Breaking up with China is hard to do

Back in June, the President of the European Commission stunned the world with a horrifying admission: ‘Donald is right,’ she told leaders at the G7 meeting in Alberta, Canada.

The world’s media organisations went into meltdown. The prospect of a major global leader agreeing with Trump about anything was just too much to bear. He’d just launched a major trade war, after all.

Amidst the furore, nobody really paid attention to precisely what Trump was right about…

Ursula von der Leyen was referring to Trump’s views on unfair Chinese trade practices. The way in which China had engineered economic dominance over the West. And how Western governments had engineered their economic dependence on China.

With the US and EU suddenly aligned in taking on China, the world began to change…

We are back at war with
George Orwell’s Eastasia, again

After decades of promoting economic ties to China, governments are now trying to untie their economies.

This is a bit of a shock to the system. Companies have been encouraged to invest in China for decades. Now their executives are getting lambasted for it.

No wonder we have to pay them so much. They have to put up with schizophrenic politicians and voters.

The media is playing along too. Remote kill switches in Chinese built busses and solar components have suddenly stopped being conspiracy theories. Intellectual property theft by the Chinese is also an appropriate mainstream news story now.

China’s dominance on strategic metals, refining, drones and more are all on the agenda. Suddenly, everyone knows and cares.

Heck, the mainstream media is even willing to cast China’s dominance of renewable energy and EVs in a negative light! Not long ago, its cheap solar panels were going to save the world.

Who would’ve thought that geopolitical competition ranks higher than climate change?

Trump hasn’t just been talking the talk. He’s got the US government investing in businesses and projects specifically designed to wean the Western world off Chinese goods.

Australia is a prime beneficiary of his deals. Here’s how you can profit from the wave of support for Trump’s deal making blitz.

Over at Strategic Intelligence Australia, editor Jim Rickards predicted all this. He called the trend ‘American Birthright’ – a reference to the value of natural resources unlocked by removing environmental regulations.

But I’m growing worried that our economies are going to find it a lot more difficult to wean ourselves off China than we presume…

If the Germans can’t make cars,
what hope do we have?

While business deals are indeed booming on the back of Trump’s deal making blitz, I’m not yet convinced they’re offsetting the pace of decline. The fact that the occasional mine or refinery is opening on the back of US government money doesn’t offset the waves of closures elsewhere.

You’ve heard plenty about Australian companies in energy intensive industries shutting down recently. People seem to forget this was the whole point of decarbonisation.

We are outraged when the waves of environmental regulation, carbon taxes, offset requirements and renewables have their intended consequences, let alone the unintended ones.

But it’s not just Australia. All over the Western world, factories are shutting fast. Deindustrialisation continues apace. Anything that uses a lot of energy is uneconomic. Especially producing renewable energy related goods like wind turbines, ironically.

Even Trump can’t offset the pace of economic decline. Only AI is keeping the mirage of economic growth alive. Much of the US is in recession.

But my thesis is most developed in Germany. The country’s industry has been imploding under the burden of regulations and high energy prices.

Here’s a fascinating anecdote from Bloomberg that’s very close to home for me. The German city of Bochum is a 20 minute drive from where I was born. It used to be a centre of German car manufacturing. It focused on producing affordable models.

Bloomberg reports that, these days, not only does the factory stand idle, but the locals can’t afford affordable cars anymore. The dealership that used to sell the locally made cars now sells second hand ones instead…

Think about this. The Germans went from high paying jobs that allowed them to afford their own cheap cars, to no jobs and buying second hand cars. It’s a monumental shift. And it took place over the course of just over a decade.

The article blames a long list of reasons for the change. What makes them interesting is that they all have deliberate government policy behind them.

Mandated EVs that are too expensive, a higher cost of living due to higher energy prices, cheaper foreign cars crushed local jobs, regulations on car emissions cutting profit margins, labour regulations and more.

The point is that Germany did this to itself. For all the desire of German car company executives to move to China, nobody ever bothered to ponder why they might want to do so in the first place. It was all because of government policies.

Can Trump and his new buddy Ursula really fix this?

The big question is whether the West can compete with China. Can we get rid of all the weights dragging our economies down?

I doubt it. Even removing net zero is unlikely to be enough.

The goose is cooked, the future is baked into the pie and the political will isn’t there anyway.

Do we even want to break up with China?

While those competing with Chinese factories and workers have had the rug pulled out from underneath them, the rest of us have benefitted substantially. We’ve grown used to a world where the Chinese government is happy to subsidise Westerners’ consumption by operating China’s factories at a loss.

Even more ironic, our Western governments often subsidised the destruction of their own economies and the environment by paying tax credits for imported Chinese goods.

But what would our economy look like without all this artificial stimulus? Do you really think companies will simply move back to Australia and Germany to produce our own cars, aluminium and iron ore?

You’ve got to be joking.

China’s rise masked our own political mismanagement. If China is frozen out of the West’s economic sphere, we would be left with an overregulated nightmare of a Western economy, not an economic nirvana. One where businesses only thrive with the financial and regulatory support of the likes of Trump.

Be careful what you wish for. We could kill the goose that lays the golden egg.