The dynamism of capitalism often seems to be under attack, whether it be from the Democrats running for president or by China -- as articulated in its bizarre Korean war-like invective that cuts to the core of what they think is wrong in our system.
I think the assault ends badly for the assaulters, but not for the reasons that you would expect. Here's why: I think the trade war long-game, siege rhetoric coming out of China only has gravitas if it can convince enough thought leaders that the American consumer will be hurt by the tariffs, the ones the mainstream media said weren't producing any money for the Treasury but are now on track to create $100 billion in transfer payments to the Treasury.
It is vital to the Chinese that there be endless articles about how President Xi is in total control and is doing fabulously with a united front. It is incredibly important to the regime that we get quotes like this one into the mainstream: "The best retaliation is letting U.S. tariffs on China hurt the U.S.' own economy," which was uttered by Yu Yongding, a noted Chinese economist.
I have to believe that Beijing must be laughing hysterically about our gullibility and how easy it is to manipulate our press with stories about invincibility. They can't even control the Hong Kong situation, let alone admit that they have been hurt one bit by Trump's tariffs.
But let's go back to what's on trial here: it's not U.S. resolve and not U.S. industrial might, which, sadly, has been decimated by years of unfair dealings by precisely the country that's been so intransigent in these trade talks. No. What's on trial is the ability for capitalism to reinvent itself while the two sides are at war over policy.
So, let's get real and examine why you may be safer in U.S. stocks than you think, given how China's presenting the harm it is inflicting on us as more severe than what we are doing to them.
1. First, the tariffs are supposed to be affecting the American consumer -- and they are supposed to be even further affected when the 10% hike on the remainder of product hits September 1. The truth is, though, the price increases in America have been minimal -- almost non-observable.
The retailers are in full fight mode and are making noises that prices will go up come September, but I think the online or off-price regimen we have will keep prices lower than anyone would expect. The Chinese don't understand the deflation caused by WATCH -- Walmart (WMT) , Amazon (AMZN) , Target (TGT) , Costco (COST) and Home Depot (HD) . They should shop here more often.
2. Second, capitalism is so alive and well in Vietnam and, of course, Korea, that the replacement of Chinese manufacturing will be occurring much more rapidly than China wants or can handle. In Korea, it's a matter of turning the jets on. In Vietnam, it's a lack of infrastructure and an inability right now to harness its 100 million person work force in a way that can both handle the business -- it can't -- and blunt Chinese trans-shipment of goods to America.
I think that if the president spent some time in both Korea and Vietnam right now and offered to compete against China with these allies (who would have thunk it?), the scales would fall from the defeatists' eyes. These two countries represent capitalism on steroids and are our biggest allies and beneficiaries of the Chinese exodus.
3. Third, who is to say that President Trump will continue to go his own way? What if the United Kingdom started focusing on being a world power and Germany actually wasn't so craven as to care about its capital equipment and car sales to China? What if the president convened a golf match of world leaders ex-China?
That, more than anything, is what I am betting could happen next. The sticking point is that the president wants Europe to stop dumping cars here. That's preventing any collegiality. But if that happens, you will see American industry accelerate while China's decelerates in a pretty visible fashion.
4. Finally, what's always left out of the equation: mental and natural resources might. Does China know how to read tables showing what companies are the biggest in our country? They are all tech companies -- ex Apple -- and not reliant at all on China for sales. Because they make up such a large part of the S&P, it makes things difficult for China to bring them down. China, on the other hand, has lots of companies that need ever-higher economic growth to prosper. But that's not what's going to happen if this war keeps up, which we know from the intelligentsia it most certainly will.
Again, as China wins over the thought leaders in the U.S., American capitalism finds a way to beat crony capitalism even as we keep confusing the unimportant trade war rhetoric with the important wars of economics.
Oh, and can I throw one more at you?
We keep hearing about the problems with the farmers. Go look at the charts of Agco (AGCO) and Deere & CO (DE) . Those aren't in agreement with this narrative. More importantly, no one has been as adept at giving farmers checks indemnifying them than the U.S. That's the biggest give in the entire tussle, yet the Chinese act like it isn't going to happen. Can't they infiltrate Deere?
What they would see is a stock that's up nicely since Trump's election. That's the truth, right there, in that chart. It tells you all you need to know.