What’s Keeping China’s Leaders Up At Night? Hint: It Ain’t Tariffs

I’m going to make a bold statement, which I believe no one is truly considering in the West, of what I see as a sheer political biased blackout as one can imagine.

The reasoning is simple: if it bears any type of good light on the current administration, it’s verboten. Anything derogatory or similar? Front page and/or breaking news headlines across all others. This is the state of not just the mainstream media, but from my perspective, is now where it shouldn’t be – across all the mainstream business/financial media as well. And it’s getting worse.

Whether or not one agrees or disagrees with the current administration is inconsequential when running a business. That’s because businesses have to deal with what is, not, more often than not, what may or may not be in the future.

And it’s for that reasoning why I have been disgusted and can no longer watch, read, or even listen to most. Yes, there are a select few, but these few are seemingly locked in the basements as those with a political screed and agenda are allowed to consume all the air time or waves.

Business shows, at one time, were for informing busy business people on the happenings of the day that might effect their business. Today? It’s either bash the administration or, bash capitalism in one form or another. And yesterday (or last night Asia time) helps demonstrate my accusation.

Say what you want about the current unleashing of tariffs by the U.S., for as market moving as they or may not be at this current time, there was something far more trade orientated that has possible global repercussions on the horizon that could make this latest $200Billion of imposed tariffs appear as mere drop in the bucket, for what it may cost China going forward. And yes, I do mean: China.

I urged listeners to my show on Monday to begin paying attention to the Asian market reports in the overnight hours here in the U.S. as to look for clues on how China, along with our own futures markets, may react should the tariffs be announced. And sure enough, they were indeed announced.

The reaction was typical with central banks now firmly ensconced in the daily happenings. Any perceived negativity, especially if that negativity comes as an index such as China’s Hang Seng, or Shanghai teeter above a black-hole.

The reaction was swift: If you are (still) of the BTFD (buy the f’n dip) persuasion – all was solved and rewarded as the market vaulted higher along with its U.S. futures counterpart.

However, the reasoning behind this move that I listened to across most media was nearly as vapid as the coverage of a news story that most are entirely missing. That story? N.Korea’s, Kim Jong Un and S.Korea’s Moon Jae-in hugging and greeting each other on the tarmac at the stairway of the S. Korean leaders plane parked in Pyongyang.

To not contemplate the possibilities from a business perspective, never-mind political, is a chore in willful ignorance. And the media (as far as I’m concerned) did just that.

So now you’re asking, “So what does that have to do with tariffs and China today?” Great question – and here’s why…

Regardless of your feelings on the current administration or the President, one thing is unassailable: The current N.Korea/S.Korea possibilities are via his intervention and method of dealings. Period. But, because of that fact – it appears to be a blackout of one of the most significant ongoing stories for possible business repercussions today. I intentionally stay clear of the political argument unless, it directly effects business. e.g., I only deal with the legislation, not whether it’s my “guy” or “gal” type bickering.

But, currently, the political, as well as everything else – is now China’s to lose. Yes – to lose.

What I’m going to say next is purely hypothetic, as well as conjecture, however, that doesn’t mean that there aren’t some very astute political insiders within China that may or may not be rationalizing the same conclusions.

And if they are? The knock-on effects may be earth shattering, and by that I mean that as in, this is also how war begins, Real war, not just trade. For the stakes are that high.

Question: What is China’s economy really based on? Real Estate? No – manufacturing, and being the lowest cost producer in the ultimate race of who can build it for less. But there’s a problem with the “race to the bottom” as it’s commonly known. At some point the low wage serfs want higher wages. But in a globalized world of “I don’t care who makes it, I just want it cheaper!” Selling for the lowest price wins. End of story, quality be damned.

Enter: N.Korea (NK).

N. Korea has something that was only available in China until recently. What is that? Hint: peasant or slave labor. (I’m not trying to be bombastic, that’s a true and accurate statement.) The other point it has in common is: It has been run as a communist, dictatorial, brutal regime. Again, much like China was not all that long ago.

Enter: S. Korea (SK).

SK is an advanced economy, a jewel if you will, of the Asian pacific region. It is also home to one of, if not the, largest shipping companies along with prized ship builders in the world. You have other companies such as Samsung™ and more that need labor and facilities to create products to further compete with China’s new entries into once seemingly unassailable markets.

So here’s the question: What if, with Kim Jong Un’s recent first looks at the outside world, with his recent visit to the U,S., along with S. Korea, sat down and said to himself, “Why do I need to go beg China for scraps and stay isolated as some tin-pot dictator – when I could reunite with the SK, open up and allow for factories to be built and my people would be paid? I (meaning Kim) could state to my people, (turn on all reverb and echo machines here) ‘I have vanquished the evil west and made them bow before me and begin treating the NK people as they should allowing you a better life. No one before me has been able to do it, but I KJU have done what my forefathers only dreamed possible.'”

Hint: (conjecture of course) He would be seen, as well as treated, without coercion by his people – as a true deity that walks among them.

Think about the possibilities for a moment, yes, as far and outlandish as they might seem at first blush.

Just how little would the starting point for wages need to be to employ a workforce that is currently based on real slave labor? There is almost no other place of starting point where the quality of life can be raised so fast, and so much higher.

NK is where much of China was a few decades ago, but with one distinct advantage: The S. Korea effect and all that it brings for unity in so many ways.

Which is precisely why China, I believe, can not (and probably will not) let events go further or, be contemplated.

China is facing an existential threat to Xi’s “Made In China 2025” vision if there’s even the remotest chance of a unified Korea,

Not only that, it would signal a western ideology encroachment directly on its border. Not too say anything of the western alliance of weaponry stationed in SK and throughout the regional waters.

Again, just imagine for a moment your Kim and you ponder just this one idea:

“Hmmm, let’s see, instead of the need to keep infuriating the U.S. as to get some form of monetary concessions to fuel my lifestyle, while worrying about possible attack, and hoping China would defend me. All I have to do is allow a bit of commerce to be available and the U.S., SK, along with whoever else would probably not only protect me unquestioningly, they would sing my praises. And – my people would adore on their own! I would probably, no absolutely, become rich beyond my wildest dreams. Hmmmm…”

And that my friends is a far more troubling situation than the current tit-for-tat tariffs and what I believe is truly keeping Xi up at night.

Remember: it’s exactly these types of situations which bring about thoughts for peace on earth.

That suddenly morph, then launch it into world wars as a way to keep one leader’s vision – from crumbling into another’s.

© 2018 Mark St.Cyr