On Threat of Tariff

President Trump warned that he would levy tariffs, and he has done just that.  Colombia refused to accept repatriated Colombians.  Have a tariff.  Canada and Mexico aren't securing their borders with the US.  Tariff.  China is still enabling the Fentanyl trade.  Tariff.

Though Trump has claimed that these countries would be paying into the US treasury with these tariffs, that is looking at the tariff backwards.  If Canada was selling widgets in the US for $10, but now they are $12.50 thanks to the tariff, who is paying the extra $2.50?  Well, the customer.  That would be the American who chose to buy the Canadian widget despite the price increase.  So, does this just make the tariff self-defeating?  No.  Widget buyers in American will now be more likely to buy American widgets or maybe Italian or German widgets, which are now cheaper than the Canadian widget.  Overall, the number of widgets - and other products - that Canada sells in the US will drop.  The higher the tariff goes, the greater the fall in sales of Canadian goods.

Let's look at the big picture.  Canada exports approximately $500 billion in goods to the USA, while the US sends about $450 billion to Canada.  Now, that $500 billion accounts for almost one quarter of the Canadian economy.  By contrast, the $450 billion is only 2% of the US economy.  Who has leverage here?  A trade war between the US and Canada will be devastating for one and barely an inconvenience to the other.

How about Mexico?  Mexico exports $493 billion to the US while importing only $362 billion from the US.  That means 35% of the Mexican economy counts on US trade while less than 2% of the US economy depends on exports to Mexico.  Which party should be more eager to prevent an interruption in the status quo?

Many countries have based their economies on selling to the US, because the US is the biggest economy.  Being on the receiving end of a trade war with the US will be a heavy blow to their economies.  The tariff is not meant to be implemented long term.  It is a negotiation tool that encourages our trade partners to implement our preferred policies.

TikTok

For those who don't know, TikTok is a social media platform that offers short videos.  It is like YouTube for people with short attention spans.  Currently, the US Congress is discussing what to do about TikTok.  Why?  TikTok is a Chinese company and therefore, like all Chinese companies, it is a pawn of the Chinese Communist Party.  As such, there are several concerns regarding TikTok in the United States.

First, user data is at risk.  The Chinese could easily acquire all the data that TikTok collects on those who have downloaded the app.  The story of data breaches at various companies is an old one, but in the case of TikTok it isn't so much a breach as a free exchange to the Chinese government.  How risky is this?  Is some arm of the Chinese government going to open a credit card in the name of some Zoomer?  Unlikely.

Second, the app could be used to spy.  There has long been an issue with apps that virtually take over the phone and thus allow others to listen in or even watch via the microphone and camera.  There is also location data, various other apps, and so forth.  As this is an app produced by a rival global power, it might be best to limit its use in the United States.

Lastly and most importantly, it is foreign propaganda.  Through algorithms, TikTok can emphasize certain messages and suppress others.  For example, criticism of Xi Jinping or the Uyghur genocide has been censored.  Here is a social media platform that is tremendously popular among youth, who are also the easiest to brainwash.  That is probably not a coincidence.

Many countries have already banned TikTok to some degree.  The Anglosphere (England, US, Canada, New Zealand) has banned it from government devices, which addresses point two, at least as far as national security is concerned.  Also of note, TikTok is unavailable in China!  They have a walled garden version called Douyin.  Therefore, China has very strong control over what is available to Chinese citizens and can present completely different content to the foreign audience.

There is no easy or obvious solution to TikTok.  The US First Amendment is anti-censorship (though that view is fading fast).  Here is another case where a foreign adversary is using our values against us.  On the other hand, recent studies (take with a fistful of salt) indicate that social media is a mental health risk, especially for young people.  There is talk of treating social media like cigarettes or alcohol.  Maybe we need a rating system, like we have for movies.  As with most congressional hearings, I expect it to result in nothing at all.

China's Economic Crisis

In 2008, the United States saw a collapse of the real estate market.  Mortgages, which had long been very reliable loans, had been innovated with various market instruments so that they became far less reliable.  All was fine as long as housing prices kept skyrocketing.  Of course, they didn't.  Foreclosures swept the lands and some big companies folded.  However, the houses existed and could be sold by the banks.  The former owners took a hit on their credit scores but were no longer stuck paying a mortgage they couldn't afford.  It took several years, but the economy recovered.

Today, China is seeing the start of their housing collapse.  Throughout the country, citizens have long invested in real estate as the only safe investment.  Somewhere around 70% of all savings goes into real estate.  A little more diversity might have been wise, but the Chinese have been burned by their stock market.  Unlike in the US, the houses on which the citizens are paying mortgages do not necessarily exist.  While the prices were soaring, the builders would sell prospective houses to citizens and then use the money to buy more land where they could promise more buildings.  They would sell these to yet more citizens.  The buildings might be begun but have often not been completed.  Recently, mortgage payers have declared that they will stop paying unless the building resumes.  Evergrande, a major player in the Chinese real estate market, has claimed the unbuilt houses as collateral to secure further loans.  Of course, the non-existing buildings belong to the mortgage payers, not Evergrande.  Shenanigans!  When it collapses, there will be little property to liquidate.  The house of cards that China has built is enormous, dwarfing our 2008 disaster.

On top of this internal catastrophe, China's Belt & Road Initiative is at risk.  It has offered vast sums to other countries in loans to build infrastructure and secure trade partners.  Many of these loans are not performing as hoped (e.g., Sri Lanka's recent meltdown).  Some of the infrastructure is useful (e.g., ports, railways, etc.) but some is purely symbolic (e.g., Lotus Tower in Sri Lanka).  The point of the loans for China should be to increase the income back to China; this is not currently the case.

Given this, China is approaching a crisis that could threaten the government.  It is possible that the government would start a war to divert the populace.  Taiwan beware.

Dossier Refuted, Laptop Confirmed

Before Trump was inaugurated, the Steele Dossier was published with many accusations that claimed Trump colluded with Russia to get elected.  He was a puppet of Putin.  Of course, of the last 4 presidents, it was only during Trump's term that Putin didn't invade another country.  Odd that he missed that obvious opportunity.  Of course, it was eventually discovered that Christopher Steele - a British Spy - had gleaned all his information from Russians at the behest of the Clinton Campaign.  None of the supposed kompramat was ever produced.  The Mueller Report offered a variety of 'obstruction of justice' accusations against the president that were so pathetic that the Congress couldn't muster an impeachment for them.  However, the Russian Collusion story lasted the entirety of Trump's term and the walls were forever closing in.  The media could not get enough of it.  In the end, it was a nothingburger.

In the days before the 2020 election, big news appeared in the New York Post: Hunter Biden's laptop showed that he had used his father's connections as Vice-President to secure jobs and financial deals with various foreign companies.  He received $3.5 million from a Russian oligarch, a $50K/month position with Burisma in Ukraine, and a multimillion dollar deal with China.  Then there were the pictures of Hunter with a crackpipe.  In response to this breaking news, NYP was banned from Twitter.  Media outlets across the board announced that it was Russian Disinformation.  During one of the presidential debates, Joe Biden declared that it had been debunked.  Now, 17 months later, the New York Times has admitted that the laptop was Hunter Biden's.  Emails found on it have been confirmed and have been useful in a tax investigation.

The media had the Steele Dossier prior to the 2016 election but could confirm none of it.  No one published it.  However, when James Comey mentioned it to President Trump, now it was valid news.  Buzzfeed rushed to publish and the feeding frenzy began.  By that precedent, one would think a similar attitude would apply to a laptop that had far better provenance than the dossier.  Nope.  The media had a demonstrated animosity toward Trump and a story that might torpedo Biden would lead to a second Trump term.  Better to bury the story until Biden could be elected.

The Space Powers

As of now, only three countries are capable of putting astronauts in space: USA, Russia, and China.  For the last 20 years, the USA and Russia have been more or less allies in space, jointly maintaining the International Space Station (ISS) and providing rides for astronauts of other countries to that station.  Fron the retirement of the Space Shuttle (2011) until the introduction of the SpaceX Crew Dragon (2020), Russia launched all crews to the station.  China is the newcomer in space and has made impressive progress.  While the ISS is nearing retirement (perhaps sooner than expected considering current politics), China has begun assembling a competing space station.

That brings us to Ukraine.  Is it in the best interest of the United States to drive Russia toward an alliance with China?  With both an economy and a population that is ten times the size of Russia's, China is the greater challenge in the future.  Space dominance will be very important sooner than we realize.  If two of the three space powers align against the 3rd, that could be decisive.  This is especially so when one looks at the lack of alternatives the US currently has: SpaceX or Bust.

As noted in an earlier blog, NATO has been pressing Russia since the fall of the Soviet Union.  The US has trained Ukrainians and provided weapons.  This constant encroachment signaled that the Cold War was still being fought and NATO was stealing marches on the Russians by annexing more and more of the former Warsaw Pact, ever diminishing the sphere of influence of the once great power.  If the roles were reversed and the Warsaw Pact was training Mexican troops, providing them with arms, and calling for Mexico to join the Pact, it is a certainty that the US would invade and give Mexico a smackdown; we've done it more than once already.

We have pursued a foreign policy that is not in our interests.  Though a nation should have the option of choosing its allies, that doesn't always work in a multipolar world.  Hong Kong would surely have preferred to remain in the British Empire and Cuba wanted to be a Soviet satellite.  Each was denied.  Though we may argue that Ukraine should have the right to join NATO, the result is conflict that could escalate to World War III.  That is certainly not in anyone's interest.

It should be noted that World War II was triggered when Germany and the Soviet Union invaded Poland.  Britain and France declared war to free Poland.  At the conclusion of the war, Russia retained the whole of Poland.  Everyone was war weary and abandoned Poland - and most of Eastern Europe - to a half century of tyranny.  Yes, it was absolutely unfair to those nations, but the alternative was considered worse.  Is defending Ukraine worth the costs?  We didn't intervene to this degree when Russia invaded Chechnya.  We didn't do much when Russia carved out a chunk of Georgia.  We didn't risk war when Russia claimed Crimea.  Why now?

If we could abandon Ukraine in order to keep Russia out of an alliance with China, would that be a good trade?  Would it be appeasement or realpolitik?  I tend toward the later position.

The Coming Chinese Famine?

When the good times were rolling in the real estate market in China, the government often displaced farmers in order to give the land to developers.  Many of the ghost cities have been built upon once arable land.  The amount of arable land in China has shrunk dramatically in recent years.  For a country with 1.4 billion people to feed, maintaining farmland seems like a sensible idea.  With approximately 4x the population of the United States, it has less arable land.  China is a food importer and has been stock piling food recently.  China has almost 70% of the world's corn reserves, 60% of the rice, and 51% of the wheat.  China has ad campaigns about cleaning your plate and has banned food channels on social media that waste food.  Recent massive flooding has not been good for the harvest.  Well, government numbers show it is great, but who trusts such news from China?

ADVChina discussed this topic recently as well.  In their travels throughout China, Winston and Matthew went to some rice fields and found reckless use of pesticides.  In the upcoming Olympics, athletes have been warned not to eat local food as it could result in a failed drug test.  Ground water contamination is extremely bad (80 to 90%, depending on rural or urban).  Those with money have their food imported.

China has suffered a disastrous famine in living memory.  The Great Chinese Famine (1959-61) saw anywhere from 15 million to 55 million die of starvation.  This was not a matter of bad weather.  It was Mao Zedong's implementation of the Great Leap Forward, which included a variety of destructive policies.  One of the most noteworthy was the successful effort to kill birds, presuming that birds had a large impact on grain harvest.  Indeed they did, but in the opposite way predicted.  When the birds were exterminated, the locust populations - which birds eat - thrived and devoured the harvests.  Many Chinese were told to make iron and steel rather than farm.  And then there were the farming techniques imported from Russia, which only a couple decades earlier had starved 4 to 7 million Ukrainians in the Holodomor.

That the Chinese government might once again inflict a famine on its population through bad policies is not hard to believe.

China's Ghost Cities

A few years ago, I watched a video by a couple of guys on a channel called ADVChina.  They were touring a building and poking fun at the poor workmanship and declaring that this was quite common.  Winston had moved to China from South Africa while Matthew was from the United States.  Both found jobs as language teachers.  They both had an interest in motorcycles and touring the country, which led to their channel.  Both fled China in 2019, which coincided with the Hong Kong crackdown.

Here is a recently reposted video that provides some on-the-ground evidence that China has a serious real estate bubble that is popping.

If that looks interesting, check out some of their other videos.  Each spent more than a decade in China and married Chinese women before returning to the West.  Here are Chinese-speakers who can untangle the cultural differences.  In addition to their combined channel, Winston has an individual vlog as serpentza and Matthew has laowhy86.  Highly recommended for an inside look at China.

China's Coming Collapse

I have read articles and watched programs that declared China was headed for disaster.  However, to look at the news, one would conclude that China is on the brink of being the lead economy of the world and likely to replace the US as the top superpower.  I follow the space industry fairly closely and China is proving to be more energetic than NASA or the ESA.  If not for SpaceX, there is no question that China would be winning the current space race.  Are rumors of impeding doom just wishful thinking from envious competitors or is there something to it?  Here's an interesting take:

This does sound grim.  Has China trod the same path that Japan took 30 years ago?  Will their housing bubble be more destructive than ours from 2008?  As China has tended more and more toward a totalitarian state in recent years (e.g. Uigur concentration camps, Hong Kong takeover), I would not be unhappy for it to crumble.  Unfortunately, China will take the world down too, much as the USA did in 2008.

Threat Vector

President Wei Zhen Lin is about to commit suicide rather than suffer a humiliating arrest and show trial.  China is suffering hard times and he is about to be the fall guy.  To his surprise, Chairman Su of the military takes his side, thus saving his presidency.  Though grateful, Wei knows this means he is beholden to Su and Su would rather use the military than the economy to conquer.  Wei acquiesces.  Su intends to absorb Hong Kong and Taiwan and also seize supremacy of the South China Sea.  Obviously, the United States and President Jack Ryan will oppose this but Su has a strategy.  Of course, China can't compete with the US military but it has cyberwar supremacy.  Its hackers can hijack drones and read CIA communiques.

Meanwhile, the Campus - a secret off-the-books intelligence agency established by President Ryan - has been investigating a hacking group led by a figure named Center.  Center has almost omniscient knowledge and appears capable of hacking every computer system.  Is Center somehow related to the hacking of US drones?  Can the Campus counter the hackers before the tensions between the US and China escalate to full scale war?

The story is told from a variety of perspectives.  There is Jack Ryan Jr, who works as an agent and analyst at the Campus.  There is his father, President Ryan, who tries to navigate the rising hostility of China while being hamstrung by failing technology and devastating cyber attacks.  There is Velentin Kovalenko, an ex-Russian Intelligence officer, who has been forcibly recruited by the mysterious Center.  Adam Yao is a CIA agent in Hong Kong who avoids reporting his movements to Langley because there is a leak that has decimated most intelligence assets in China.  Marine Pilot Brandon "Trash" White finds himself dogfighting Chinese fighters in the Taiwan Straight as the situation escalates.

This is a surprisingly good book and a bit scary.  Written in 2012, it is odd to see China cracking down on Hong Kong and making moves to secure the South China Sea.  That's currently happening.  Huh.  Of course, I had seen several Jack Ryan movies but it was quite a surprise to find that he is now President and his son is the spy.  The book digs into the technology, be it computers, F/A-18C Hornets, or ship-killing missiles.

Thumbs up!

The Sino-American Trade War

There is much panic about a coming trade war with China.  However, China will benefit the faster it can cut a deal with President Trump.  How is that?  The US exports to China $170 billion but imports $479 billion.  That $479 billion (jobs in China) represents just over 4% of the Chinese economy while the $170 billion (jobs in the US) is just shy of 1% of the US economy.  If trade came to a screeching halt (which will not happen), China would take the bigger hit.  This is not to defend tariffs and trade wars but the US has more leverage than the press is reporting.

 

Mostly, the imbalance of trade is our fault.  By increasing the cost of manufacturing in the United States through expensive regulation, foreign countries can easily undercut us.  Scale back the cost of regulations so that they are less than the transportation cost of importing goods and you will see a return of manufacturing to the US.  It isn't rocket science.  If it costs $10 to manufacture a widget on the north side of the Rio Grande and only $5 to manufacture it on the south side, manufacturing will move to the south side as long as importation costs are less than $5.  It's good business.

 

Adversaries of the United States use our belief in free trade against us in much the same way that Islamic terrorists uses our belief in Freedom of Religion against us.  China doesn't believe in free trade any more than Islam believes in Freedom of Religion.  China strikes trade deals that are to their benefit while the US has struck deals that meet an ideal free trade principal that doesn't work as a one-way street.

 

Those who hearken back to the Smoot-Hawley Tariff that exacerbated the Great Depression are comparing apples and oranges.  The depression had already begun when Smoot-Hawley passed whereas the current economy is expanding.  Of course, this trade war is not going to be fully engaged because it will be more damaging to China than to the US.  Trump is renowned for shorting employees and getting high-quality goods on the cheap.  He's like the real life version of William Shatner's Price Line Negotiator.

Cold War, Part 2?

With the ejection of diplomats/spies in the United States and Russia, there is talk that we are entering a new Cold War.  Unlikely.  Sure, we may not have the best of relations but the US is the world's number 1 economy and Russia ranks about 12th at a paltry 7% of the US economy.  California alone has an economy twice the size of Russia.  Economically, Russia is to the US what Slovakia is to Russia.  South Korea has a bigger economy than Russia!  Embarrassing.  Coal and Petroleum are the big exports for Russia and US fracking has depressed prices.  When ANWR starts producing, the oil market is going to be even more competitive.  We can economically hamstring Russia just by drilling for oil here.  Win-win!  As far as population, Russia is suffering a decline in population and has only 45% as many people as the US.  What about allies?  The US could count on the majority of the EU, Japan, South Korea, India, and probably most of the former Soviet Republics.  Russia can look forward to support from Syria and Iran.  China might adopt Russia as the new North Korea but wouldn't commit itself.  The breakup of the Soviet Union left Russia as a far less formidable country.

 

Putin benefits from memories of the Soviet days and makes great use of the memories of the former super power.

Credible Threat of Force

Diplomacy is toothless without the credible threat of force.  In the Korean Peninsula, the North Koreans have used a credible threat of force to milk concessions out of its neighbors and the United States for decades.  The provocations are plentiful: nuclear detonations, missiles fired into the Sea of Japan, capture of the USS Pueblo, shelling of South Korean islands, sinking South Korean ship, and so on.  Each of these were acts of war but no one really wanted to restart the Korean War.  It has long been easier to just pay the 'ransom' and kick that can down the road.

Trump has decided to try another tactic.  First, he has countered with a credible threat of force.  In the wake of his Syrian attack, his credibility on red lines is much stronger than his predecessor.  Moreover, Trump is using Taiwan as a means of pressuring China to in turn pressure North Korea.  Without Chinese support, North Korea would be in dire straits.  Secretary of State Tillerson has noted that nothing is off the table, including making Japan and South Korea nuclear powers.  The stakes have been raised.

 

By leaving the war card on the table, Trump has a better bargaining position than his multiple predecessors.  Yes, it is brinksmanship but the appeasement strategy has only made North Korea more dangerous.  Is the North Korean regime rational?  War is suicide.  However, Trump is unlikely to initiate a war but might jump at a provocation, like he did with the gas attack in Syria.

 

Amazingly, I am reminded of an episode of Star Trek: A Taste of Armageddon.  In the episode, the warring people of two planets had done away with most of the destructive and uncivilized aspects of war, making it fairly tolerable.  The only issue was that some citizens had to report to disintegration booths if they were selected as a casualty.  Kirk destroyed the computer that simulated the war and now real bombs would have to drop.  Real consequences are on the table and real negotiations may occur.

 

If Trump's efforts here follow the pattern of all previous presidents, North Korea will get some sort of pay off while offering empty and unenforceable promises to stop nuclear development and the can will be kicked further down the road.  However, that could be preferable to a regional war that may see a nuclear attack by a desperate North Korean regime.  Of course, use of a nuke assures the total annihilation of the North Korean regime.

Follow Your Logic, Chuck

I heard this clip on the radio while driving home today.  Senator Schumer blasts President Trump for doing 'virtually nothing' on trade relations with China and therefore looking like a '98-Pound Weakling.'  On the surface, that seems like a scathing criticism of the president, an effort to hold Trump accountable for his campaign promises.  However, there is another message that Senator Schumer has unwittingly given:

1. China is cleaning our clock, a claim that Schumer accepts.

2. Trump has done 'virtually nothing.'

3. Schumer believes that presidents can modify US Trade policy.

4. If Trump has done nothing, existing policies are unchanged.

5. The existing policies are those of President Obama.

6. Therefore, Senator Schumer is calling President Obama a 98-Pound Weakling.

 

Amazingly, I agree with Chuck Schumer!  Next, Senator Schumer will blame President Trump for the $20 trillion debt.

One China Policy

I've seen a couple of reports on how Trump agreed to honor the One China policy during a phone conversation with President Xi.  The tone of the story is that Trump's a chump, a novice, and a dope who has been set straight by people who understand international relations.  The man who is famed for The Art of the Deal was rolled.  Not buying it.  Trump got something for that concession.  To be totally cynically, he might have been guaranteed a great plot of land in Beijing for a future Trump hotel but there was a quid pro quo.  To give an example, it took decades before we learned that JFK agreed to dismantle US missiles in Turkey to resolve the Cuban Missile Crisis.  The Cuban Missile Crisis was a Russian victory, where they gave up something they didn't have in exchange for something we had already deployed.  What did Xi give up to solidify the One China policy?