Donald Trump’s Love (?) – Hate Relationship with China


A rather compelling case can be made that no other US leader has been as vocal when it comes to pinpointing China as the number one adversary of the United States than Donald Trump. Of course, US leaders have steadily criticized all sorts of Chinese business practices, China’s various problems with respect to human rights and so on. But while punctual criticism of this or that when it came to China has always been common, things were arguably taken to the next level as of the 2016 elections, especially when it came to then-candidate Donald Trump.

It is important to point out that as any political scientist worth his salt can confirm, politicians need a bad guy they can point to. At the end of the day, humans are pack animals and as such, we respond quite well to an “us vs. them” way of seeing a certain problem. For not years but downright decades, the USSR and later on Russia has been the usual suspect in this respect. And, indeed, the Hillary Clinton campaign aligned itself with this trend.

From a strictly political equation perspective, it makes sense. Russia is an easy target, with there being ample negative sentiment surrounding it and not all that much in the way of positivity from the perspective of the average US consumer (or voter, in our paradigm). Therefore, creating a narrative around it is as close to a political no-brainer as it gets.

For Donald Trump, however, this was not an option.

Why? Simply because due to scandals revolving around his campaign receiving assistance and information (either directly or indirectly) from Russian intelligence as well as other types of ties to Russia, Trump positioning himself as the number one adversary of Russia would not have exactly painted the most credible picture.

Needless to say, an alternative was needed.

China represented just that. From a geopolitical or military perspective, despite much progress being made in China, the idea of China as the number one “enemy” of the United States is fairly hard to sell. From an economic perspective on the other hand, the exact opposite is true and for quite a while, yes: the elephant in the room has been that China is without a doubt the top economic adversary of the United States.

To (over)simplify, think of it as two inversely correlated trends.

With each year that passes, the economic might of China becomes more obvious and this brings about progress when it comes to the military dimension (even if China still has a lot of catching up to do) as well as the geopolitical dimension because the answer to the “Can China buy its way to being geopolitically influential?” is most definitely affirmative, as projects such as the AIIB or Belt and Road Initiative make clear.

At the end of the day, it’s a relatively straightforward progression. The GDP of China grows, various sectors of the economy grow alongside it, with the military one not representing an exception. The same way, the more China’s economy grows, the more “economic firepower” it has at its disposal, ammunition it uses for various investment initiatives abroad (primarily infrastructure-related ones) which strengthen its geopolitical position.

With Russia, one might argue that the inverse relationship is valid.

At this point in time, the GDP of Russia is not that much greater than that of Spain (a country which experienced its own share of economic difficulties, including an unemployment rate in the 25% zone and a youth unemployment rate in 50% territory) and lower than that of Italy (once again, a member of the less than select PIIGS club, a nation with problems of its own). To paint Russia as an economic superpower that stands any chance at matching the United States requires quite a bit of economic imagination… to put it mildly.

Just like China’s growing economy generates dividends when it comes to various sectors, Russia’s fragile economy brings about stagnation at best and under-performance at worst when it comes to key dimensions such as the military one. Of course, Russia’s military might is still more than impressive but this is primarily a function of it sitting on the USSR stockpile of nuclear arsenal (granted, enough to wipe out all life on Earth multiple times over). This stockpile is hardly immune to the passing of time and, indeed, to say that Russia’s military infrastructure has deteriorated over the years would be a severe understatement.

For these two reasons (political calculations and economic reality), Donald Trump has been able to successfully “sell” China as the number one US adversary. Now, of course, the point of this article is by no means making the case that Trump “hates” China. Not at all. In fact, as mentioned in another article, there are more than enough pragmatic reasons to paint the picture of the US-China trade situation being closer to a diplomatic resolution than to an “everything goes” conflict.

Instead, our goal is simple: making it clear that for the reasons outlined throughout this post, the “China is the number one adversary of the US” narrative is here to stay, not just when it comes to the 2020 elections where Donald Trump will also be a candidate but also in 2024 and beyond. Even if future candidates will have less of a reason pertaining to personal political calculations to attack China, the economic reasons will become more compelling and in the end, the end result will most likely be quasi-identical. Including this thought process in your broader China-related equation as an investor would, in our opinion, be wise. Needless to say, is here to help with just that.

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