Copy of Sentinel V22 #30-Some Serious Discussion About China
- Steve Dittmer
- Jul 22
- 4 min read
On Trade, Treasury Debt, Doubtful Diplomacy
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 04/21/25
While the tariff situation is affecting dozens of countries around the world, lots of the concern is around China. And the stock market has reacted -- or overreacted -- depending on one’s opinion, in violent fashion.
What are the facts that should guide one’s expectations of the evolving drama?
Kyle Bass, an investor who founded Hayman Capital Management and Conservation Equity Management, had some interesting observations about tariffs and China on the “Clayman Countdown” on Fox Business the day after Easter. And yes, he does have the noted Bass brothers back in his pedigree.
He knows something about China and trade and he agrees with President Trump, that some short-term pain is necessary in order to re-balance things. As he puts it, China has been winning a war with the U.S. for over 20 years while the U.S. hasn’t even been fighting.
For example, the de minimis exemption allowed Chinese firms to ship goods duty-free into the U.S. if valued less than $800. It has been used extensively to bring fentanyl precursors and counterfeit items into our country. China ships in four million packages/day. Trump is closing that loophole May 2.
Our director of national security publishes a report each year listing the top national security threats to America. China has been at the top of the list for years. The state of Texas along its border alone has collected 360 million lethal doses of fentanyl over the last four years. China has made little effort to stop the flow of ingredients.
Only now has our leadership been willing to let our enforcers do their job to stop the flow.
When it comes to national security, sometimes it hurts, Bass said.
“There is no easy button.” He fears a “kinetic” war with China but a trade war is just one part of the reset. In his view, the trade war with China is not Trump’s war. It is really China’s war that Trump is responding to.
Liz Claman asked Bass about Trump’s style and method, having “loaded his elephant gun” and fired towards 60 countries at once April 2. China’s President Xi has visited several Asian countries, working to shore up relationships and at the same time, jawboning them not to do deals with the U.S.
China expert Gordon Chang cast some doubt as to how well that “charm” offensive has been working. More about that later.
Bass noted that there has only been 12 actual working days elapsed since April 2. But 72 countries have asked to negotiate and 15 have signed memorandums of agreement so far. Trump believes in bilateral agreements, that multi-lateral ones shortchange America. It will take all of the 90 days Trump has set to get many deals.
Claman conceded that major trade deals usually take 12-18 months and Trump’s team is working on a 90-day timeline.
Bass said Trump is operating on the approach that countries of shared values have to work together to confront China.
We have a $30 trillion economy, Bass pointed out. We import $450 billion/year from China. China imports $140 billion/year from us. So in a tit for tat trade war, we win every time, he said.
What about the rumors of China selling its U.S. treasuries to fight the U.S. Bass said several big funds had to re-balance their positions in two or three days. It was over that fast. But big picture, simplified, the bond market is $27 trillion, with $6.7 trillion of that taken up by interagency government positions. Everyone else owns the balance. About $1 trillion worth trades every day. China only has $750 billion worth.
The idea that China holds this Sword of Damocles hanging over our head, owning our debt, owning our market is a total fallacy, Bass said. They could sell their total debt in one or two days but would only harm them. Their 10-year note is selling at 1.6 percent while ours is 4.4 percent. The U.S. has the largest, deepest capital market in the world, the highest interest rates in the world. China would be stupid to sell, Bass said.
Gordon Chang had noted days ago that the number three general in China’s military, a Xi loyalist, had not been seen, by now, for over five weeks. The way Chang reads it, Xi still has loyalists but he is not in control of the military. That likely means he would not be able to launch any major military action.
As for Xi’s visits and his threats to retaliate against countries if they do deals with Trump, Chang told David Asman there is really not much he can do. He thinks he can because he’s arrogant. But China has big trade surpluses with most of the Asian countries he’s been visiting, especially Vietnam. Most of what he can do hurts China as much or more than the other countries. He is out of tools.
Adman thought most of those countries would like to be liberated from Chinese dominance anyway.
Chang agreed. Vietnam, for instance, doesn’t like the big trade deficit it has with China. Just a few days after Xi left Hanoi, one top trade official said a relationship with the U.S. is of core importance.
Vietnam exports most of its goods to the U.S. Chang said Vietnam and Malaysia rely on our markets, while Cambodia is in China’s orbit.
Will China blink and come to the table?
Chang said they will have to but Xi has put himself in a bad spot. He has shaped the political system to be hostile to the U.S. If he makes a deal with America, he could lose power. If he doesn’t make a deal, their economy could collapse. The question is, will he take the country off the cliff? The economy is already contracting, having not hit their 5.4 percent target in the first quarter.
Xi’s published quote doesn’t sound like a negotiator: “…compromise cannot be respected.”
We shall see.
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