Donald Trump Will Stop the Sellout of America to China

The election results gave Donald Trump a mandate to reject globalism for nationalism. Mr. Trump has consistently asserted that America is getting 'ripped off' by other countries, especially China. James Woolsey (senior adviser to Donald Trump on national security and intelligence and the former Director of the CIA) signaled a potential concession to China that might seem at odds with Mr. Trump's rhetoric.

Under Donald Trump, the US will accept China’s rise – as long as it doesn’t challenge the status quo - South China Morning Post, November 10, 2016

In this article, Mr. Woolsey stated:

The US sees itself as the holder of the balance of power in Asia and is likely to remain determined to protect its allies against Chinese overreach.

On a conciliatory note, he went on to say:

We understand China’s desire to reform global institutions that reflects its increasing footprint in the global economy and global security architecture. It takes time to change international institutions but we are seeing that change does come. The recent inclusion of the renminbi in the International Monetary Fund’s basket of reserve currencies is one example. The hosting of the G20 meeting in Hangzhou can be viewed as another recognition of China’s leadership role. It is widely accepted in Washington today that the Obama administration’s opposition to the formation of the Asian Infrastructure Investment Bank was a strategic mistake and I hope that the next administration’s response to the Belt and Road initiative will be much warmer.

Mr. Woolsey's olive branch is really just a way of saying the US is still going to be the superpower but is willing to partner on mutually beneficial initiatives. This in no way contradicts Mr. Trump's accusation of China 'ripping us off' and being a major currency manipulator. China has run up large trade surpluses (via a weaker currency) and has used these surpluses to purchase strategic assets of the United States. In the short term, it may seem that the laws of the free market are working. But, China will use these strategic assets for its own advantage. They will attempt to enhance their own citizen's living standards, further assert their interests globally and threaten American jobs. In addition, the Chinese government has rarely allowed the United States to invest in their own 'strategic' assets.

Two years ago, Michael Snyder had a very good post on how the Chinese are proceeding.

The Chinese Are Acquiring Large Chunks Of Land In Communities All Over America - End Of The American Dream, March 31, 2014

There are some that are playing down this threat by making a distinction between the Chinese government and Chinese corporations, but things work differently over in China than they do here.  In China, the government is involved in everything.  In fact, 43 percent of all corporate profits in China are produced by companies that the Chinese government controls.  And all of the rest of the companies are very careful to follow the lead and direction of the Chinese government.

That is why what is going on in places such as Thomasville, Alabama is so alarming.  Small communities such as Thomasville are so starved for jobs that they are willing to give land away for free to Chinese companies in order to entice them to build factories… 

......we are not just talking about a small plot of land.  We are talking about a 40 acre chunk of land worth 1.5 million dollars…

when the Chinese purchased Smithfield Foods, they suddenly owned 460 large farms and became the top employer in dozens of communities all over the United States

US News & World Report also highlighted the buying spree earlier this year:

China Is Buying Its Way Into the U.S. Economy - U.S. News & World Report,  May 17, 2016

The concept of "Made in America" is slowly giving way to "Made by China … in America," as Chinese investors are increasingly snatching up U.S.-based companies and assets and raising the eyebrows of some regulators and market spectators.

Since the turn of the new year, Chinese suitors have either announced interest in or closed on several multibillion dollar acquisitions of American institutions, such as General Electric's appliance wing, construction manufacturer Terex, Starwood Hotels, California-based tech company Ingram Micro and finance and production outfit Legendary Entertainment.

Chinese foreign direct investment into the U.S. hit a record $15.7 billion in 2015, up 30 percent from the year prior, according to economic analysts at the Rhodium Group. A separate Rhodium report published last month estimated 83 percent of America's congressional districts were home to some form of Chinese investment.

In few industries is China's investment growth more apparent than real estate. A report published Sunday by the nonprofit Asia Society and the Rosen Consulting Group estimates Chinese buyers between 2010 and 2015 spent at least $93 billion on American residential property, with total expenses rising at an average annual rate of about 20 percent each year.

Over that period, Chinese companies and individuals also bought up at least $17.1 billion in existing office buildings, hotels and other commercial buildings on U.S. soil. By the end of 2015, the report found, China was the source of at least $350 billion in U.S. real estate holdings and investments, and costs for Chinese-backed construction projects in the U.S. had climbed to at least $15 billion.

"Chinese direct investment in U.S. real estate was negligible until 2010 but has since grown dramatically and visibly," the report said. "While it is not as politically sensitive and does not directly impact national security as does Chinese investment in U.S. technology or telecommunications, real estate affects more people and communities and involves policymakers at multiple levels."

China has a vastly divergent culture and government model from the United States. Unless that changes, there is no reason to believe they can become a geopolitical ally such as Germany or Canada. United States government officials should be wary of trade policies (as Mr. Trump is) that could lead to the potential loss of sovereignty to the Chinese. Also, for the United States to maintain its role in world affairs, it must have its own manufacturing base to develop its military equipment and not rely on potential adversaries like China.

We are seeing signs this year of push back from the current administration:

China’s Zoomlion Abandons Pursuit of Crane Maker Terex - The Wall Street Journal, May 27, 2016

Zoomlion joins a growing list of Chinese companies unable to complete acquisitions outside of the country. In a prominent case, Anbang Insurance Group Co. entered into a bidding war with Marriott International Inc. for control of Starwood Hotels & Resorts Worldwide Inc., but abandoned its $14 billion bid in March citing only “various market considerations.”

Fairchild Semiconductor International Inc. earlier this year rebuffed a $2.5 billion offer from China Resources Microelectronics Ltd and Hua Capital Management Co Ltd. because of concerns over the U.S. approval process. The U.S. chip maker then proceeded with a deal to sell itself to ON Semiconductor for $2.4 billion.

In the interim, China has a massive debt issue that will require some type of currency devaluation. From the chart below, the yuan was valued at 6.80541 to the US dollar as of yesterday. That is the lowest mark since June 2010! A devaluation of the yuan should surprise no one as I previously mentioned the possibility here.

Surprisingly, the US stock market has not yet been affected by any of this. Inevitably, a sustained yuan devaluation (perhaps to 7.2 yuan/dollar or more) will cause a market shock. The Chinese will act as hostage takers and threaten either additional yuan devaluations or a full / partial sales of US treasuries (over > $1 trillion). They will request additional asset sales to prevent any of this. Donald Trump will not be blackmailed or run over by the Chinese. He would devalue the US dollar. Gold will most likely play a monetary role of some kind as specified here. The short term shock will be painful but this event would be beneficial to the long term interests of the United States.