Weekly Wrap by Pythagoras Investing: Trade Wars, China, US, Australia, and … India?

For those who can access Ausbiz News, Michael Dee was interviewed by Ingrid Willinge from Ausbiz on “A big step up in Trade Wars”. China v USA, China v Australia and soon China v India. China v Hong Kong.  Where to from here? What it means for markets. To view the interview click here to view.

We know tensions between China and the US are the result of a declining USA & rising of China. China is jostling for power and position – it wants to be Number 1.  Australia’s USA alliance has led to tensions with China.  These scuffles have the potential to lead to trading flash points.

The Chinese like buying from places they own/control.  They own a lot of Australia – not just property, farms, businesses, abattoirs, and the Darwin port.  They would like to be aligned but faced with criticism about the origins of covid-19 it has led them to bare their teeth using “wolf warrior” diplomacy.  The Chinese don’t make idle threats … they act.  And act they have.  Under the guise of “technicalities” we now have effective embargos on barley (now bought from USA) as well as beef. 

We now believe the Chinese are looking at their trade in wine, dairy, seafood, oatmeal and fruit.  Being half in and out with China will not work.  We have not made a decision to align with them and so we are suffering the effects of the start of a trade war (similar to how they treat the USA).

On the other hand, we are clearly not a valued partner of the US.  Evidence of this was made clear to us this week when the US Secretary of State Mike Pompeo said the USA will cut Australia for Victoria participation in China’s the one belt one road agreement.   This is due to the increased Chinese communist regime’s ability to do “harm”.

We have seen it all before.  The Americans are trying to make us afraid of a communist nation.  Trump points out the “origins” of covid19 often.  This is exactly as it happened at the time of the Vietnam War (known to the Vietnamese as the “American War”).

Ask yourself … is a communist China more dangerous than a failing US democracy under Trump?  Moreover, what do we get from the Americans? When have we needed help?  We have a choice to embrace our strongest / largest trading partner or fight them. 

Decision: Fight them or embrace them? When we decide where we align ourselves correctly …with trade .. the trade wars with Australia will end. 

Where else is the “wolf” asserting itself?  The borders between China and India have been unresolved since a war in 1962.  The Indian border is now being challenged by China.  It is commonly believed that China is testing the military readiness of India. (Incidentally, China spent USD260bn on defence in 2019, 5x that of India). 

But why challenge the border now?  Could it be because China wants to distract us from coronavirus? Because the chairman of the World Health Organisation is from India? Because India is aligning with Japan/US and China is reminding them they can cause problems?  Because China wants to be number 1 and to do that China needs to dominate the region?  To do that they need to dominate India.  If they dominate India … they can be a world force, a legitimate challenge to the US.

The Chinese are seeking to expand their influence, worldwide.  Winston Churchill said, “never waste a good crisis”.  President Xi says “great steps come from disasters”.  China wants to be number 1 and we are on one big Chinese chess board.  China is only just getting started.  We are a small player who needs to choose a side, for this trade war is a war.  The devastation from this war will still affect many countries, of which Australia is one.

Geopolitical occurrences have effects on the stock market and cause price cycles and opportunities.  The ructions between China and so many other nations will be big news moving forward.  Although we believe the overall direction is up towards 6,800 from now until February 2021, we expect plenty of volatility to use in price in the months to come.

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