn, has used US dollars earned from exports to buy US-denominated assets like stocks, bonds, and real estate.
• 😀 The US dollar's role as the world's reserve currency could be threatened as China's economy grows stronger, leading to potential instability in global markets, including bond markets.
• 😀 US stocks and bonds have traditionally had an inverse relationship, but recent trends show bond prices falling while stock prices also drop, hinting that China's growing economic power could destabilize the US financial system.
• 😀 China’s strategy of acquiring US-denominated assets is part of a broader plan to use its economic power to influence the US, potentially derailing the US bond market and shifting the global financial landscape.
• 😀 China is well-positioned to win the trade war, as it is more likely to find new markets for its exports than the US is to rebuild its manufacturing base, which would be a more difficult and long-term task.
• 😀 China’s Belt and Road Initiative and its strategic infrastructure investments around the globe, including the 'String of Pearls' theory in Asia, strengthen China's global influence and its ability to control logistics and access new markets.
• 😀 In a post-trade-war world, China's currency may gain prominence in global markets, leading to a shift in the composition of the IMF’s Special Drawing Rights (SDR), with the US dollar's share potentially declining.

Q & A

What was the economic status of China compared to the US in 1990?

In 1990, China's GDP was 1/20th, or 20 times smaller, than that of the US.

How has China's economy evolved over the last 30-40 years?

Over the past few decades, China's economy has grown rapidly, transforming from being heavily influenced by the US to becoming a serious competitor. It is now on track to potentially overtake the US in terms of GDP.

What role did the US play in establishing global economic systems?

The US played a significant role in establishing international economic systems and organizations like the WTO and the World Bank, which were seen as US-governed.

Why did the US seek cheap labor and raw materials from other countries in the 1970s?

As US consumerism grew in the 1970s, especially after the US dollar became the world’s reserve currency, the country needed cheap labor and raw materials to meet rising demand for consumer goods.

What is the concept of 'reverse engineering' in the context of China’s manufacturing?

Reverse engineering in China refers to the practice of studying and replicating foreign products, often improving on them and making them more cost-effective. This was a key factor in China’s rise as a manufacturing powerhouse.

How has China's approach to exports changed over the years?

China has focused heavily on expanding its exports, moving from direct exports to the US to developing new export markets in countries like Vietnam and Thailand, all while strengthening its own manufacturing capabilities.

What is the current trade war between China and the US about?

The trade war centers around two key options: whether China can find new markets for its exports, and whether the US can successfully rebuild its own manufacturing base to reduce reliance on Chinese imports.

How does the US trade deficit with China affect the relationship between the two countries?

The US runs a trade deficit with China, importing more goods than it exports. As a result, China accumulates US dollars, which it often reinvests in US assets, such as stocks, bonds, and real estate, further intertwining the economies.

What is the impact of the bond market in the context of the US-China trade war?

In the context of the trade war, the bond market is seeing unusual behavior where both equity and bond markets are declining simultaneously. This has raised concerns that China might be selling off US bonds, potentially destabilizing the US financial system.

What are the reasons China might have an advantage in the trade war with the US?

China has several advantages, including a more centralized decision-making system, stronger control over its currency, and better prospects for finding new export markets. The US, on the other hand, faces internal political challenges and difficulties in rebuilding its manufacturing capacity.

How does China’s 'Belt and Road Initiative' fit into its global economic strategy?

The Belt and Road Initiative is a strategic global infrastructure project that connects China to Europe and other parts of the world through rail and road networks. It allows China to enhance its export capacity, control important ports, and access new markets at lower logistical costs.

What is the potential future of the US dollar as the global reserve currency?

Over time, China’s economic growth and the international use of the Chinese yuan could lead to a decrease in the US dollar’s dominance in global reserves, with a shift potentially toward a more diversified basket of currencies, including the yuan.

What impact could the US-China trade war have on global inflation?

The trade war is expected to lead to higher global inflation, particularly in developing countries like India, which might feel the inflationary effects more acutely than the US. This is due to the US exporting inflation through its economic policies.

What role does diversification play in response to the ongoing global economic changes?

Diversification is crucial in adapting to global economic shifts. Investors should consider diversifying across asset classes, geographies, and currencies to hedge against risks associated with inflation, currency devaluation, and geopolitical instability.