Good morning. It’s Sam Culper with this week’s Forward Observer Dispatch.
Here’s why you should be preparing for China, shooting war or not…
Obviously, in a shooting war with China, international trade will be disrupted. That’s a guarantee for sudden supply shocks because of U.S. reliance on imports from China. The risk of war isn’t imminent, but history says it’s likely to happen eventually.
One of the most important points often missed, though, is that whether or not the U.S. goes to war with China, supply shocks and systems disruption are still likely.
As I’ve previously covered in my Early Warning briefs, China and the United States are in a “decoupling” period that will result in a U.S.-allied trading bloc and a China-allied trading bloc, not too dissimilar from the Soviet bloc countries and the West during the Cold War.
As a part of decoupling, programs under both the Trump and Biden administrations have sought to:
- re-shore jobs and industries away from China, either back to the U.S. or to U.S. trading partners
- protect American supply lines by finding sources of key materials, such as rare earth minerals, outside China
- increase export controls on China, and
- restrict American investment in any Chinese company with ties to its military.
Meanwhile, China last year introduced its first round of export controls to the U.S., and the “Made in China 2025” strategy is intended to make the country’s economy and industrial base more self-reliant by decreasing imports and shifting production from “cheap” goods — like the kinds Americans buy — to higher tech equipment.
Bridgewater’s Ray Dalio wrote last year that the U.S. and China are engaged in a “Capital War,” in which both sides try to cut off much needed capital from the other.
The U.S. is trying to restrict foreign inflows into the Chinese economy, while China is undermining the U.S. Dollar’s world reserve status. (That, by the way, is the number one thing to be preparing for because of its strategic impact. If you want to know more, I cover the implications each Thursday in my Economic Early Warning report. DO NOT miss it.)
Here’s where things get interesting…According to Dalio, “The goal is to cut the enemy off from the capital that the enemy needs because no money = no power,” he writes. “Without the US disrupting China’s currency and capital markets they [China] will likely develop quickly and increasingly compete with the US currency and credit markets.”
In light of a response from China that could accelerate the loss of confidence in the Dollar and U.S. credit markets, the Biden administration may pursue the appeasement of China and opt not to escalate. This appears to be the Biden strategy ahead of the “reset” meeting being planned with Chinese officials this month.
Biden’s soft approach to China is likely to become a clear failure, in which case the administration reverses course. This likely means escalation, either militarily or financially/monetarily, as Dalio describes.
Regardless of what Biden does, considering the known stable of candidates for 2024, his successor is unlikely to take a soft approach. This almost certainly means eventual escalation in economic, geopolitical, and capital conflict, and potentially a military confrontation, either under Biden or his successor. Given the decoupling, this almost certainly means eventual supply shocks and systems disruption, with or without a military conflict.
Personally, my strategy is to identify what I use in daily life that comes from China (even unknowingly, so look hard), and then find alternatives. A large part of preparedness is knowing what to expect in the future and then mitigating those risks. This is one risk we can see coming.
Be well, and prepare accordingly.
Always Out Front,
P.S. – If you want to know more about what’s headed towards this country at a hundred miles per hour, then sign up for my Early Warning briefs. We “read the tremors before the earthquake,” as one subscriber put it. There’s still time to prepare, but it’s dwindling. Subscribe here –> https://forwardobserver.com/subscribe