The Dragon Bleeds

Money is fleeing China. That’s hardly news, since it’s been happening for well over a year now. More accurately, money is now seriously fleeing China – at a rate which shows how little confidence anyone has in the dragon. The mythical creature apparently is made from a wall of paper, but it bleeds like any other economic animal – green, not red.

While the throes of this beast are roiling stock markets all around the world the truth of the matter is that money leaving China has to go somewhere – and “somewhere” is going to be primarily in the US. The situation is much more like Japan circa 1990 than nearly anyone has admitted yet. Where the growing Shia-Sunni war in the Middle East is going to be the policy story of this year, the inflow of Chinese money is already shaping up to be the economic story of 2016.

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Tea & Coffee

Picture yourself in England at the start of Queen Victoria’s reign.  If you have some skills as a part of the growing middle class, things look better every day.  That life comes in part from unskilled workers driven into the growing (and filthy) cities who are more productive than ever before.  The great symbol of the improving standard of living greets you in the morning as a cup of this once luxury beverage, tea.  It comes from China, traded under the barrel of the guns of the Royal Navy through the new colony of Hong Kong.  The latest in technology, the Clipper Ship, brings it to you with great speed and makes it possible to run this enterprise at a distance.   The sun never sets on the British Empire, and tea is both its greatest commodity and emblem of success.

Today, in the waning daze of the American Empire that isn’t an empire, things could hardly be different even as they are the same.  Coffee is the beverage of choice for 54% in the US.   It has always been the workingman’s drink, but it is moving more yupscale – even though 35% of us still drink it black (as it is meant to be, damnit).  It is shipped from tropical, underdeveloped nations in unromantic cargo containers as the second most traded commodity in the world by value ($15B per year), behind only oil.  The nations that produce it are rapidly urbanizing into filthy cities.  The trade is managed over the internet by a cadre of traders and speculators.

History doesn’t repeat, but it rhymes like a street poet hitting a beat.

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This Time Really is Different

The year was 1930.  The greatest depression in US history closed around the nation like a dark shadow.  Congress was desperate to do something that put the nation to work again.  What could do it?  Rep. Willis Hawley (R-OR) and Sen. Reed Smoot (R-UT) had a plan – close down imports and make Americans buy products made in America.  Their plan, the Smoot-Hawley Tariff, raised import taxes on over 20,000 items to about the highest level they had ever been.  Nations around the world responded with their own tariffs, starting with Canada, slashing all trade in and out of the US in half.  Nearly everyone agrees that this made the Great Depression much worse everywhere.

Flash forward to 2013.  Japan returns the Liberal Democratic Party to power on the promise to put the nation to work again.  Their plan?  Not to shut down trade, but to increase it – goosing exports by lowering the value of their currency and making their stuff cheaper.

The situations and the plans are very similar, but the underlying assumption is completely different.  The world has passed from Nationalism to Globalism as the basic driving force.  And that difference is worth thinking through.

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