snap, President Xi Jinping has real power.
China has said enough is enough, emphatically and without equivocation. It has officially announced tariffs on US goods, of exactly the same degree and size as the US just imposed.
This was not my expectation. But, there it is.
And it is significant, and to use the word again… powerful!
All through my journey of travelling the world and being on the podium with a host of other economists, it always struck me that at some point at every conference a US economist would get up and talk about how China was a pack of cards and about to collapse.
They just did not get it.
Americans, the USA as an institution, is still slow to recognise that the Chinese are as well, or better educated, very smart at business, among the world’s best negotiators, and work harder than anyone else on the planet.
That is a formidable force, and oh, did we mention… they are 24% of the world’s population, and their economy is growing at close to 7%!
In 2012, I spoke at APEC about the inevitable reality of three equal superpowers, economically, politically and militarily. Putin made a comment in his speech that I had made a mistake in leaving Russia out? This is where we almost are now, however.
Three equal superpowers, Europe, China, USA, and it is a situation, a reality, that is only going to become more entrenched.
Trump was playing bully without realising how big the other kid was until they stood up. When it was too late.
China just stood up.
The world just changed more than any of us can realise in real time. This is one of the most momentous days in history in terms of global balances of power. Hardly anyone will notice it as such, but that is what it is.
China’s days of respecting the US as the slightly senior player are now dismissed. The bully from America pushed too hard, and they have stood up.
Just to be clear:
THE USA WILL NEVER AGAIN
BE ABLE TO DICTATE TO CHINA
ON ANY MATTER,
That is all gone now.
You see, once you push a reasonable, and allowing to a point counterparty beyond a certain point. Once you break that tolerance. Then there is no going back.
China will now stand firm as a full equal in every area of the global scene. This is a real shift that will spread through all diplomatic and business circles immediately. China’s President has just signaled to all of China, that they no longer have to put up with what they see as American arrogance.
The world really did just change.
So far stocks are taking it in their stride.
We may, in fact, see no further moves by the US after this. Perhaps even a backing down, but the situation will not lead to further impositions beyond what is already stated. If Trump tries to up the ante now, he will immediately be matched or exceeded by China at every step of the way.
What the Americans, in general, have long failed to recognise, is that while China benefits greatly from US trade, it no longer needs US trade.
China’s domestic economy is far more important than trade with the US. China will continue to grow strongly, even without the surplus with the US. That the US still sees this as crucial to China and therefore leverage, is an error of the grandest historic proportions. Greater than that of Napoleon.
Trump will have to stand firm but do no more. It is the only viable policy option.
If this is the path, then global profits, US and Chinese, will continue to skyrocket even with these tariffs. Which is why we remain extremely bullish just the same.
Do note, however, the world just changed, and it has changed for evermore.
Just keep buying. Global prosperity will persist.