Posted originally on Apr 14, 2025 by Martin Armstrong
The U.S.-China trade war is an ongoing economic conflict that began in January 2018, characterized by the imposition of tariffs and trade barriers by both countries. Recently, tensions escalated as the U.S. raised tariffs on Chinese goods to 145%, prompting China to retaliate with tariffs of 125% on U.S. imports, affecting global supply chains and market stability.
Trump’s decision not to grant China the same reprieve as other nations explained: “China wants to make a deal, they just don’t know how quite to go about it.” I disagree. If I were China, I would do a full embargo, and the Achilles’ heel in this trade war is more than just the manufacture of values for municipalities – the big ones, steel and aluminum, but also medicines. Personally, I would put a full embargo on everything, and without the medicines, people would be screaming, and their lives would be put in danger. I have dealt with Asia for some 40 years. You do not do this sort of thing publicly. It is an insult and a loss of face that forces China not to yield.
The developing U.S.-China trade war keeps ratcheting up. China has suspended exports of rare earth minerals. Meanwhile, Commerce Secretary Lutnick said that the electronics the Trump administration exempted from reciprocal tariffs could be subject to different levies in the future. This is not good. You do not air your dirty laundry in public.
Beijing’s perspective is dramatically different. Xi Jinping has taken the view that his country would lose face if it simply capitulated to what it calls America’s “unilateral bullying.” The danger with this trade war is that publicly, it only supports fervent nationalism, and that feeds into what will become World War III. China has been quietly preparing for a trade war for quite some time. Trump’s actions may spark negotiation in Western circles, but in Asian circles, they create the image that the US doesn’t want to negotiate. My concern is that Xi is brilliant. This trade war is playing into his domestic approval of anti-Americanism. Like the Russian sanctions that boosted Putin’s approval rating calculation, sources say, China is also seeing a rise in popular support to strengthen its position by preparing not just to fight back. Trump’s trade war with China is definitely strengthening Xi’s own position.
All of my sources have said that Xi fully understands that China has entered a period of protracted struggle in both trade and geopolitics with the United States and Europe. This became painfully obvious, and Europe and the Biden Administration confronted Russia. Xi has taken the position that China needs to prepare for these confrontations ever since the Biden Administration put sanctions on Russia and then threatened China if it dared to help Russia. The Neocon Antony Blinken expressed “serious concern” about China’s support for Russia’s defense industry. He went as far as to threaten Xi that he would impose sanctions if China helped Russia.
The Neocon Antony Blinken threw down the gauntlet and views the world only in his desire for imperial power. He never understood the economy, and this insanity of threatening China and removing Russia from Swift undermined the economy and split it in half, with the formation of BRICS for geopolitical security. I don’t believe Trump understands the damage that the Biden Administration inflicted upon the entire world. Now, go after China with a trade war to bring back manufacturing to America; this is pushing China over the edge.
China previously owned 10% of the US national debt. This is what Trump has not considered. Before this trade war began, in January, foreigners sold a net $13.3 billion of U.S. notes and bonds that had more than one year to maturity. As we approach sovereign debt defaults, I have warned that it may start with Japan and be followed by Europe. We saw almost $50 billion was sold in December 2024 in anticipation of a Trump trade war. Last November saw almost $35 billion dumped following the election.
Canada was the largest net seller in January. The UK needed the cash and was the biggest seller last December. I know some have made the outrageous claim that Japan sold US debt, and that made Trump pause the tariffs for 90 days. These people have ZERO understanding of the markets and even less about Trump. The tariffs over 10% are political, and it is part of his art of the deal. Japan is in economic trouble with its own debt crisis, and selling US debt had nothing to do with the tariffs – this is about creating a real debt crisis.
That said, China has the capacity to dump US debt in a big way, and that would send US rates higher on the long-end. U.S. stocks rallied with Trump pausing the tariffs, yet this was cyclically on point, which our computer had forecast months in advance. People just try to come up with some fundamentals to explain each move in a market, whether true or false. Our computer is projecting that 2025 will be the low in Chinese interest rates both on the 2-year and 30-year.
While stocks rallied, Treasury yields rose so much that lower rates benefited stocks. China has been quietly selling U.S. debt, which began over a year ago. This was not something new out of the blue in response to new tariffs. Bond markets were flashing warning signs based on the hidden risks behind the entire dynamics of trade and geopolitics.
Behind the scenes, U.S. Treasury yields have been rising during the overnight sessions, indicating foreign market selling. Nevertheless, the prospects of war in Europe are reflected in our models, for they do not support a collapse in the bond markets, implying that war will bring still capital inflows.
When we look at the Baltic Freight Index, 2025 was a Double Directional Change, indicating that we would have this trade war. We have a Directional Change in 2026 and a Panic Cycle in 2027, with the culmination of this war extending into 2028. This might also be influenced by the war starting in Europe.
Posted originally on Apr 10, 2025 by Martin Armstrong
There has been ongoing speculation about America’s holdings of foreign gold reserves. Elon Musk’s request to audit Fort Knox pushed the issue into the headlines once more. Now, the new incoming German government is discussing pulling their gold reserves from the New York Fed due to a lack of transparency and the public is asking—where is the gold?
I personally toured the New York Fed many years ago, and while there is gold there, I cannot verify the quantity or quality; no one has ever accomplished such a feat. The last full audit of US gold reserves occurred in 1953 under President Eisenhower. Auditors from the US Treasury and Mint verified domestic and limited foreign-held gold at the New York Fed and Fort Knox. Third-party auditors were not permitted, but there were US Congressional observers. Treasury Secretary George M. Humphrey and Mint Director William H. Brett were in charge of overseeing this audit.
Now, the government declared the audit to be a “full” inspection. However, only 3 of the 22 compartments at Fort Knox were examined, accounting for only 13.6% of gold holdings. Around 88,000 bars (34.4M oz) were meticulously counted, and auditors weighed around 9,000 bars (130 tons). Only 26 gold bars, selected at random, were drilled to confirm purity. Auditors confirmed that US gold certificates matched physical holdings at the New York Fed, but due to limited sampling and a lack of transparency, suspicions rose. “We have no reason to believe other melts would differ [from assay results],” the joint commission stated.
The gold examined was mainly domestic. Germany’s holdings, for example, were not part of the audit. Public confidence in the US government was on the decline at this period amid Cold War secrecy. Around the same time of the audit, the CIA admitted it to Operation Ajax—a covert operation to overthrow Iranian Prime Minister Mohammad Mossadegh and install Shah Mohammad Reza Pahlavi. This was the first time that the US government openly admitted to orchestrating a coup and installing a leader in a foreign nation. How could the public and/or foreign nations trust the US under these conditions?
(Sources: Treasury 1953 Report, Sound Money Defense League, FRASER).
The GAO/Treasury conducted the next audit in 1974, reviewing 21% of gold holdings at Fort Knox. This occurred in the post-Bretton Woods period after Nixon abandoned the gold standard. Again, third-party auditors were not permitted to attend, and this time, auditors did not weigh bars. Some called the September 1974 examination a “show audit” and a publicity stunt as only 1 of the 13 vaults was examined. The “real” audit occurred the following month by a joint GAO-Treasury committee, but as mentioned, only 91,404 bars of 367,500 were examined. Random samples were tested for purity, but there was no assaying or weighing.
Continuing audits were ongoing, and the US government pledged to inspect 10% of its gold holdings annually from 1975 to 1983. As of 1985, the government stated it had audited 89% of its gold holdings, but only through seal verifications and limited sampling. Again, only the US government had access to these vaults.
The matter was ultimately laid to rest until 2012, when US politicians like Ron Paul and foreign governments demanded another audit. Germany was threatening to relocate their US holdings at the time due to a lack of transparency, and had been increasingly calling for an audit in the decades leading up to 2012. To appease doubters, the Treasury OIG conducted another limited audit.
The 2012-2013 NY Fed Audit scope included 34,201 US-owned gold bars (418 tons). Less than 1% (367 bars) were tested for purity. Auditors did not weigh the gold, nor did they conduct a full inventory. All compartments were to remain sealed unless they had reason to suspect tampering. Again, no independent assayers were admitted. Worse, foreign holdings were not inspected. Germany’s gold, for example, was not reviewed but they maintained trust in the US government despite some backlash.
Fast-forward to 2025: DOGE is uncovering government waste and mismanagement and has set its sights on Fort Knox. The US Treasury declared any audit a breach of national security. A true audit of Fort Knox, not including the NY Fed, would take 18-24 months and require 44,000 hours. Foreign governments now have a seemingly plausible reason to point their finger at the US and call “FOUL PLAY!”
Here’s the thing–no nation completely audits its gold holdings. The UAE, for example, implemented mandatory annual audits but only examined 10-20% of its holdings. There is limited transparency as their audits are classified, but they do permit third-party audits and follow London Bullion Market Association (LBMA) standards. Switzerland also follows LBMA standards and conducts regular audits, but auditors only check seals as there is no physical count. Switzerland is far more transparent about its auditing process, but again, they are only looking at a small percentage of overall holdings and not weighing or physically assessing the gold. Any nation could point the finger at another and question the validity of its stockpile.
As for US gold holdings, there have not been any official sales. If anything is missing, then that means it was stolen. However, the media is honing in on the US without understanding that no foreign nation conducts a full audit of their gold holdings. It all comes down to trust in the government, not only the current administration but every administration that has come to pass.
Posted originally on Apr 8, 2025 by Martin Armstrong
Some believe that Donald Trump is deliberately attempting to cause a sharp downturn in equities to force a flight into treasuries. If so, the Federal Reserve would have more of a reason to slash interest rates—Trump’s longstanding desire. Trump has stated that the markets are undergoing an “operation” of sorts, but I would not underestimate his long-term plan here.
Trump openly states that he wants companies to move manufacturing to the US to avoid tariffs. This will also promote domestic trade as companies will seek to avoid levies. US farmers will be incentivized to sell domestically, which could lower the price of groceries much to the pleasure of the American public.
The idea that a decline in the stock market could actually cause a flight into treasuries sounds counterintuitive on the surface, but when you understand how capital flows and confidence operate globally, it makes perfect sense. Capital moves globally and always seeks the safest place to park. Unexperienced and retail traders tend to panic at larger downturns and sell off.
Everything comes down to CONFIDENCE. A downturn in equities could cause a kneejerk reaction into treasuries because people still trust that the government will make good on their payments. Big institutional money began fleeing the public sector for the private sector years ago. What we have seen since the implementation of Trump’s tariffs is a new demand for treasuries.
The 10-year treasury yield dropped from 4.25% in late March 2025 to 4.01% by April 1, while the two-year fell to 3.68%. Billions have fled into the bond market since these tariffs were announced. JPMorgan, for example, said that there is now a 60% risk of a recession and is shifting toward the bond market.
Lowering treasury rates will make homes more affordable by decreasing mortgage rates. Individual nations were fleeing US treasuries, creating a massive risk for an eventual default. Suddenly, at least temporarily, the stock market no longer seems like a safe place to park money. The Trump Administration first showed the world that it was cutting spending and attempting to reduce the deficit. A downturn in rallies DOES NOT guarantee a rally in the bond market, but we are witnessing a short-term flow into treasuries. However, the computer has warned that 2028 will mark a major turning point in confidence where any remaining confidence in government vanishes. For now, we may enjoy a temporary decline in treasury yields due to these tariffs.
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