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@ Operation Libertas
2025-02-05 15:42:06
### **Canada and Mexico don't have any leverage**
The cheapest labor in the world is not China and it's not on the other side of the world. It's in Mexico.
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Due to rising Chinese wages, a rapidly growing economy, and demographic changes, China is no longer the low-wage capital of the world. Great news for Mexico as it means more manufacturing jobs have come their way. But bad news if your wealthy neighbor to the north wants to impose tariffs that are going to prevent you from selling to the world's largest consumer market.
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Mexican President Claudia Sheinbaum talking with President Trump | AI generated image
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Now consider Canada's dilemma. The US buys 97% of Canada's oil, at a discount. Canada lacks the capacity to refine 75% of their oil production, so they have to sell their sour crude oil to the US at discounted rates because only the US has the infrastructure to move, refine, store, and distribute this commodity. (See [video](https://x.com/themfingcoo/status/1885838258451493305?s=46) for a detailed explanation.)
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Canadian Prime Minister Justin Trudeau meeting with President Trump | AI generated image
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Canada and Mexico share a common double-edged sword; they're geographically close to the United States. This is a huge benefit for reducing transportation costs to the largest consumer market in the world. But that also means you don't have the transportation infrastructure necessary to sell your products around the world.
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China had to build a global transportation and supply chain infrastructure if it wanted to reach American and European markets. Because of this inherent characteristic, China is much better positioned to withstand an economic trade war with the United States than either Mexico or Canada.
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People often mention how fragile the American economy has become because of its reliance on imported foreign goods. They are absolutely correct. But that cuts both ways. The United States can be cut off from foreign goods, but foreign nations will be cut off from a market to sell their products. What happens when there is a huge supply of goods and demand for those goods goes away? Prices drop... precipitously.
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The United States largest export is the US Dollar. Like it or not, as the printer of the Global Reserve Currency, the US finances the consumer markets and the manufacturing base of the world economy.
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The value of fiat currencies always goes to zero | AI generated image
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### **Free Trade vs Managed Trade**
We see a lot of economists and media pundits talking about how tariffs will increase prices and lead to even more inflation. What they really mean is it will lead to "price inflation" which is how most of American society has come to view inflation. Actual inflation is an increase of the money supply and with more moeny chases the same amounts of goods and services, we get an increase in prices or price inflation.
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The same people who told you that inflation was "transitory" are now telling you the price of a Corona will go up. They're forgetting that we have a fairly robust domestic beer industry.
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Chuck Schumer and Dylan Mulvaney share bad takes | AI generated image
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But what really needs to be highlighted is that these pundits are discussing Trump's trade war as if we lived under a free trade system; a truly free market. Sadly, we are nowhere close to this being a reality. The global economic system is Managed Trade, or Bureaucratic Trade; with corporations, lobbyists, the politically appointed and well connected making deals that protect their fiefdoms and syphon money to those who control the levers of power.
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They are right that tariffs are taxes imposed on imported goods and those taxes are passed on to the consumer. But they act as if tariffs don't didn't exist before Trump. The Biden administration placed tariffs on Chinese "green" technologies. The same administration that said climate change was an existential threat made cheaper, environmentally friendly technology more expensive. It's almost as if it's not about the climate.
### **The Global Economic Empire**
When you owe the bank $1 million, the bank owns you. When you owe the bank $37 trillion, you own the bank.
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Trump is betting the house and calling everyone's bluff and he's betting that the US can weather the economic fallout better than any other country, except maybe China. It's a race to the bottom and he knows that the USG can cover its finances longer, causing other countries to go bankrupt and need US assistance.
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It's the equivalent of a run on the banks and the US will buy up the debt for cheap. Really they'll buy it for free, since they're printing the currency they buy up assets with. Canada and Mexico folding are a no brainer. Their economies are not built to export large quantities of goods acros the world. It's almost entirely north or south across the border. They had to cave or risk economic collapse.
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China: Rising Dragon or Paper Tiger | AI generated image
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China is another story. "Is China a Rising Dragon or a Paper Tiger" has been the headline for 20 to 30 years ever since Deng Xiaoping liberalized their economy and instituted social reform. Their economy has been booming but also suffering from population decline due to the One Child policy that was in effect from 1980 to 2016.
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China has a global supply chain and provides most of the world with manufactured goods. That means they need markets to sell their goods in. If Trump threatens every nation with tariffs, it effects the global economy; meaning it will massively effect China. Couple that with a declining population that’s getting older.
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The strength of the Chinese economy is that it already has this well established global supply chain. They stand the best chance to weather a trade war with the United States. But a global economic collapse would be a race to the bottom to see which, if any, global power emerges victorious. Just as in war, there is no winner; just bigger losers than others.
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If Trump uses this leverage to get concessions that benefit the American people, he could be the greatest statesmen who ever lived. Trump may not be clever enough to think this deeply, but he is certainly brash and confident enough to attempt it.