USA vs. China, where are we headed?

 Blog 2, let's get straight into it.

What's happening with Trump? Is he as insane as people make him out to be, or is he up to something genius which people can't see? I'd like to believe the latter. A US, China showdown was eventually inevitable considering the dramatic rise of the Chinese economy coupled with the rising US debt. 

Since the ping-pong diplomacy between Nixon and Mao, America decided to export its blue-collar jobs to the mandarins. Why get your hands greasy when you can hire someone at a low cost to do the dirty work for you? This could be seen as the foundation stone for the manufacturing behemoth, that is China. Sweatshops were set, skills developed, American companies flooded with orders to up their margins and bring down their costs - and it was a win-win, because those who embraced the wontons, won by tons. Back in the West, while Americans enjoyed the exploitation and cheaper products, their own blue-collared workers transitioned towards a service-based economy.

Now, China is the global manufacturing hub and there're no two thoughts about it. The whole world is dependent on it for various products or raw materials. Heck, India is considered as the 'pharmacy of the world', but even we don't have the raw materials, the active pharmaceutical ingredients (API's) to produce paracetamol in bulk. Our imports for para-aminophenol, a key intermediate for paracetamol has crossed 83%, and this is when the relations between two countries weren't at the best. China is the major global supplier of API's, and therefore it controls the supply chain and price volatility in the sector. Imagine an OPEC-like cartel, but for Pharma. You could live without refuelling your car for days, but what would you do without Allegra during an allergic reaction, a pill for a thought. Not just pharmaceuticals, but basic metals, vehicles, machinery, electronics, textiles and apparel, chemicals, pesticides, think of it and China manufactures it at a big scale. Even toys, the Chinese government subsidised the toy exports so much, that the industry was able to dominate and annihilate many domestic players around the world.

I'm digressing, back to the topic.

So while China was busy building itself the hard way, the US got soft. They kept on increasing their dependence on the world, to make their products cheaper. Trade deficits kept on rising, but Murica' didn't care. Basking on their glory, they thought 'we run the world', our McDonalds, our Google, our Apple, our Microsoft, our Amazon, our Meta, our Nike, our Boeing and recently, our Nvidia. Uncle Sam said 'I want you, your cheap labour', meanwhile their average class would focus on becoming uber drivers, door dash riders, waiters, yoga instructors, amazon deliverymen, youtubers, robinhood executives, etc. The bald eagle didn't care what the dragons were up to. But now their priority isn't the cheap products, they want their jobs back.

Chinese on the other hand bought US treasuries; in order for the apprentice to become the master, it needed an upper hand, just incase Uncle Sam decided to act up and finally call their bluff. Think of it, there is no Meta, no Amazon, no Google in China; but Americans are going gaga over TikTok. China is a big-scale 'Gaffar' market that copies American IPs blatantly to make their own versions of it. So it's not like China didn't pre-empt what is happening right now, they actually played this hand really well. The US has never defaulted on its debt since its inception, except they kept on increasing their debt ceiling. Now the mandarins own 760 billion dollars worth of US debt, and each time Trump tries to put them in place, they hammer the American bond markets, resulting in higher bond yields. Higher yields translate to US paying more interest on their debt, something which they're not keen on doing at the moment.

Now comes the crazy part, Donald J. Trump. Many think of this guy as a fool, probably because of his prior affiliation to reality tv or maybe because of his straight-out obnoxious character; but the guy is far from a fool. Trump is a great salesman. Despite his over-the-top image, he was able to sell himself to the American public, not once, but twice. And this second time, Trump has come with a solid goal, a mission to control the trade deficits with the world. No more being the nice guy, not that America ever was, but now it needs its hafta money for protection, force countries to import American goods at relatively lower costs. America wants what China has, a piece of the manufacturing pie. It's done with solving the world's problems, hell, it has gathered many of its own. And he went on to reciprocally tariff the whole world. You punch my companies by 20%, I'll punch yours with the same. Gandhi once said, "an eye for an eye makes the whole world blind", but at times a blind world is better than you being the only unfortunate one.

So now, here we stand; what might seem as Trump vs. the World, is actually America taking on China. It's not that the guy is just a megalomaniac, he has a team of advisors who share the same vision as him. But how he steers the battleship will be fun to watch. In my view, I don't see America losing. If there's one principle that shall stay relevant in my lifetime, it's to never bet against America or the American dollar. 

Gold, as an asset class should do well because America holds the largest reserves; combine the 2nd, 3rd and 4th countries and US still has more reserves. It shall use it as a tool to trim down its debt. As for equity markets - tough times never last, but tough investors do. Invest in asset-heavy businesses led by domestic demand; pharmaceuticals, power generation and distribution/supply, oil and gas exploration, private banks and finservs. REITs is another good option to play through this phase. Don't be overtly adventurous, is all I'm saying.

As far as where are we headed with all that's going on? To a new world. The beauty of the future is that it's different from the present, you could argue for better or worse, but it shall be starkly different from what is. Globalisation will be on a downtrend. Multipolarity is the future. India stands to benefit, if we play our cards right. Overall, things might seem tough, but in the end, it'll all work out. 

See you in the next one. Cheers.