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hey everybody Peter Zion here coming to
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you from blenham New Zealand where I'm
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walking through a Vineyard because
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that's just what I like to do anyway uh
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today we're going to do the second part
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of our open edit series on the issues
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that's going to be facing
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president-elect Trump on his first day
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of office not the ones that he wants to
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face the ones that are going to face him
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and today we're going to talk about
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China uh first things first let's review
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what it is that the Chinese are dealing
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with uh before we talk about how Trump
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plugs into that uh China has an economic
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model that is based on Central State
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control and that means the state
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controls the financial system and uses
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the financial system to shove money into
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whatever economic sector they feel that
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they need to now they use this to
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achieve technological control of certain
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areas where they feel they can Master
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the tech they use it to subsidize
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development of technologies that they
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don't master in the hopes that they will
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be able to and they do it to build out
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the supply chains locally so they can
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drive competitors internationally out of
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business
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but all of that pales to the primary
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goal which is to make sure that
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everybody has a job so that nobody goes
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out and protests and gets together in a
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large group and goes on a log and walk
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together because that's how the
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government got its job in the first
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place and they don't want that to happen
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to them so you get this system that is
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over capitalized or capital is
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remarkably cheap and as long as the
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capital keeps flowing everything's happy
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and for those of you who have ever been
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part of an economic sector that has
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busted whether it's say energy during a
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bust Peri or a boom bust period or Enron
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or real estate back in the 2007 to 2009
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crisis you know this very well uh as
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long as the capital keeps flowing as
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long as the capital is cheap then the
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system keeps running but if it for
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whatever reason Capital Access dries up
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then this artificially inflated sector
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basically Withers away to nothing in a
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very short period of time and the
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Chinese have been doing it so long in so
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many Subs sectors that if that Capital
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stopped flowing at any time you'd
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basically see the end of China's
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industrialized State at this point
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that's problem one problem two is
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demographics when you tell everyone that
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what you're supposed to do as a Chinese
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is just work 12 hours a day 6 days a
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week well there's not a lot of room for
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anything else when you pull people off
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of the farm and put them into the city
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so they can work 12 hours a day there's
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not a lot of time in their lives or
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physically in their apartment for kids
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and so the birth rate drops and drops
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and drops and drops and according to the
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most recent data from December of 2020
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4 the uh average woman in China is now
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having less than a half a child so in
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most of China we have a repopulation
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rate that is one quarter what is
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necessary just to sustain the population
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we probably almost certainly have a lot
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more people in China over age 50 than
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under and the place is looking at
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demographic collapse and if you remember
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back to my earlier demographic work most
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of the consumption that is done in a
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society is done by people who are under
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age 45 who are raising their their kids
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and building homes and that population
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is basically becoming an endangered
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species in China and now that birth rate
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has been so low for so long it's been
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lower than the United States since the
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1990s that we are looking at the
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dissolution of the Han ethnicity around
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the end of the century and there's no
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way that the Chinese state will last
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very long I'd say a decade or less at
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this point so that's their starting
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point uh in order to make their system
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last as long as possible Sherman G
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believes three things number one
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everyone just has to work harder which
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is only compounding the demographic
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situation because no one really sees a
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hope that this is going to change number
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two he believes that the Chinese
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Communist party which let's be specific
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here it's not the part's interested it's
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him should face no challenge to its
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Authority and should be able to
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micromanage every aspect of everyone's
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lives in fact we now have the agency
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that used to enforce the one child
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policy making unannounced house calls to
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see if
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couples are having sex without
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contraception to make sure the birth
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rate goes back up because that's what
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the state wants now you can imagine how
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well that goes over and third he has to
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keep export markets open because all of
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this production all of this forced
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production all of this over subsidized
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production can't be consumed by the
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population because most of them are now
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over 45 which means it has to be
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exported so they have to be able to
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shove the products they produce down
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everyone else's throats just to keep
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their country alive entered Donald Trump
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Donald Trump is singularly obsessed with
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the trade deficit which is probably not
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the best way to look at the issue but
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that's how he sees it so it doesn't
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matter what I think uh and as a result
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likes to think that he can make deals
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that will force things in the United
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States's direction for the most part the
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Chinese especially at the top are not
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worried about this because they've dealt
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with him before uh they see him as an
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eminently flatterable person and so they
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basically give way in negotiation
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knowing that the day after the
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negotiations close that there will be no
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enforcement and they never have to worry
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about him again why do they feel this
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way they've already done it before uh
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the phase one trade deal that was
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negotiated by the Trump team back in
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what is it seven six years ago committed
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the Chinese to buying X number of
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dollars of various products and by the
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end of the Trump term they hadn't met
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any of the criteria at all in fact they
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never intended to all they did was make
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sure that whenever there was a product
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like what they needed available anywhere
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else in the country they went to that
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first so actually we saw the trade
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deficit in a structural sense go up
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because of trade talks with the Trump
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Administration uh the other reason that
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the Chinese are really not concerned
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about Trump is they don't take him
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seriously as a strategic thinker uh the
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Chinese understand as everyone in Asia
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understands that if you want to hem in
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China you can't do it alone it can't be
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just a trade issue it can't just be a
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strategic issue it has to be holistic
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you have to bring in all the other
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countries from Indonesia to Malaysia to
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Singapore to the Philippines to Taiwan
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to Korea to Japan and if you don't do
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that the Chinese will easily find a weak
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Link in the chain and be able to push
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out and they see Donald Trump as being
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more a danger to the alliance than they
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are now whether or not that is accurate
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enough that's that's how they see things
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and again they've done this before with
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Trump the first time around they don't
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see anything different in round two
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except that Donald Trump is trying to
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wreck uh law enforcement the defense
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department and uh the intelligence
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agencies with appointees which are the
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things that generally keep China in
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check as well as uh if you're going to
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have any sort of meaningful policy
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against China that deals with security
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and culture and technology and theft and
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trade you need everyone working together
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and they see Donald Trump as the best
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possible candidate for Wrecking that
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capacity within the American system so
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they're actually broadly looking forward
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to Trump 2 because they think they're
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going to be able to get even more out of
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the United States than they did under
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Trump one
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uh much like the Russians are
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feeling and like the Russians I think
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they're
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miscalculating uh this is not 2017 we
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are in a very different world now uh and
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the single biggest difference on the
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Chinese front is that Donald Trump did
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succeed in changing the conversation in
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the United States and there is now a
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competition among all factions in
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Congress about who can be the most
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anti-chinese now translating that
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sentiment and policy that's a lot easier
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said than done but there's no longer
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this core disagreement within the
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parties because the business Community
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has been ejected from the Republican
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Coalition so the faction that used to be
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the most organized and calling the shots
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on the Republican party on economic
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policy is no longer even part of the
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conversation which leaves everybody else
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to fill the Gap and no one else is as
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concerned with economic stability as the
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business Community was so we've already
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seen in The Last 5 Years A significant
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out flow of investment from China of
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foreign firms and even of Chinese firms
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as everyone tries to get away from this
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country that is facing economic
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implosion because of its demographic
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issues and while Donald Trump certainly
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isn't the guy to build a broad Coalition
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within his own government much l across
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multiple governments to have any sort of
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coherent policy towards China dude knows
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how to do tariffs and that is certainly
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something that's going to hit the
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Chinese on the headline now as a rule I
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would say tariffs are a really bad tool
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for shaping policy so for example the
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terrorist that Trump has threatened not
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that I think they're going to happen uh
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against China and Mexico would be the
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fastest way to trigger an inflation
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induced recession in the United States
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because most of the trade among the
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NAFTA Partners goes back and forth
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across the border every time and if you
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do a flat tariff because doing anything
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but a flat tariff would require
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Administration Trump's not very good at
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that uh you're going to basically tax
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every product multiple times and drive
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each industry out of business and allow
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Chinese products to fill the gap
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that's not how things work in China
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China they have as much of the supply
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chain system in one country as possible
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so if you do a big flat tariff on it
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actually does hurt the question is
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whether Trump can realize that if the
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goal is to actually break the trade
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relationship with China you have to do
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more than tariff them you have to
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actually take that income and build
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alternate industrial plant within North
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America so there's actually another
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option otherwise you get an inflation
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pulse you a consumer crisis and you
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don't actually change anything on the
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back end you just make everything more
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expensive now whether or not his
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ultimate appointees are people who can
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convince him of that I don't know but
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what I do know for sure is that if we do
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get into a situation where Trump
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basically waltzes into East Asia with a
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sledgehammer yes the us is going to take
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a lot of hits yes it's going to hurt yes
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he will go down in history is triggering
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the highest inflation the United States
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has ever had yes it will be
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ugly but the won't be a China on the
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other side of that there are easy ways
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to do this there are smart ways to do
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this but that doesn't mean that there
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are only one or two ways to do this if
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the goal is simply to smash China and
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move on I have no doubt that Trump can
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do that if the goal is to smash China
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move on and have America in a much
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better place domestically that requires
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a skill set that I have not seen Donald
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Trump wield just yet all right I'm done
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see you tomorrow
