China Can’t Kowtow to Trump’s Fentanyl Fuelled | Australian Markets

There’s just one option to put this. I’m scared. And no person else appears to care about why…

However I’ll attempt to let you know anyway.

The risk of a severe and extreme trade warfare is dramatically increased than markets are pricing in. And Australia’s economic system and financial markets are most at risk if it kicks off.

I’m sorry if that’s obscure or complicated. I do know it doesn’t gel with what’s within the news proper now…

Markets are in restoration mode. Trump’s fairly boisterous negotiation techniques have labored brilliantly in opposition to Colombia, Mexico and Canada.

He threatened them with tariffs. And within hours, they folded like a home of playing cards.

Increase.

Absolutely this proves that Trump’s tariff threats are simply a (profitable) negotiating strategy? A option to crack geopolitical nuts by throwing America’s financial weight round.

Not many international locations’ economies can survive being cut off from the mighty American shopper. So they’re pressured to offer Trump what he needs when he threatens to tariff their items.

The Colombians agreed to take their unlawful immigrants back as a result of they need to promote People huge portions of long-stemmed Valentines’ Day roses.

The Mexicans and Canadians agreed to stem the movement of fentanyl into the US as a result of they need somebody do drink their tequila and maple syrup.

Trump’s threats labored. America gained. Job achieved. The stock market’s back up. Easy.

Possibly.

Hopefully.

However, like I mentioned, I’m terrified we’re on the cusp of this strategy backfiring spectacularly the subsequent time it’s tried.

In a particular manner which might sink the Aussie greenback to new lows, undermine the ASX200 back to pandemic ranges and ship the Aussie property market into meltdown.

China gained’t roll over so simply

To date, no person has truly referred to as Trump’s bluff…to search out out whether or not he’s bluffing in any respect. Possibly he actually could be keen to observe via with tariffs and set off a trade warfare?

I think we’re going to search out out the onerous manner. As a result of I don’t suppose China is probably going to offer in as simply as Colombia, Mexico and Canada did.

The rationale why is one thing only a few people perceive. And I’m nervous Trump himself is in for a very huge shock.

You see, Trump’s threats to tariff China are additionally justified by fentanyl. Right here’s what he posted this on the social media web site Reality Social in November final 12 months:

‘I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States – But to no avail.

‘Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our Country, mostly through Mexico, at levels never seen before.

‘Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America. Thank you for your attention to this matter.’

He does have a level, too. The fentanyl challenge is wreaking excessive havoc within the US in all types of manner. However that’s one other story.

Right this moment, think about what Trump’s tariffs on China appear to be from their perspective. As a result of it’s China’s response to Trump’s fentanyl fuelled tariff threats that I’m so nervous about.

Hypocrisy doesn’t fairly cowl it

To say that opioids like fentanyl are a uncooked nerve for the Chinese language could be the understatement of the final two centuries.

Certainly, the Chinese language blame opioids for what they call their ‘Century of Humiliation’. And that mess doubtless set the scene for China’s subsequent years of even more disastrous isolationist coverage below the Communists.

The Century of Humiliation started in 1839 when foreigners successfully ruled China by gunboat diplomacy.

Every time the Chinese language tried to start out a trade warfare by expelling the foreigners and their items, the British Royal Navy would sail their warships up numerous rivers, proper into the center of Chinese language cities. There they’d open their gun ports, ‘out tompians’ and wait politely for the give up to get delivered.

The destruction of forts and delivery left of their wake was enough to make native mandarins and emperors alike kowtow fast good and permit overseas items.

What items?

Opium.

Sure, historical past is rhyming.

Not the primary Western hegemonic empire with
a trade deficit with China

Within the 1800s, the British have been shopping for a lot tea from China that they’d a extreme trade deficit. That was partially attributable to China banning overseas items.

The Chinese language solely accepted silver as fee for tea. The silver drain quickly acquired out of hand, inflicting a currency scarcity within the British empire. And so the Brits got here up with a plan. They’d get the Chinese language hooked on smoking India’s opium to rebalance trade.

It labored so nicely that China’s economic system and social concord fell aside below waves of addicts. However every time the Chinese language tried to stem the movement, the Royal Navy politely satisfied them in any other case.

British sailors acquired so sick of having to journey to China to guard the opium trade that they demanded their own harbour. A spot we now call Hong Kong.

Today, the roles have partially reversed. The Chinese language are giving the West a style of their own drugs…actually. The Chinese language are busy promoting huge quantities of smuggled fentanyl into the US. They’re additionally partaking in different trade warfare practices with their subsidies, tariffs, quotas and exchange charge manipulation.

When all you may have is a hammer,
you don’t spot the uncooked nerve

Trump utilizing the fentanyl trade as his excuse to crack China’s protectionist nut isn’t simply awkward. It’s so full of historic allusions that China’s leaders merely gained’t be capable of give in like Colombia, Mexico and Canada’s did.

If President Trump tries to pursue a trade warfare with China over fentanyl, he’ll uncover the Chinese language have a long reminiscence and know how to reveal a grudge.

For China, an settlement with Trump caused by opioid diplomacy could be whole and utter humiliation. An admission that one other Century of Humiliation has begun…or it by no means ended.

Trump is about to slam into the trade warfare foe who can not back down for loss of face. And he most likely doesn’t comprehend it.

He’s anticipating China to fold just like the Colombians, Mexicans and Canadians did.

As an alternative, there might be a surprising and stunning retaliation from China that doesn’t merely unwind over the course of a weekend. It’ll stick. And escalate, on each side. As a result of the Chinese language will really feel like he’s making an attempt to humiliate them.

The plunge in shares this week was simply an appetiser.

What does this need to do with us?

Nicely, Australia will depend on China’s integration into the worldwide economic system. Our exports to China are bigger than the subsequent seven international locations mixed.

Most of that is sources based mostly – a key section of our economic system and trade stability. Which implies the Aussie greenback is in even more hassle if China and the US get into a trade warfare.

Chinese language demand additionally bids up our property market. Funnily enough, with a lot of money that must be laundered from the fentanyl trade…

And our flesh pressers depend on Chinese language money to pay for his or her luxuries on campaigns.

We discovered during the pandemic what occurs whenever you poke the dragon. Australia led the worldwide group in demanding more details about the plight of the Uighurs in Xinjiang and the origins of COVID-19.

We acquired sanctioned for it. Affected shares fell.

I believe it’s time to arrange for spherical two. And it’ll be far, far worse.

One of the best escapes for buyers? Gold.

And doubtlessly this slim section of the gold miner market.

Regards,

Nick Hubble,
Editor, Strategic Intelligence Australia