You’ve heard a lot about the U.S.-China trade war. It began in January 2018 when Trump imposed tariffs on solar panels and appliances (mostly aimed at China). From there it has expanded to include tariffs on over $250 billion of Chinese exports to the U.S. and over $150 billion of U.S. exports to China.
Tariffs on another $300 billion of Chinese exports are scheduled to go into effect this December (but that may be delayed depending on the outcome of a proposed “phase one” mini-deal scheduled to be discussed by President Trump and China’s President Xi in Santiago, Chile, on Nov. 18).
As important as these matters are, they are just part of a much larger confrontation between the U.S. and China. In addition to trade, this larger confrontation includes theft of intellectual property, China’s claims to the entire South China Sea (disputed by the U.S. and six other countries), China’s development of anti-satellite and hypersonic weapons (against which the U.S. has no current defenses), cyberwarfare and much more.
This broader perspective was captured in a speech in October 2018 by Vice President Mike Pence that has been labeled the Pence Doctrine. This new doctrine suggests a Cold War II-style engagement with China.
In a similar vein, this article reports that the U.S. secretary of the Navy, Richard Spencer, is embracing Pence’s view and calling for an “all government” approach to the struggle with China. This means that the response to China would not be limited to trade but would include a stronger defense, limitations on Chinese investment in the U.S., banning of Huawei’s 5G communications systems, financial warfare, freedom-of-the-seas operations in the South China Sea, encouraging U.S. companies to move manufacturing operations out of China and other tactics reminiscent of the U.S.-Soviet confrontation during the original Cold War (1946–91).
Investors looking for an easy way out based on a possible U.S.-China trade deal in November will be disappointed that the deal may either fail or be nothing more than a Band-Aid on a fatal wound. It’s past time to start selling Chinese stocks and avoid further investment in the Communist dictatorship.
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