Submitted by Michael Every of Rabobank
Tipping points are funny things in markets and in life in general. Sometimes you see them clearly ahead of time, sometimes only in hindsight. Sometimes you still don’t see them even afterwards. But they are there regardless.
Most Americans have paid no attention at all to developments in China aside from not liking tariffs. But touch basketball and suddenly things get serious! Daryl Morey, general manager of the Houston Rockets, recently tweeted support for pro-democracy protests in Hong Kong, and the immediate reaction was China--an avid NBA market of 500m--banning the team. Morey deleted the tweet and made a very humble apology, as did the Rockets, which didn’t assuage Chinese fury; but it did create a backlash against the Rockets from the US public, who are pro-democracy, and from US politicians, who are anti-China, and whom are noticing that the outspoken-on-domestic-politics NBA runs a training camp in Xinjiang(!) Indeed, there is new focus on the issue of US firms ‘having to kowtow to Beijing’. Is it a tipping point in US-China relations as trade talks begin? Hard to say. But it’s a discussion the average American will be part of for once.
These problems of globalization are not new, of course. The upcoming ‘Top Gun 2’ stars Tom Cruise, still trying to look like he did in the 1980s, but no longer able to do all his own stunts: which is just like US foreign policy, as I will get to shortly. But the eagle-eyed have already noticed that Maverick’s famous leather jacket no longer has Japanese or Taiwanese flags on the back because the film’s funders are partly Chinese. Even as we see warnings of a US-China Cold War--and a further 28 Chinese tech firms were just blacklisted by the US, eight for human-rights violations--China won’t appear as the bad guy in any US movie or TV show.
Given the almost cartoon-like world we now live in it’s appropriate that the most honest commentary on where we now stand under globalisation comes not from the eschatological of intellectuals or politicians telling us democracy is under threat and free trade is great, not spotting Marxist and populist criticism that the two are linked; instead it comes from the scatology of ‘South Park’, where episode 2 of season 23, “Band in China”, showing how access to the large Chinese market influences things deep in the US, was just...banned in China.
But back to the US and not doing its own stunts. Headlines this morning are over the tipping point of the US stepping back to allow Turkey to invade north-east Syria, an area occupied by Kurdish forces. Trump tried to explain his actions over Twitter, noting: “I was elected on getting out of these ridiculous endless wars, where our great Military functions as a policing operation to the benefit of people who don’t even like the USA. The two most unhappy countries at this move are Russia & China, because they love seeing us bogged down, watching over a quagmire & spending big dollars to do so. When I took over, our Military was totally depleted. Now it is stronger than ever before. The endless was are ENDING! We will be focused on the big picture, knowing we can always go back & BLAST!”
Of course, that is deeply unpopular with everyone (except US voters?) and seems a tipping point against Trump, with a backlash from Democrats, from progressives like Bernie Sanders(!), from the Republicans Trump needs to fight impeachment, and from his Evangelical base. Indeed, there seems unanimity that the US needs to retain ‘Cartman Blanche’ to put on mirrored sunglasses and say “Respect my authori-tay” to the world.
Perhaps under pressure, Trump then tweeted: “…if Turkey does anything that I, in my great and unmatched wisdom, consider to be off limits, I will totally destroy and obliterate the Economy of Turkey (I’ve done before!). They must, with Europe and others, watch over the captured ISIS fighters and families,” concluding “It is time now for others in the region, some of great wealth, to protect their own territory. THE USA IS GREAT!” And as if that threat wasn’t enough, US Republicans threatened that if Turkey hurts the Kurds, Congress will pass a veto-proof bill to impose sanctions and kick it out of NATO. It can be no surprise that TRY didn’t have such a good day!
Meanwhile, as the Houston Rockets go down, submarine-launched (i.e., almost impossible to detect) North Korean rockets go up; and US-North Korean talks crash. Is THAT a tipping point? Probably, yes. Because it means there is no way to put this nuclear genie back in the bottle. How the rest of the world deals with Nuclear Korea now remains to be seen: but surely military options are off the table, if they were ever on it. So a White House visit, or more sanctions that aren’t working? Perhaps time to invite North Korea into the global economy: just don’t let them watch any South Park when they do.
Let’s try to stitch this cartoon story arc together at the end, as South Park does so very well. Main Street, USA and its Chinese equivalent are infuriated at what globalisation entails. US-China trade talks are going nowhere fast. The US is militarily over-stretched, and Trump is trying to refocus even it means tactical retreats: North Korea looks like being one, the Middle East another. Many are raging against letting Iran or Russia or Turkey ‘step in’ there: but few are debating the net Grand Strategy benefits of backing the Kurds against Turkey vs. stepping back.
So is the US flailing or retreating like the Romans? No. It is focusing on its mighty financial weapons and physically fighting where it can achieve what matters most…if one is not thinking about Iran, but China. As Trump underlined: “WE WILL FIGHT WHERE IT IS TO OUR BENEFIT, AND ONLY FIGHT TO WIN.” Where does it benefit most fighting, globally? Three guesses…
The greatest likelihood is still that if Trump gets past his latest tipping point then at some (tipping) point soon markets are going to cry “Oh my God, they killed CNY!” as the Chinese currency collapses.