Crisis = Opportunity

"Trump is fighting for jobs that went out of fashion with Americans decades ago."

According to the Chinese saying, “A crisis is an opportunity riding a dangerous wind.” And we've certainly felt plenty of wind from Trump.

So, how's it going? How is Hong Kong faring under the onslaught of Trump's tariffs? What is the mood on the street? Well, when people take a moment to look up from their phones and pause their enjoyment of the memes poking fun at Americans, not much has changed. Government officials are making plans as the business community toggles between bafflement and stoic acceptance. 

Despite the challenges, our ability to adapt, change course, and turn a crisis into an opportunity has always been a significant strength. Supported by a business-friendly government and a vast Chinese hinterland, Hong Kong continues to resist fear.

Additionally, vast amounts of foreign investment are flowing in. Some of that is money escaping Trump's craziness. As always, Hong Kong serves as a feeder city for the greater Chinese economy. Thus, with the Americans preoccupied with dismantling trade agreements and irritating just about everyone, Hong Kong stands to benefit as China's influence expands and foreign investors seek a stable market. Sure, China faces challenges, but it seems more capable of weathering the storm than most. 

Also, they've been preparing for Trump's shenanigans for decades. For starters, Trump is fighting for jobs that went out of fashion with Americans decades ago. Does he seriously expect them to go back to sweatshop production line conditions? These roles have mostly left China, moving out to Pakistan and Cambodia.

In the 1950s, 22% of U.S. employment was in manufacturing. Today, that figure is only 8%. Efficiencies and robotics have replaced workers; thus, bringing manufacturing onshore won't create much additional employment. Still, Trump aspires to a rose-tinted past. Even the Vice President's acclaimed book, Hillbilly Elegy, is filled with nostalgic references as he yearns for an era long gone. 

In the card game analogy touted by U.S. officials, China holds a formidable hand. First, China plays the long game while Trump flips and flops. And don't argue that's a strength or strategy, because any leadership model will tell you such approaches rarely work. Money markets demand consistency from politicians because there are enough variables to tax their thinking without self-made chaos. Long-term always defeats the short-term.

Next, China holds a strong position on rare earth minerals that the U.S. requires for a wide range of technologies. Rare earth minerals are a group of 17 elements crucial in producing high-tech products such as smartphones, electric car motors, and military equipment. China accounts for 92% of rare earth production.

The U.S. relies entirely on imports for certain rare earths, with 100% dependency on yttrium, of which 93% comes from China. Additionally, the U.S. has an 80% import dependence on all rare earth compounds and metals, with 56% sourced from China. 

Without access to these materials, the U.S. must seek them elsewhere or mine them domestically. Neither option is straightforward. China is already restricting sales to the U.S., with prices surging dramatically, making the production of advanced electronics in the U.S. even more costly.

Then consider medicines. The U.S. closed its last penicillin plant in 2004, and China supplies 90% of the antibiotic used in the U.S.

Interestingly, rumours suggest that U.S. hedge funds sold off U.S. Treasury bonds in response to Trump's tariffs — not China. If true, the money men who helped put Trump in office are now betting against him. 

In the meantime, China has gradually shifted from sourcing items from the U.S. to engaging with other trading partners. It has ceased using U.S. LPG and opted for supplies from Australia, returning or cancelling Boeing orders as it transitions to Airbus-made aircraft or domestic planes. The same shift is occurring with soybeans and chickens. 

Moreover, China always has the option to enhance the regulations it imposes on U.S. companies to exert influence. When Walmart pressured Chinese manufacturers to lower their prices to offset Trump's tariffs, officials met with the company to remind it of its contractual obligations and the legal consequences of non-compliance. This incident highlights China's ability to leverage its regulatory power to maintain control over its trade relationships, even with large multinational corporations.

Not only can China inflict harm on the U.S. in hard finance terms, but it is already exploiting Trump's behaviour on multiple soft-power fronts. For many countries, the U.S. has surrendered the moral high ground as a responsible world citizen with its overbearing style.  The damage to U.S. soft-power cannot be underestimated. Meanwhile, China is positioning itself as a responsible, mature, and stable partner who can be trusted. 

For decades, Southeast Asian countries sought to navigate a path between the U.S. and China, maintaining cordial relations with both. However, during my recent trip to Vietnam and Cambodia, I found that the U.S. is now perceived as hostile and coersive. As a result, they have chosen to lean towards China, another own goal for Trump.

Even the Europeans, traditionally close allies of the U.S., are treading carefully. Under Trump, the U.S. is no longer considered a reliable partner, leading to a July China/EU summit. With 50% of the EU's profits from cars and luxury goods coming from China, they cannot afford to be caught in the crossfire of a trade war. 

There is one factor that many are missing in this discussion. Trade these days is rarely a matter of one nation selling to another and vice versa. For example, consider the Mini car. These iconic little cars get exported to 110 countries. The vehicle is originally British in design and origin, but the Germans now own the brand. Production occurs in Oxford (UK), Leipzig (Germany), and China. Components come from an estimated 30 countries. I say estimated because components comprise sub-components, and detailing all the entities involved is problematic. 

Likewise, the iPhone comprises components from 1100 suppliers made in over thirty factories across Asia, with 90% of the activity occurring in China. It took Apple 25 years to build that network. Thus, it’s not a matter of moving one factory and training one workforce. It’s a vast, evolved system that took decades to emerge. Therefore, it's wishful thinking to expect anything tangible to occur in under 10 years. 

Hence, China and other countries can continue to produce components and transship them through multiple nations before reaching U.S. consumers. And keeping track of these complex shipping and manufacturing regimes is a bureaucratic nightmare that will either discourage trade with the U.S. or become so resource-intensive that it can't be implemented. Either way, the U.S. does not receive the stuff it needs or gets it at an increased cost.

Lastly, size and confidence matter. China isn't picking up the phone to speak to the U.S.; instead, it's quietly building new trade options while preparing for the worst. China is seizing the moral high ground, acting moderate and reasoned, because Beijing believes it can withstand the bitter wind blowing from Washington. 

Only time will tell, but I reckon Trump has made a massive blunder and we still have 1370 days to go. One thing is certain: America is losing the meme war big style.