A Bull in the China Shop

A Bull in the China Shop

          China is fucked-up.  Is this all their doing or is it because others are fucking with China? Donald Trump seems to enjoy doing that. Regardless, the question quickly becomes, does that fuck us up?  Last night my lovely wife Kim surprised me by asking me if I was worried about China bringing down the world economy.  I would normally assume this was a hidden question about whether Nordstroms would likely be changing their hours of operation and thereby inconveniencing her shopping patterns.  But Kim, like me, is spending far too much time these days watching the news (admittedly, mostly MSNBC).  The recent spate of gun violence and hate mongering is tragic and especially hurtful to the sensibilities of someone as kind-hearted as Kim.  Along the way, the gyrations of the stock market this week have risen to headline level and are beginning to top the list of woes facing our incumbent president as he uses his old tricks of distraction.  This weaving together of news topics means that someone like Kim, watching over the world of innocents that are being put-upon by political hatred, starts inadvertently learning that China is figuring into our every-day life more than she could imagine.

          Several years ago, my youngest son, Thomas, was chatting with Kim about travel. Thomas is the beneficiary of a life raised in an urban setting where going to a private school with sons and daughters of the rich and famous (Day-Lewis, Sting, Wegman, Whitford, Sarandon, et.al.) led to a more than interesting travel opportunity.  He studied Mandarin Chinese so there was a class trip to China at a young age.  He is also a product of a divorce that left him with double-time travel opportunities and his mother took him on a China tour as well.  When I asked about the two trips, he said that one involved a billion Chinese and the other involved a billion Chinese and Mom.  I thought that was a very smart and funny response for reasons I should refrain from specifying.  He also innocently commented to Kim, “You haven’t been to China?”

          Kim and I have laughed about both comments many times since it sums up the fun of raising kids and working so hard to provide them with all possible advantages, only to find the flaws in that strategy at times.  But it has reminded Kim that China remains a bucket-list item for her.  I had the opportunity of touring China on a business trip over twelve days in early 2014, so I had already ticked off that item from my list.  Nevertheless, a trip to the Terracotta Warriors and the Yangtze River and the hills of the Painted Veil is still a must.

          But now we are faced with a world gone mad with a Trump-driven trade war that shows no sign of abating and increasingly impacting the world economy and the world politics.  Meanwhile, the reality of Chinese autocratic rule has finally caught up with Hong Kong, twenty-two years after the handover of the city-state from the British Empire to the Middle Kingdom of China.  The protests and unrest in Hong Kong have virtually shut down the once-free-wheeling Asian urban oasis just as China is faced with the double-barrel threat of trade war with the U.S. and a demographic shift away from the population-fed growth that has run at near double-digit levels for most of thirty years.  The problem with high growth is that it is addictive and the Chinese of today have been mainlining it for a long time. 

          The ways in which that manifests itself is that China has the world’s worst air pollution and has needed to shut down many of its filthy petrochemical plants while still importing more and more oil to feed its hungry economy. The outing of Chinese tankers loaded with Iranian oil in contravention of global Iranian oil embargo rules just adds fuel to the trade war fires. This tension is far from resolved and will likely lead to a much bigger issue for China as the world rejects the arguments that Chinese nationalism must prevail over global security.  Obviously, the Chinese calculus on the issue is shaded by the behind-the-scenes commercial fabric they have woven in the Middle Asia regions surrounding Iran. China does more funding of infrastructure in that part of the world than the rest of the world combined.

          I have mentioned before that my experience working with an Uzbek-born billionaire who made his fortune in the extraction of Angolan diamonds (yes, that would be warlord-laced Blood Diamonds) gave me a peek behind the scenes of China’s global commercial dealings in the emerging markets of the world (what Trump would call the Shithole places).  What I saw was extreme commercial interactions that created powerful and mostly greed-driven local leadership that favored, more then anything else, the feeding of the Chinese state’s appetite for raw materials to feed growth. I can only imagine their dealings in a put-upon country like Iran.

          Six years ago, when I wrote the book Global Pension Crisis, I referenced the impact on China’s demographics of the one-child policy. The only foreign language my book was translated into was Mandarin Chinese, a demand-driven decision made by the publisher.  China itself had recognized the impact of their policy, perhaps the most impactful public policy in the history of mankind.  They realized that it fed into the next chapter of China’s growth curtailment as the Chinese baby-boomers were facing a retirement crisis without the children to lean on that had historically represented family retirement support.  Suddenly, new sources of growth were needed in a difficult lifecycle moment.

          The picture all these vignettes paint is of a China that is getting more and more desperate.  It must be difficult to be so culturally egotistical as to think that one should rule the world by destiny.  That is where the desperation comes from in my opinion.  Who is China if not the juggernaut driving the rise of Asia towards global domination?  That vision does not allow for a normal business cycle with occasional cooling-off periods.  The engines of growth need fuel and must be left on high or they may never be able to be stoked to life again.  It is the burden of greatness and empire-building.  It is ultimately the fatal flaw of most empires.

          What is different in this moment for the world is that what we have is the Western Empire floundering in its demise while the Eastern Empire starts to sputter as well.  Both arose in the ashes of WWII, one driven by autocracy and one driven by democracy.  Their clash is far less ideological (in fact they don’t seem so very different in their tactics even though their rhetoric is noticeably different) than economic.  And that is the trade war in a nutshell.

          So, Kim, my dear, here is your answer.  Yes, the trade war with China will impact us and no, it is not something that we can avoid.  We can muddle through and hope it doesn’t evolve into another global war of the military sort.  I am reading Ghost Fleet right now in hopes of figuring out how the digital era war might take shape.  Maybe writing about it will help to avoid it. That makes me bullish. But the China shop is all around this bull.  All I can say is that we can only stay the course, Nordstroms will be open in two hours.