China: No Pushover!

Investment Conclusion 

I would not be in any hurry to participate in the current market rally in equities, bonds or the US$. The US equity market today tells us the world is only 9% worse off than when President Trump took office and as well off as on “Liberation Day” before the “reciprocal” tariffs were announced. Here are three reasons that is wrong.

• China believes it holds escalation dominance in the war on trade and will use it to weaken the US in multiple domains, such as Soft Power,  economic and political relations with the Global South and to replace or weaken the US’ dominance of Alliances.

•  Even if US – Chinese reciprocal tariffs are cut to 50%, the US would still have 20% plus average tariffs on all imports compared with about 3% when President Trump took office. That is enough of a disruption for the US economy to suffer inflation and recession.

•  We are witnessing the replacement of both geopolitical Alliances and Globalisation with “Might is Right” geopolitics and a Nationalist economic model. The process will take a decade. And the economic result is durably higher inflation and lower growth, productivity. Investment returns and real wages. The geopolitical result will be a waning of US global power.·