What The US-China Trade War Is Really About: Ideology

The Australian Financial Review has a headline today that comes straight from the mouth of captain obvious: ‘Trump’s trade war threatens resources boom’.

Thanks for the heads up…

It’s in response to BHP reporting its full year results yesterday. The stock price initially fell on the news, but a strong overall market dragged the mining bellwether back into the green for the day.

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The gist of the Fin Review article is that this is as good as it gets for BHP:

BHP’s confirmation of a sturdy 2019 profit and a record final dividend has landed with fair warning that a three-year-long resources boom that has swelled the coffers of shareholders and nation alike could well be snuffed out by Donald Trump’s trade war with China.

The message delivered with BHP’s full-year profit by an otherwise relentlessly positive chief executive, Andrew Mackenzie, was that President Trump’s coalition of political populism and market protectionism has started to hurt more than just global sentiment and its unsettling effect on trade flows and commodities prices will likely mean that, at a headline financial level at least, these 2019 results could prove a high water mark.

I agree. In my view, the bull run for BHP is coming to an end.

But there is something much bigger going on here. Journalists love to frame the US-China trade war as ‘Trump’s’. It is simply a result of ‘populism’ and ‘protectionism’.

This is flat out wrong. In the age of Trump, journalists everywhere have a bad case of TDS (Trump Derangement Syndrome), which makes it impossible for them to see the real issues.

The Reality of the Trade War

And the real issue here is that the US-China trade war is not really about trade. It’s about ideology. It’s about communism versus capitalism.

Because universities are now leftist institutions, the majority of journo’s these days tend to write about China and communism with sympathy. Their contempt for capitalism is obvious.

This is dangerous, because it fails to portray China as it really is. That is, a communist dictatorship trying to cheat and steal its way to economic dominance.

As I’ve said before, China gained entry into the World Trade Organisation on the proviso it would open up its economy and liberalise trade. It didn’t. Instead, it engaged in protectionist policies to amass trillions of dollars in foreign exchange reserves via trade surpluses.

It did so, in part, by trashing its environment and exploiting its workers. The US and other developed nations simply couldn’t compete. Sure, consumers in the West got cheap running shoes, toasters, and computers.

And as Chinese savings were recycled back into the US bond market and interest rates went down, we didn’t notice that it resulted in house prices going up so much that we had to take on mountains of debt to afford one.

But don’t worry. Have you got the latest iPhone?

And thanks to the technological supply chain moving to China too, the communists got to see how advanced technology works. And they stole it.

Now, the Trump administration has said enough is enough. They don’t believe the US should assist the rise of a communist nation.

Hence the trade war. It might be leading to a weakening global economy and wobbly stock markets, but Trump realises it’s in the best interests of the US (and her allies) over the long term.

Another piece from the Fin Review today reports on this issue. I hope you can get past the mild case of TDS coming through in the select quotes below:

A defiant Donald Trump has issued a blistering defense of his trade war against a “grifting” China, suggesting any short-term negative fallout was “irrelevant” to the bigger picture.

In an impassioned press conference from the White House on Tuesday (Wednesday AEST), Mr Trump insisted yet again that the US economy is “very far from a recession”.

But he also took aim at economists and other critics of his trade dispute with Beijing — which has been widely blamed for harming the US economy and crunching stock markets.

“Somebody had to take China on,” a visibly angry Mr Trump seethed.

“And it’s about time, whether it’s good for our country or bad for our country short-term.

“Long term, it’s imperative that somebody does this.”

Where Australia Stands

The China question is getting more airplay in Australia now too. A few weeks ago, Labour backbencher Andrew Hastie wrote an op-ed in the Sydney Morning Herald about China.

Apparently it was controversial. For telling it like it is.

He wrote:

We must be intellectually honest and take the Chinese leadership at its word. We are dealing with a fundamentally different vision for the world. Xi Jinping has made his vision of the future abundantly clear since becoming President in 2013. His speeches show that the tough choices ahead will be shaped, at least on the PRC side, by ideology — communist ideology, or in his words, by “Marxist-Leninism and Mao Zedong Thought”.

Xi’s view of the future is one where capitalism will be eclipsed and “the consolidation of and development of the socialist system will require its own long period of history…it will require the tireless struggle of generations, up to 10 generations”.

The next decade will test our democratic values, our economy, our alliances and our security like no other time in Australian history.

Indeed it will. Australia is caught in the middle of this ideological war. China is our largest trading partner, the US is our largest investor and most important ally.

If you’re an investor in commodities, you need to follow this story. If the US gets the upper hand over China (which I think it will), there will be fallout for the Aussie economy in the form of weaker commodity prices, especially for bulk and industrial commodities.

Given we have a coalition government, I think it’s fair to assume we’ll be backing the US in this fight. Perhaps not overtly, but the US is our ally, not China.

To reinforce this point, The Spectator recently wrote about former PM John Howard’s views on China:

At a meeting earlier this month with top US officials, he [Howard] described the upheaval in Hong Kong as ‘a glimpse of the future for Chinese society’ and questioned the long-term viability of China’s economic and political system. ‘Australia’s relationship with Beijing is becoming more difficult because the regime in China is a lot more authoritarian’ and that we should not be mesmerised by China’s ‘overwhelming economic importance to Australia.

In other words, trade isn’t everything. Ideology is.


Greg Canavan,
Editor, The Rum Rebellion

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Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

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