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Patrick Watson says in the last few months globalization has gone from 'unhealthy' to 'critically ill', with the US-China trade relationship is its heart - and the pulse is slowing fast

Patrick Watson says in the last few months globalization has gone from 'unhealthy' to 'critically ill', with the US-China trade relationship is its heart - and the pulse is slowing fast
Donald Trump, by Jacky Carpenter.

By Patrick Watson*

Until about 50 years ago, people paid attention to the area where they lived. They read local papers, shopped at local merchants, and socialized at local events.

Technology ended all that. Now we get our news from the internet. We buy imported goods. We converse on social media with friends thousands of miles away.

This “globalization” process changed the world, sometimes for the better but with significant side effects. Hence, today’s dissatisfaction.

Now, technology is swinging the pendulum back. Globalization is going in reverse. And again, the process will hurt some people.

We can’t stop it, but we can minimize this pain by letting it occur gradually. Give everyone time to adapt.

President Trump doesn’t see it that way. He wants to de-globalize now, no matter the cost.

Photo: pxhere

Wrecking Ball

We all think Trump changed everything. He certainly changed some things, but it’s striking how many of today’s megatrends were already in motion before he took office. I wrote this in August 2016, when I thought Trump would surely lose the election.

Humanity spent the last 50 years globalizing. Now, thanks to certain technologies, that whole process is going in reverse. I think historians will mark the 2008 financial crisis as the turning point: Peak Globalization.

I don’t say this because I want a de-globalized world. What any of us want or don’t want is irrelevant. I believe the transition will happen whether any of us want it or not.

It will not happen in a linear fashion, though. The process that brought us to this point had starts, stops, and slowdowns. Reverse globalization will have ups and downs, too, but a new set of technologies will keep pushing it forward.

I didn’t anticipate that Trump would be in position to attack all things global—and particularly China—like a wrecking ball demolishes a building. As a result, this process I thought would unfold over decades is now occurring far faster.

The president’s trade war and attacks on various international institutions were big dents. But last week, he took it to another level, saying the US and Chinese economies should separate completely.

Sigh. Where to begin? I could fact-check these tweets and show how wrong he is. But let’s stick with the broader point.

As the rhetoric and tariffs escalate, it is growing clear that Trump doesn’t just want China to play fair. He wants to sever the economic relationship completely. We’re “better off without them,” he says.

In fact, he feels so strongly he orders American companies to look for alternatives to China.

Many analysts laughed off that threat. He can’t do that, they said. But what if he can?

He Has the Power

President Trump can impose tariffs (i.e., taxes) on Chinese and other imported goods because past Congresses allowed presidents to do so under certain conditions.

Trump has stretched that power far beyond what Congress intended, and he’s getting away with it. Yes, we’ve heard a few rumbles about legislation to reduce his trade authority. But it is nowhere near passing both houses.

And even if Congress passes a law ending Trump’s tariff power, Trump can veto it. Overriding his veto requires a two-thirds vote in both House and Senate—unlikely as long as a few Republicans stick with him.

So as a practical matter, nothing stops Trump from raising tariffs on Chinese goods as high as he wants. He doesn’t have to stop at 20% or 30%. He could make the tax 100%, 500%, 10,000%, whatever he likes. He has that power, right now, and Congress is too gridlocked to take it back.

Court challenges might stop him, but that would take time and courts might just say it’s up to Congress. Which, as noted, is hopelessly gridlocked.

Photo: Wikimedia

Not Backing Down

When Trump tells US companies to abandon China, it’s not an empty threat. He has a way to force their compliance. He can make Chinese imports so expensive they have no choice.

This would, of course, quickly plunge the US economy into recession. Factories that depend on Chinese components would shut down and lay off their workers.

It would be bad… but I’m not sure it would make Trump back down. Nothing binds people together like shared adversity.

We see this already. Many farmers still support Trump even as his policies hurt them. Combine that with Trump’s ability to scapegoat others (hello, Jerome Powell), and I’m dubious even a deep recession would cost him much support.

Trump is president right now because he understands ordinal preference. He believes (correctly, I think) he doesn’t need to be everyone’s ideal. He just has to convince them the alternative is worse.

So, by the time Trump gets through demonizing whoever the Democrats nominate, even the Republican business owners whom his policies are devastating will hold their noses and support him, with both votes and donations.

He might still lose the election. But until then, he will keep doing whatever he thinks maximizes his side’s turnout. Attacking China seems to be high on the list.

I don’t see this getting better. I think it will get much worse.

But in the bigger picture, in the last few months globalization has gone from “unhealthy” to “critically ill.” The US-China trade relationship is its heart, and the pulse is slowing fast.

Major, epic economic change is happening before our eyes at an unnatural speed.

*Patrick Watson is senior economic analyst at Mauldin Economics. This article is from a regular Mauldin Economics series called Connecting the DotsIt first appeared here and is used by with permission.

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The US is in decline, we are witnessing the retreat of globalisation and capitalism towards socialism - this will be the dark horse that fascism rides in on.

It is not so much US in decline but rather the growth of China and the economic and geo-political consequences of that.
The US and has been the largest economy - and consequently global power - for much of the twentieth century but is now being challenged by China.
China's increasing interest in the Pacific - e.g. new parliament buildings for Vanuatu and other increasing aid to Pacific nations - is an example of this expansion and consequently Trump's counter action. It is also no coincidence that Jacinda's visited Tokelau and Tavalu this year after these countries having not seen the NZ prime minister for 15 years - it was more about showing the flag (formerly called battleship diplomacy) than a Pacific winter holiday. I visited Kiribati a couple of years ago; most NZ'ders don't know where Kiribati is nor that we give them considerable aid. We counted over twenty signs in the main settlement of Betio proclaiming NZ aid - struck us as being tacky in giving a gift (presumably for humanitarian purposes) but seemingly just to continually remind the local Kirabiti population who their mate is.
The major concern that I have is that US action is precisely that taken against Japan in the 1930's for exactly the same reasons and consequences reactions simply escalate.
A disturbing comment in the article was that US farmers still support Trump despite the consequences for US agriculture - I am hoping that if the trade war continues to escalate, the impact of this on the US economy (and unfortunately global economy) would counter against his re-election in November next year. However, Trump's rhetoric in blunt and over-stated tweets seem to be getting all the attention and to be all the US electorate seems to be able to comprehend and believe. In the past, the news media would provide more balanced and in depth analysis but Trump's tweets are by passing this. It is especially alarming when these are made in the early hours without any seemingly discussion or consultation - but then Trump has never been accountable to anyone in his business career.

Indeed, a common complaint of those that receive Western aid is that it comes with strings attached. The Chinese don't seem to be as concerned with "modern morality" and don't try to meddle with the laws of recipient countries. They seem to be strictly business focused and not intent on bringing about societal change. Western folk come across as supremacists and 'holier than thou'. It's a type of colonialism when you think about it.

Disagree - What CCP is doing in the Pacific is all to do with strategic influence and long-term geopolitical benefit to China.

Ream the populations out with P and synthetic death (cannabinoids). American Samoa is just about on its knees with it, and we are in deep do do with it here, much of our population unable to partake in society, so we then import immigrants to take their place.

Debt Trap Diplomacy isn't exactly no strings attached.

So we reverse the US forced free market policies that resulted in 30 years off asset sales to foreign investors.
That in turn has led to $20 Billion profit heading offshore each year. (Equiv. To about 40 yrs of Fonterra profits in one year).
Which led us to huge trade to China.
And now the US reverses the policy, but still holds all the assets in countries that did their bidding.
My question, will they reverse the Asset Sales and return the $20 Billion profit they’re expatriating each year.
Answer. No, never the intention.

@tradesam .......... I was in the US for a month and returned a few weeks ago .

The US in NOT in decline , the economy is flying , In Florida there is a construction boom that makes Auckland look like a Kindy . In New York property prices are rising faster than incomes .

California is booming , if it was a country on its own it would be the fourth biggest in the World

Unemployment has never been as low as it is right now , and Americans are spending like drunken sailors on shore leave

Boatman here are the facts. Wall Street is being propped up by share buybacks. US debt is running at 115% of GDP and rising. 10 year bonds yields are inverse to short term yields. Annual growth 2.30%, inflation 1.81%. Banks have loaned enormous amounts of cash to companies and businesses that aren’t making any money (Tesla) - the sums are larger than the 08 housing loan crisis. Warren Buffet as a ‘value investor’ hasn’t bought anything significant for over 12 months is telling in itself - he’s sitting on a $122 billion hoard of cash. What does that all that tell you?

Well Tradesam , everything you say is true , and there is a big shake-up or shake-down coming , but the article blames Trump , and that is wrong .

Tesla has never mad a profit since even before Obama was in
QE happened in 2009 way before Trump
Donald Trump inherited the debt , its been there for half a decade
And Buffet has been around long enough to not buy shares or assets with a 100 year repayment period , hell even I know not to buy for a PE of more than 20 TO 25 , and Buffet knows the system is broken

Blaming Trump is just wrong , at worst he is likely to speed the correction or recession up

That's an opinion from a very far-sighted view. Why is this all happening?? Below is an interview of Guo Wengui & Kyle Bass, which explains a lot more. Use your discernment people.


Yep. Globalisation was built on solid intentions, however CCP has taken advantage of this to the detriment of most Western countries. Trump’s stance is actually needed, however I do agree a gradual approach would be more beneficial.

You have a point, though it's already been going on for decades. President Trump only has a few guaranteed years to do this, so he needs to act quickly. Do you think the next US President will have the strength?
Matthew 7:6

A better stance for the US would've been uniting the West against China's domination agenda and gradually turning each ally of the West against the adversary while further consolidating its dominant position in global affairs.
Instead Trump has categorically alienated allies and regional powers who now have no choice but to turn towards China for funding or global direction.

How many weeks would the Chinese economy have survived, had Trump convinced other Western nations like Canada and the EU to ban the likes of Huawei and impose tariffs on Chinese imports?

Yes, he seems determined to carve out that most special space in the world for the US where they and only they have the keys to it and the rest of the world is only there at their behest.

I suspect a few things have coincided somewhat unexpectedly that have made this turn of events play out.

1. Trump running to boost his reality show profile, not expecting to win. As shown by his complete lack of policy in early days, and complete lack of a transition team or leadership team.
2. The Democrats standing potentially the only candidate rotten enough that Trump could beat her.
3. Putin's Russia engaging in weaponising information to undermine Western stability.
4. Cambridge Analytica also playing its part in weaponising information.


I have been saying for years, on here and elsewhere, that the current political climate is the product of democracies across the globe failing to present their electorates with opportunity to vote on globalisation. Economics and trade changed massively in the 80s, in a way that would effect every worker, every person on the globe and yet, it was rarely debated by politicians and rarely presented at the ballot box. Instead the same old, tired and increasingly irrelevant old tribal narratives of left vs right occurred across the West. And in reality, most parties for large chunks of the last few decades just sat on or very near the centre of left/right.

Globalisation has led to the destruction of the middle class and the rising spectre of wealth inequality in the West (and the growth of middle classes in the countries who have provided the labour during this era). It has given rise to corporate oligopoly and tax evasion on a monumental scale. Where once the profits of a successful company fed back in to the local economy to fuel investment and growth, profits have been siphoned off shore and held in the hands of smaller numbers of people. Low cost debt has been used for share buy backs more often than R&D.

No one even mentioned this before the GFC (okay maybe a few people like Sir Jimmy Goldsmith). The politicial spectrum needs to oscillate around globalisation vs nationalism, we need to discuss the benefits and effects of movement along that spectrum, without cheap jingoism's. It needs to be a fundamental part of the political discourse.

100%. It baffles me how we accept what we are fed - globalisation is infinitely beneficial - without actually examining the ongoing effects, implications and losses (profits taken elsewhere) of such systems..


Globalization hits a brick wall named Trump

So Trump did build a wall.

That's 'President Trump'.

"I thought Trump would surely lose the election." - but listen to my new predictions! A piece on globalisation with no mention of a US-UK free trade deal - "There's an opportunity to do a great free trade deal with the United States. The president is very gung-ho about that and so am I."

You have to remember from history two vital facts. Firstly way back, when the USA won their independence, the then British traders enjoyed boom times. It helped the economies of both countries immeasurably.Secondly WW1 & 2. In the former the USA came in late but only because the UK was desperate and exhausted. In the latter, Pearl Harbour brought them in but priority was given, without hesitation to the European theatre. The UK & the USA are close, very close indeed, and you can put Canada in that mix too. Well the USA could be invited back into the Commonwealth, and Japan too, after all they were allies in WW1. Does anybody remember the Commonwealth Trading Agreement? A very powerful and self sufficient trading bloc being formed has a lot to offer, one might think.

The old Anglosphere concept. The West never needed the rest of the world except perhaps for its raw materials and for vacations.

Cynical but not without foundation, not without it at all. In fact are we going to see a modern and de facto form of imperialism evolve, from the re-entry of nationalism, as the driving force of trade. As Groucho said you will enjoy doing business with me because I have principles. And if you don’t like them. well then, I have others. Now who does that remind you of?

Trump is only in government for himself that's fairly obvious now: Trump pitch to host G7 seen as a ploy to help his failing business. MSNBC article:

With advanced industrial automation it makes no sense to have your industry in far off countries. Why not bring them all home and manufacture products closer to the consumers? It's absurd to make toothpaste in Thailand when plants in your own city, that practically need no workers, can pump out all the toothpaste you will ever need.

Yep, we could even make Jaguars in Nelson, Toyotas in Thames etc

What about Swiss Cremes? As a rare treat I bought some a while ago and was aghast when they were nothing like I remembered. Looked on the packet, 'Made in Fiji'. Called Griffins and they sent me five bucks.

Seriously though, with advanced automation and 3D printing local manufacturing makes a lot of sense. No reason we couldn't build something similar to Ariel Atoms.

Locals will understand and make changes when I call them and tell them they left the biscuits in the oven too long. Never bought them again.

Remember the Hulme supercar a few years back? Was interesting to see that being undertaken here.

Offshore manufacturing is driven mostly by labour cost - and also by regulation or lack thereof

Trump this, Trump that... we're over it.
Clinton useless, Bush senior, useless, G W Bush, an idiot, Obama useless, Trump blar blar blar. The next one will be a fool as well and the one after that.

Surely Trump is the biggest imbecile of them all... by far

No new wars, TPP slotted, decent US economy, taking on the China problem.

Apart from the hair and twitter, I'd say he's a solid improvement on 41 onwards..

The author states: "Thanks to new technologies the process of globalisation is going to reverse"

I don't understand that pivotal statement, why would new technologies reverse globalisation?
Which technologies is he referring to precisely?
Anyone care to enlighten me?


The main idea is costs of automation will fall, whilst labour costs in developing world will rise.

OK thanks, I'm not convinced this alone would reverse globalisation though

Advanced 3D printing will be the next industrial revolution. Hopefully it will stimulate local creativity. Globalisation is stifling and monstrous.

Why pay for a vast Indian call centre when some clever software running in the cloud can handle 99% of calls on demand?

This is worth a listen even if it's not your favourite people, what they have to say is important.

It really disturbs me that he is wearing two shirts.

If the US dumps China who is going to buy US debt ?

China has not really 'bought " the debt , they sell goods for US$ and pay their workers with Monopoly money called the Yuan which is not tradeable and can only be used in China .

Now they have this stockpile of US$ and so they buy Treasury Bonds .

Its brilliant , but its dangerous too and fundamentally wrong

When is China going to call in US debt?

They can do it anytime ............. all America has to do is print a shipload of US$100 bills and send it to them , and thats it . We may have a bit of infltion for a while , but its as easy as that .

If you don't buy the "globalisation is infinitely beneficial" claim then it is marketed as an emergency measure that just needs to be done regardless or we will not survive. Like cutting off your arm that is stuck under a boulder.

Also your multi-million people populations need more gene diversity or you will all become handicapped in a generation or two from inbreeding. Or there won't be enough ethnic eateries.

Or who will do the jobs your people refuse to do? Like stacking supermarket shelves. The unemployed? Don't make us laugh! This work is on the important skills list!

Still not convinced? What about the "dark horse of fascism" then? What about that? Eh?

DONT BLAME DONALD TRUMP ................... China has raped, pillaged and plundered everywhere since it was accepted into the WTO at the behest of Bill Clinton

Their Mercantilist polices have done much damage , and they have cheated and stolen , manipulated and robbed from the rest of the world for years ........... everything from design patents in Germany to copper in Zambia , to oil in Sudan the Chinese are financial colonists and basically thieves

"raped, pillaged and plundered"

Seems a bit OTT. Your whole comment is hysterical.

America's real problem is its been torn in two. The liberal Democrat leaning coasts vs the conservative Republican leaning middle. Even within coastal states which swing left or right, you can see the cities tend to vote Democrat, rural votes Republican. Trump won Florida because most counties voted 70 -80 % for him . The Cities mostly went Democrat 55 -60 %. The electoral college system is his only hope , he won't win the majority of the vote again this time either.
They need a moderate who can at least be acceptable to both sides as the next President.

Trump is the most iconoclastic President the Americans have had the fortune or misfortune to elect in a long time. Whether right or wrong, whether beneficial or not, he is out to change the rules of the game, and change America forever, whether intentional or not. The effects of Trump Presidency, which is likely to go on for another 4 years, is going to be long lasting and his style may have to be adapted by other contenders to win and stay.
Change has come, whether we like it or not. Enjoy the ride, hanging on to the the strap/rail tightly.

Journalists love to frame the trade war as ‘Trump’s’. It is simply a result of ‘populism’ and ‘protectionism’.
This is flat out wrong. In the age of Trump, journalists everywhere have a bad case of TDS (Trump Derangement Syndrome), which makes it impossible for them to see the real issues.
And the real issue here is that the US/China trade war is not really about trade. It’s about ideology. It’s about communism versus capitalism.
Because universities are now leftist institutions, the majority of journo’s these days tend to write about China and communism with sympathy. Their contempt for capitalism is obvious.
This is dangerous, because it fails to portray China as it really is. That is, a communist dictatorship trying to cheat and steal its way to economic dominance.
As I’ve said before, China gained entry into the World Trade Organisation on the proviso it would open up its economy and liberalise trade. It didn’t. Instead, it engaged in protectionist policies to amass trillions of dollars in foreign exchange reserves via trade surpluses.
It did so, in part, by trashing its environment and exploiting its workers. The US and other developed nations simply couldn’t compete. Sure, consumers in the West got cheap running shoes, toasters, and computers.
And as Chinese savings were recycled back into the US bond market and interest rates went down, we didn’t notice that it resulted in house prices going up so much that we had to take on mountains of debt to afford one.
But don’t worry. Have you got the latest iPhone?
And thanks to the technological supply chain moving to China too, the communists got to see how advanced technology works. And they stole it.
Now, the Trump administration has said enough is enough. They don’t believe the US should assist the rise of a communist nation.
Hence the trade war. It might be leading to a weakening global economy and wobbly stock markets, but Trump realises it’s in the best interests of the US (and her allies) over the long term.
Another piece from the Fin Review today reports on this issue. I hope you can get past the mild case of TDS coming through in the select quotes below:
‘A defiant Donald Trump has issued a blistering defense of his trade war against a "grifting" China, suggesting any short-term negative fallout was "irrelevant" to the bigger picture.
‘In an impassioned press conference from the White House on Tuesday (Wednesday AEST), Mr Trump insisted yet again that the US economy is "very far from a recession".
‘But he also took aim at economists and other critics of his trade dispute with Beijing — which has been widely blamed for harming the US economy and crunching stock markets.
‘"Somebody had to take China on," a visibly angry Mr Trump seethed.
‘"And it's about time, whether it's good for our country or bad for our country short-term.
‘"Long term, it's imperative that somebody does this."’
The China question is getting more airplay in Australia now too. A few weeks ago, Labour backbencher Andrew Hastie wrote an op-ed in the Sydney Morning Heraldabout China.
Apparently it was controversial. For telling it like it is.
He wrote:
‘We must be intellectually honest and take the Chinese leadership at its word. We are dealing with a fundamentally different vision for the world. Xi Jinping has made his vision of the future abundantly clear since becoming President in 2013. His speeches show that the tough choices ahead will be shaped, at least on the PRC side, by ideology — communist ideology, or in his words, by "Marxist-Leninism and Mao Zedong Thought".
‘Xi’s view of the future is one where capitalism will be eclipsed and "the consolidation of and development of the socialist system will require its own long period of history…it will require the tireless struggle of generations, up to 10 generations".
‘The next decade will test our democratic values, our economy, our alliances and our security like no other time in Australian history.’
Indeed it will. Australia is caught in the middle of this ideological war. China is our largest trading partner, the US is our largest investor and most important ally.
If you’re an investor in commodities, you need to follow this story. If the US gets the upper hand over China (which I think it will), there will be fallout for the Aussie economy in the form of weaker commodity prices, especially for bulk and industrial commodities.
Given we have a coalition government, I think it’s fair to assume we’ll be backing the US in this fight. Perhaps not overtly, but the US is our ally, not China.
To reinforce this point, The Spectator recently wrote about former PM John Howard’s views on China:
‘At a meeting earlier this month with top US officials, he [Howard] described the upheaval in Hong Kong as ‘a glimpse of the future for Chinese society’ and questioned the long-term viability of China’s economic and political system. ‘Australia’s relationship with Beijing is becoming more difficult because the regime in China is a lot more authoritarian’ and that we should not be mesmerised by China’s ‘overwhelming economic importance to Australia’.
In other words, trade isn’t everything. Ideology is.
Greg Canavan,