Some readers have had a hard time understanding my position on China and America.
In a nutshell: I am long production and short consumption. I am long creditors and short debtors.
Or, in more depth:
China has a property bubble, resulting from excess supply. It is also the world’s greatest industrial behemoth, controlling the world’s supply chains in many key components, and is becoming an increasingly powerful player in energy markets thanks to its buy-out of Venezuela and its close ties to authoritarian Eurasian energy powers like Russia, Iran and Pakistan. This means that it’s probably not the best place for Westerners to park capital in the short term. But it has no bearing on China’s strategic standing in the medium to long term.
A comparison with America is inevitable. The United States destroyed its industrial productive capacity, has a zombified financial system (including a huge derivatives ponzi that is yet to collapse), a stagnating labour market, stagnating infrastructure, a clueless establishment, and its currency is about to lose global reserve currency status.
America needs the global resource and trade infrastructure. That’s why America is in Iraq, Afghanistan, Yemen, Pakistan. That’s why there are hundreds of bases around the world and why America spends trillions policing the world.
The counter-argument I often hear is “but America has nukes, America can order other countries to do things and they will do it”. But, ever since mutually-assured destruction that hasn’t been true.
If you don’t control your supply chains, you have a geostrategic problem. China grasped the importance of supply chains, and through cunning use of long-term planning has made itself the spider at the centre of the web of global trade. America grasped they could get a free lunch with US treasuries and that free lunch destroyed their productive capacity.