The Ugly Truth About The Trade War

This article was written by Brandon Smith and originally published at Alt-Market.com.

This past week was an interesting exercise in false expectations and assumptions. Once again, trade war theatrics were used to stall a stock market plunge as insinuations of a possible “deal” were made by Donald Trump, followed by China's claim that maybe, just maybe, they would not immediately issue a new round of tariffs right now, but possibly tomorrow, or in a month...
 

Then, all hell broke loose again when only a few days later both sides jumped into a new round of tariffs leaving markets confused and algo trading computers bewildered, so much so that sometimes they even buy on bad news thinking it's good news. This is the problem with the Pavlovian response mechanism – You train a dog to salivate at the sound of a bell because he thinks he's going to get a treat, but then what if you change the bell, or the treat, or the entire dynamic of the process? The dog's whole world is turned upside down and he curls up in a ball in the corner of the room to make the mental anguish stop.

This is exactly the kind of reaction the globalists are looking for, hence the stop/start insanity of trade discussions, not to mention the dove/hawk behavior of the Federal Reserve. Everything people once thought predictable is being deliberately discombobulated.

Ultimately the circus and the confusion are only products of peoples biases. They want to believe they will get a treat if they act a certain way when certain indicators signal. They want to believe the trade war can be won, or at least that Trump is trying to win. They want to believe that the Fed will save them with a surge of QE. They want to believe that the instability will be smoothed away by the hands of the political and banking elites. But what if the elites have no intention of doing this? What if they WANT an economic crisis?

In terms of the trade war, there are some facts that do not support some of the assumptions out there on either side of the debate. These facts run contrary to the mainstream narrative, as well some narratives within the alternative media. On the conservative side I 'm seeing a kind of artificial patriotic fervor; an organized attempt using memes and propaganda to convince conservatives that the trade war requires mindless fealty to the anti-China message.

First, to be clear, I think China is a despicable communist regime with a record of human rights abuses, but that's what makes it a rather perfect distraction for Americans on the political right.  I'm reminded of the war fever against Iraq after 9/11, and how so many conservatives bought into the very thin claim of Iraqi involvement and the lies about WMDs. We don't like dictators, and we don't like China, but conservatives are being duped into thinking the trade war against China is an ideological crusade that will lead to a better America, or a better world. This is not what the trade war is intended to do.

Let's start with the assumptions (as well as lies and disinformation) surrounding the trade war and then look at the evidence that debunks them...

Fallacy #1: China Is Dependent On The US Consumer

I'm not sure where this idea comes from specifically, but it's not based on anything tangible. I sometimes wonder if the notion that the world depends on the American consumer for its bread and butter is perhaps a kind of appeal to people's narcissism? Making the average American feel superior, or feel special, simply by telling them that their steady debt based consumption keeps the engine of the global economy running.

In the case of China, here are the facts:

The US only comprises around 18% of Chinese exports. While this is a nice piece of the pie, it's hardly enough leverage to bring down China's economy. China would suffer profit losses in certain sectors as well as a recession, but not the kind of crisis that some in the alternative media are predicting.

Around 40% of China's GDP is generated domestically, and 80% of its GDP growth comes from private consumption. For quite some time I have warned that China was shifting its economic model from an export based system to a more self reliant domestic based system, and that this might be an indication of a coming economic war with the US. As it turns out, this is exactly what has happened. Since 2010, China's domestic market has grown dramatically, indicating that China has no intention of relying on the US consumer as an economic pillar.

The US consumer is almost tapped out. While retail sales in certain areas remain steady and this has been used by the mainstream media and the Fed to promote the idea that the economy is still “going strong”, this is not the big picture. The reality is that US consumption is driven by historic levels of debt. Household debt is now FAR above levels last seen after the last financial crisis, with total debt at $1.2 trillion higher today than its last peak in 2008.

The downturn in retail is more obvious in the steady closings of thousands of outlets in 2019 alone. This year has seen a 29% increase in store closings compared to 2018, even though 2018 saw a considerable spike in store shutdowns. Around 12,000 stores are slated to close this year.

So the question is, with the US consumer stretched thin by debt and US retail on the verge of a recessionary plunge, why would China feel threatened by the loss of the American consumer market?  They are losing it already by attrition. The truth is they aren't threatened, which is why, as I predicted last year, the trade war continues unabated despite the fact that so many people argued that China would “quickly fold” to Trump's demands.

I realize this is not what many people want to hear, but it is foolish to get caught up in a farcical mob mentality and ignore the fundamentals in the trade war. If you think that the US is going to “win” based on leverage, you are sorely mistaken.  The US is in no better shape economically than China; in many ways we are much worse off.

Fallacy #2: Manufacturing Will Come Back To The US

This is perhaps the most persistent and fraudulent “carrot” that has been held out to the American people over the years to get them to go along with certain destructive fiscal policies. Whether it be dollar devaluation or a trade war that goes nowhere, the American people are always being told that manufacturing jobs are “right around the corner”.  People buy into it because they desire a return to the golden years of American economic expansion, and there are a number of reasons why this is an absurd fantasy.

First, as it stands now manufacturing in the US makes up only 11% of total economic output. I don't think that many people understand the consequences of this. We have a 70% retail and service based economy, meaning the majority of US citizens in the job market have no experience whatsoever in the manufacturing sector, and the average US company has no guidelines for how to establish a manufacturing base using the American labor pool.

Second, American labor expects a certain level of wage compensation as well as union organization that makes manufacturing far more expensive here than in China or in other parts of the world. The average factory worker in China makes around $3.60 per hour – how exactly would the American market ever compete with this? Tariff's alone are not enough to force corporations to spend the billions necessary to rebuild factories in the US and hire American workers at $15+ an hour. It's just not going to happen.

Third, there are many places besides China to build a manufacturing base. No company is going to bring its factories to the US when they can build in Vietnam, or Taiwan etc. In many cases, it is cheaper to ship raw materials and products to these countries, have them finished by workers in Asia, and then have the items shipped back, than it is to build the product from start to finish in the US.

Fourth, we can talk all day about patriotism, but in the end the average American is not going to buy “Made in USA” for most goods out of a sense of patriotic duty if the price is twice as much or more. Walmart and Amazon dominate the retail market for a reason – they sell things cheap.

Fifth, raising tariffs on foreign exporters would only work to encourage consumption of domestically manufactured goods if the US already had a large manufacturing base and produced all the items other nations produce. Entering into a trade war without a resilient manufacturing sector is backwards. You don't fight a trade war to get manufacturing to come back, you fight a trade war to promote the goods you already manufacture.

If Trump had really intended to bring factories back to the US, he should have given corporations tax break incentives in exchange for creating manufacturing jobs on US soil. Instead, he gave corporations tax break incentives for nothing.

Fallacy #3: China Will Starve Without American Agricultural Products

Uh, no. This is a very weird argument. It's as if some people assume that the US is China's only potential source for food. China buys agricultural products from all over the world, and has alternative sources for foods like soybeans and pork, including Brazil, Mexico and Russia.

Prices will rise in China, sure, but nowhere near the point of collapse. Again, the Chinese are not reliant on the US for anything, so, the idea that the US has overt leverage in the trade war is simply not true.

Fallacy #4: The World Will Side With The US Over China

This is a prime question – would the world choose the US consumer base or China's cheap export market if they had to pick only one? As noted earlier, the US consumer is nearly tapped out. China has the largest import/export market in the world. The US has little manufacturing to speak of. I also question the validity of the idea that Europe or most other nations have loyalty to American markets.

Think about it; do they really? Do they see us as indispensable? Or is the rest of the world being sent on a path towards globalism while the US is being made to look like a barbaric and archaic throwback, a Neanderthal man that is desperately clinging to power and is willing to drag everyone else down with him if he doesn't get his way?

Many in the liberty movement understand that this is not the case. We know that the globalists have sabotaged this country from within, and we know that they are using Trump as controlled opposition and a useful puppet in this task. But the majority of the rest of the world does NOT understand this. If there is an economic crash which sends shockwaves through multiple economies, the trade war will most likely be blamed along with Trump and his “populist” supporters. The rest of the world will see us as the villains, because they do not understand the nature of 4^th Generation Warfare, nor do they understand the globalists strategy of “order out of chaos”.

The narrative that has been pushed in the mainstream is that China is the victim of US aggression, and that the trade war and the economic crisis are purely a product of Trump's madness. Who do you honestly think the world will eventually side with?

Fallacy #5:  The Trade War Will Be Over Soon

We've been hearing this for well over a year and a half now.  Trade wars are "easy to win", right?  Every couple of months the trade war deal hype is recycled and every couple of months the markets are hit with renewed disappointment.  The latest trade talks are set for October and if they happen at all, it is unlikely they will result in anything of significance.  At most, they will be heralded as the "start of a great deal" and both sides will claim "progress was made", and then, once again, nothing will happen and the conflict will accelerate.  You would think people would have figured it out by now, but the investment world learns very slowly and functions solely on blind hope.  At the very least, economic analysts are starting to realize that no deal is coming and that the situation is only going to get more tense.  In fact, it is designed to get more tense.

Fallacy #6: The US Dollar Is Untouchable 

This claim revolves mainly around the idea that because the US dollar is the world reserve currency, the US has the upper hand in trade negotiations and the rest of the world will follow the currency leader because there “is no other option”. I disagree.

As Bank of England governor Mark Carney has openly admitted, the plan is to replace the dollar as the world reserve currency anyway. How? Well with a global cryptocurrency, of course, just as I warned about in my article 'The Globalist One World Currency Will Look A Lot Like Bitcoin'.
Carney's mention of Bitcoin and Facebook's Libra as models for this currency system seems to have confused some people. Carney did NOT say that Libra should be the next world reserve currency. He said that the next world reserve currency will look LIKE Libra. But how do the elites plan to institute such a monetary system and force people to go along with a cashless society?

They need a massive crash event, and they need the US dollar to go the way of the dodo. It seems rather convenient to me that China has been preparing for just such an event. While many analysts point out that China has generated intense amounts of debt over the past decade, they seem to forget that this was a requirement in order for China to attach the Yuan to the IMF's Special Drawing Rights basket, which is the foundation for a global currency mechanism.  Chinese economic officials and the globalist both argue that the current monetary system, based on a single national currency (the dollar) as the world reserve is inherently unstable.

Their solution?  A basket of currencies monitored by the IMF, followed by a single digital currency mechanism.  I would note that China and the globalists have consistently hinted that a major economic crisis event will act as a catalyst for this "reset" in the world monetary order, and that the dollar must be replaced in the process.

China has also been stockpiling large amounts of gold for the past decade. This would indicate they are expecting a monetary devaluation event, most specifically in the dollar.  It's as if they know something the rest of us only suspect.

The trade war is the perfect cover for the collapse of the US dollar that the globalists desire. While some people suggest that China's dumping of US treasuries is the “nuclear option” in the trade war, this is not exactly true. The REAL nuclear option is for China to dump the US dollar as the reserve trade mechanism and go to a basket of currencies, which the IMF will happily aid them with. As the largest exporter/importer in the world, China can drop the dollar and most of their trading partners will follow their lead. The US economy would crumble in response, as the dollar is the only thread holding our system together.

This is the ugly truth behind the trade war. It is nothing more than a farce, a smoke and mirrors distraction leading up the the dismantling of the US dollar and paving the way for the globalist one world digital currency system. Whether or not the plan succeeds relies on ample resistance from people who see the danger ahead, but make no mistake, the globalists are not afraid of an economic crash or the decline of the dollar; they WANT these things to happen so they can establish even more centralized control.