China Is Checkmated and Trump Is a Genius
The commonly accepted narrative about tariffs and trade wars as driven the main stock indices lowers in recent weeks but the narrative is false in its entirety and is creating a fantastic buying opportunity for US equities.
The reality is that trade wars present asymmetrical risks and opportunities for external debtor and external creditor countries. For debtor countries in a trade war there is an opportunity to liquidate unsustainable debt burdens and emerge into a stronger position absent the external debt. For creditor countries in a trade war there is nothing but bad risks and a possible deflationary investment collapse.
The last historical example of a major trade happened in the 1930s at the outset of the Great Depression. At that time the US was the major creditor country in trade and Great Britain was one of major debtor countries . The fate of the two countries in that trade is highly instructive for the situation today as it exists between the US and China.
Great Britain effectively repudiated most of its external trade debt an retreated behind its own tariff wall which was known at that tine of the policy "imperial preferences" . The imperial preferences policy gave trade advantages to other members of Great Britain's empire. The imperial preferences policy allowed the British economy to remain strong throughout the Great Depression.
The US, by contrast, endured a ruinous asset deflation as investments which exported to other countries were no longer viable and had to be written off as complete losses. This situation lead to a cascade of business and banking failures which caused sub-standard performance for the US economy until the start of World War II .
Today the US in in the role of Great Britain in the 1930s and China is in same role as the US in the 1930s as the chief creditor country. The US holds all the favorable cards in this trade as China will have to risk a deflationary collapse the longer the trade war continues.
China may attempt to wait out Trump but their situation will become more dire as the months roll on.
https://www.americanthinker.com/blog/2018/07/the_chinese_think_trump_is_a_genius.html