Trump's Trade Strategy: Balancing Global Dynamics and Containing China

Can China Defeat America In The Trade War? | Brent Johnson (YouTube link)

In the podcast hosted by Adam Taggart on Thoughtful Money, Brent Johnson, CEO of Santiago Capital and creator of the "Dollar Milkshake Theory," discusses President Trump's aggressive trade policies in his second term, their implications for global trade, and whether they risk pushing the world toward China, potentially weakening America's global position. The conversation delves into the strategic intent behind Trump's tariffs, the geopolitical and economic context, and the relative strengths and challenges of the U.S. and China.

Key Points:

• Trump's Trade Strategy as a Power Move:
• Johnson argues that Trump's tariffs and trade policies are not chaotic or poorly thought out but a deliberate, aggressive strategy to reassert U.S. economic dominance. He describes it as "realpolitik backed by financial warfare," leveraging access to the U.S. consumer market—the largest and wealthiest in the world—as a pressure point.
• The strategy aims to renegotiate global trade terms, prioritizing U.S. interests, particularly to counter China's growing influence. Tariffs are tools to force compliance from trading partners, with the U.S. betting on its unmatched market power.
• Johnson likens Trump's approach to calling a poker game, demanding other nations align with U.S. interests or risk losing market access. This has caused volatility but is seen as a calculated move to accelerate negotiations and isolate China.
• Geopolitical Goals: Containing China:
• A primary objective is to "ring-fence" China, preventing it from surpassing the U.S. as the global superpower. Johnson notes that discussions about trade with Mexico, Canada, or Europe often implicitly target China's influence.
• Trump avoids directly vilifying China, instead blaming past U.S. leadership for allowing China to gain advantages. This framing helps maintain diplomatic flexibility while rallying domestic support for his policies.
• Johnson believes Trump wants to contain China without triggering its collapse, as a global economic crisis would harm U.S. interests. The goal is a controlled rebalancing of trade and power dynamics.
• Will China "Drink America's Milkshake"?:
• Critics argue that Trump's hardball tactics alienate allies, driving them toward China and accelerating U.S. decline. Johnson disagrees, asserting that the U.S. retains significant advantages despite its issues (e.g., debt, political polarization).
• China's challenges—balance sheet recession, real estate crisis, shrinking population, and high debt levels—limit its ability to supplant the U.S. Johnson argues that China's economy is more leveraged than the U.S., and its currency (yuan) lacks global demand compared to the dollar.
• Other regions (Europe, South America) face similar or worse problems, reducing the likelihood of a cohesive anti-U.S. alliance forming around China. Johnson predicts that, when forced to choose, most nations will align with the U.S. due to its market and strategic advantages.
• U.S. Comparative Advantages:
• Despite its debt and internal issues, the U.S. has natural resources, a robust consumer market, military power, and institutional stability that competitors lack. Johnson emphasizes that global mistakes mirror U.S. ones, so no rival starts from a position of strength.
• If forced into self-sufficiency, the U.S. could meet its needs better than most nations, reinforcing its resilience in a fragmented global economy.
• Economic and Market Outlook:
• Dollar: The dollar has weakened recently (down 5% in two weeks), but Johnson sees this as a temporary repatriation of capital to local economies during uncertainty, similar to 2008 and 2020. He expects a dollar rebound if global markets worsen, as the world still needs dollars for trade and debt servicing.
• Gold: Gold has surged due to fears of a sovereign debt crisis but may have hit a "blowoff top." Johnson advises holding gold as a strategic asset but suggests hedging gains, anticipating a pullback in the next few months.
• Markets: Johnson predicts continued volatility through 2025, akin to 2022, with potential market declines and intermittent rallies. He expects a possible bottom in Q3/Q4 2025, with 2026-2027 potentially stronger, mirroring post-2022 recovery.
• Investment Strategy: Johnson’s fund has hedged equities, maintained gold allocations, and focused on short-term fixed income (T-bills). He’s cautiously adding to equities on dips but expects further downside, advising investors to stay flexible and avoid dogmatic positions.
• Long-Term Implications:
• Johnson sees global trade shifting toward regional blocs (e.g., U.S.-led Western Hemisphere, China-led Asia), with reduced globalization. The U.S. may adopt a modern Monroe Doctrine, focusing on its hemisphere for trade and security.
• The transition will be volatile, with economic pain (possible recession) but potential benefits like increased U.S. manufacturing and job growth. Success will be measured by Main Street gains (jobs, wages) and geopolitical containment of China, not just stock market highs.
• Drawing historical parallels (e.g., Nixon’s 1971 gold window closure, Rome’s decline), Johnson argues that empires decline slowly, and the U.S. is far from collapse. He expects a decade-long struggle with ups and downs, not a quick resolution.
• China’s Post-Settlement Role:
• If Trump succeeds, China will remain a major trading partner but within a more regionalized framework, likely leading its own economic bloc. Trade will continue but under terms more favorable to the U.S., with China’s global ambitions curtailed.
• Advice for Investors:
• Keep an open mind, avoid ideological biases, and focus on likely outcomes rather than desired ones. Capital flows drive markets, so consider where global money is likely to go (still heavily U.S.-centric).
• Political and geopolitical risks are rising, and mercantilism may restrict capital mobility. Investors must adapt to a world where national priorities override pure economics.

Conclusion:

Johnson views Trump’s trade policies as a bold, intentional strategy to reassert U.S. power and contain China, not a reckless gamble. While causing short-term volatility, the U.S.’s economic and strategic advantages make it unlikely that China will overtake it soon. Investors should brace for a turbulent 2025, maintain flexibility, and recognize that global economic shifts are part of a long-term reordering, not an imminent U.S. collapse.