Imbalance

The chart below shows in a very concise way, the root of the problems and conflicts we are experiencing today. Thanks to globalization and its cumulative effects, there is an imbalance between manufacturing amd consumption in the U.S. and China. They are mirror images, or two different sides of the same coin. One manufactures and the other consumes. But it was revealed during the pandemic that depending on a country that is not considered an ally is not a good idea. The issue seems to be timing: the Trump administration wants to fix the trade imbalance created over decades in 2 years (before the midterms). That’s why he’s being so aggressive. At the same time, China needs to fix its side of the problem, creating more internal consumption, which is tough when it’s going through a major slowdown, potentially a recession. The first derivative of the problem is the trade issue which is the one in the news. The second derivative is the petrodollar system; all the U.S. dollars China has accumulated after decades of selling products to the U.S., which are now seated in US treasuries and perhaps some land. The third derivative are the Chinese companies listed on NYSE and the business interests the U.S. has opened in China. It’s not clear at all, even if both parties are well intentioned, how do you unwind decades of trade imbalances on both countries without collateral damages.

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