Author of “The Coming Collapse of China”, Gordon Chang, discusses the effect of President Trump’s tariffs on China and the epic battle ahead.  Last night China announced their feeble retaliatory actions – SEE HERE.  A professionally nervous Maria Bartiromo, frames a series of questions from the perspective of Wall Street.

Fortunately Gordon Chang understands the Red Dragon, and more importantly understands Chinese Chairman Xi Jinping’s geopolitical goals through economic conquest. Mr. Chang is one of the few people who appear regularly in media and know the truth behind the Panda Mask.

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People often talk about the ‘strength’ of China’s economic model; and indeed within a specific part of their economy -manufacturing- they do have economic strength.

However, the underlying critical architecture of the Chinese economic model is structurally flawed and President Trump with his current economic team understand the weakness better than all international adversaries.

China is a central planning economy.  Meaning it never was an outcropping of natural economic conditions.  China was/is controlled as a communist style central-planning government; As such, it is important to reference the basic structural reality that China’s economy was created from the top down.

This construct of government creation is a key big picture distinction that sets the backdrop to understand how weak the economy really is.

Any nations’ economic model is only as stable (or strong) as the underlying architecture or infrastructure of the actual country.

Think about economic strength and stability this way: If a nation was economically walled off from all other nations, can it survive?  …can it sustain itself?

In the big picture – economic strength is an outcome of the ability of a nation, any nation, to support itself first and foremost.   If a nations’ economy is dependent on other nations’ for it to inherently survive it is less strong than a nation whose economy is more independent.

You might not realize it, but China is an extremely dependent nation.

When the central planning for the 21st century Chinese Economy was constructed, there were several critical cultural flaws, dynamics exclusive to China, that needed to be overcome in order to build their economic model.  It took China several decades to map out a way to economic growth that could overcome the inherent critical flaws.

Critical Flaws To Exploit:

♦Because of the oppressive nature of the Chinese compliant culture, the citizens within China do not innovate or create.  The “Compliance Mindset” is part of the intellectual DNA strain of a Chinese citizen.

Broadly speaking, the modern era Chinese are not able to think outside the box per se’ because the reference of all civil activity has been a history of box control by government, and compliance to stay (think) only within the approved box.  The lack of intellectual thought mapping needed for innovation is why China relies on intellectual theft of innovation created by others.

American culture specifically is based around freedom of thought and severe disdain of government telling us what to do; THAT freedom is necessary for innovation.  That freedom actually creates innovation.

Again, broadly speaking Chinese are better students in American schools and universities because the Chinese are culturally compliant.  They work well with academics and established formulas, and within established systems, but they cannot create the formula or system themselves.

♦ The Chinese Planning Authority skipped the economic cornerstone.  When China planned out their economic entry, they did so from a top-down perspective.  They immediately wanted to be manufacturers of stuff.  They saw their worker population as a strategic advantage, but they never put the source origination infrastructure into place in order to supply their manufacturing needs.   China has no infrastructure for raw material extraction or exploitation.

China relies on:  importing raw material, applying their economic skillset (manufacturing), and then exporting finished goods.  This is the basic economic structure of the Chinese economy.

See the flaw?

Cut off the raw material, and the China economy slows, contracts, and if nations react severely enough with export material boycotts the entire Chinese economy implodes.

Insert big flashy sign for: “One-Belt / One-Road” HERE

Again, we reference the earlier point: Economic strength is the ability of a nation to sustain itself.  [Think about an economy during conflict or war]  China cannot independently sustain itself, therefore China is necessarily vulnerable.  China cannot even feed itself.

China is dependent on Imports (raw materials) AND Exports (finished goods).

♦The 800lb Panda in the room is that China is arguably the least balanced economy in the modern world.  Hence, China has to take extraordinary measures to secure their supply chain.  This economic dependency is also why China has recently spent so much on military expansion etc., they must protect their vulnerable interests.

Everything important to the Chinese Economy surrounds their critical need to secure a strong global supply chain of raw material to import, and leveraged trade agreements for export.  China’s economy is deep (manufacturing), but China’s economy is also narrow.

China could have spent the time to create a broad-based economy, but the lack of early 1900’s foresight, in conjunction with their communist top-down totalitarian system and a massive population, led to central government decisions to subvert the bottom-up building-out and take short-cuts.  Their population controls only worsened their long term ability to ever broaden their economic model.

It takes a population of young avg-skilled workers to do the hard work of building a raw material infrastructure.  Mine workers, dredge builders, roads and railways, bridges and tunnels etc.  All of these require young strong bodies.   The Chinese cultural/population  decisions amid the economic builders precluded this proactive outlook; now they have an aging population and are incapable of doing it.

This is why China is now dependent on their position as an economic trade bully.  They must retain their supply chain: import raw materials – export finished goods, at all costs.

This inherent economic structure is a weakness China must continually address through policies toward other nations.  Hence, “One-Belt / One-Road” is essentially a ‘bully plan’ to ensure their supply chain and long-term economic viability.

This economic structure, and the reality of China’s dependency, also puts China at risk from the effects of global economic contraction.

♦U.S. President Donald Trump and the U.S. economic team understand this dynamic and fully understand the inherent needs of China.  When you are economically dependent, the ‘bully plan’ only works until you encounter a ‘stronger opponent’.   A stronger opponent is an economic opponent with a more broad-based stable economy, that’s us.

President Trump, Commerce Secretary Ross, Treasury Secretary Mnuchin and U.S. Trade Representative Lighthizer, represent the first broad-based national team of economic negotiators who know how to leverage the inherent Chinese economic vulnerability.

National Trade Council Director Peter Navarro appears on Fox Business News to discuss the “reciprocity” proposals and the ongoing confrontation with China. Despite the honest examples provided, it is transparent from the delivery Navarro is attempting to calms the nerves of Wall Street.  “EC” Economically Correct, presentation – Watch:

Without apology CTH continues to state all opposition to President Trump finds the epicenter of motive behind the economic policy.  There are trillions at stake.

Yes, there are ideological differences, but do not doubt for a moment the existential threat is the core principle behind America-First economics.

Multinational corporations and global financial interests have more than a generation of effort invested within the modern trade and economic constructs that President Trump is challenging head-on.

Politicians do not construct legislation, K-Street lobbyists do. Hundreds of millions have been spent purchasing politicians as a sales force to protect those financial interests. Challenge their financial trade schemes and you are threatening the livelihood and financial systems that generate massive wealth for very powerful people.  Additionally, the downstream effect threatens the affluence of the professional political class.

That said, there are American interests who will benefit, it’s just not popular within the cocktail party circuit to admit it:

(Bloomberg)  China’s plan to counter U.S. import tariffs may throw global aluminum and steel traders into a tizzy, but the net result could be a boon for American primary-metal producers.

The retaliatory plan to slap tariffs on U.S. aluminum scrap and some steel products may boost American supplies, lowering raw-material prices, says Zaner Group LLC’s Peter Thomas. That could coax some metal producers to restart unused capacity in Rust Belt states if infrastructure spending picks up.

“In Indiana they’re going to be making a huge push to get things fired up,” Thomas, a Zaner senior vice president, said Friday by phone.

One aluminum scrap trader agrees with the premise, but he says the other side of the coin is that suppliers could be the biggest losers. Marvin Polikov, a vice president at aluminum scrap trader Metal Exchange in St. Louis, also says companies need a lot of time before they can, and probably would, restart unused refineries. (read more)