From Donald Trump’s announcement of 60% tariffs on Canada and China, 10% more tariffs on China and 25% more tariffs on Canada and Mexico, the most vulnerable A-shares seem to be calm. Today, A-shares have risen a lot. It’s totally different from the way that A-shares were killed after tariffs were increased that year. It’s time to eat and drink.

Although everyone knows that Donald Trump is playing “forcing other projects under the pretext of tariffs” again, and this “other project” is impossible for other countries to complete.

For example, if China is required to control fentanyl, the problem of American drug abuse cannot be controlled by China. It is fundamentally an internal affair of the Americans. How about letting the Chinese anti drug police enter the United States to enforce the law? Donald Trump won’t do it again.

For example, allowing Mexico and Canada to control their borders and stop illegal immigrants. They have all illegally immigrated to Canada and still insist on benefiting the United States, which is quite humorous. As for Mexico, unfortunately, it can control drug lords. Can it be like this now? What’s more, Donald Trump threatened to send troops into Mexico to wipe out drug lords, which was not unheard of in the 1980s. How effective was it? Basically zero.

Other countries cannot handle the affairs of the United States. Donald Trump himself cannot handle the affairs of the United States. Does he expect other countries to solve the affairs of the United States? Completely funny.

I know very well that these things are all for Red Neck to see in acting.

Of course, since it has happened, regardless of the impact on China, we still need to take a long-term view.

Goal: Developing countries

China is currently in the stage of industrial upgrading. Americans and Europeans say that China has overcapacity, isn’t it? Yes, it’s just that it’s not overcapacity in China, but overcapacity in Americans and Europeans. Obviously, according to the law of economics: comparative advantage, Americans and Europeans have higher production costs for industrial goods, and they should transform to service industry or agriculture. The production costs of Chinese artificial goods are lower, so Chinese people should exchange industrial goods for European and American service industry products or agricultural products.

Of course, neither Europeans nor Americans will do it.

China is in the stage of industrial transformation. At the time of the first tariff war in 2017, China’s new energy industry had not yet taken shape, and the automotive industry had no end in sight. From 2014 to 2019, China criticized new energy vehicles for cheating subsidies. After five years of criticism, it finally bore fruit.

Secondly, there is the diversification of foreign trade and settlement methods. It can be said that since the last trade war, China has undergone considerable reforms, gradually transforming its trade with the United States and Europe into trade with developing countries, and finally exporting products from developing countries to Europe and America.

Since 2017, China’s export dependence on a certain country/region has been measured by the proportion of China’s exports to different countries/regions to its total exports during the same period. As of the end of October 2024, China’s export dependence on the United States has decreased to 14.6%, a decrease of 4.4% from 2017. China’s export dependence on the European Union and Japan has decreased to 14.6% and 4.3%, respectively, a decrease of 1.8% and 1.8% from 2017.

The export dependence on countries and regions along the “the Belt and Road” has risen to 45.6%, a significant increase of 17.6% over 2017. Among them, the export dependence on ASEAN has risen to 16.1%, an increase of 3.8% over 2017.

In terms of payment for goods trade, in 2023, the total cross-border receipts and payments in RMB for goods trade amounted to 10.7 trillion yuan, a year-on-year increase of 34.9%; The proportion of cross-border receipts and payments in domestic and foreign currencies during the same period was 24.8%, an increase of 6.6 percentage points from 2022.

Among them, the total cross-border payment and receipt amount of RMB in general trade was 6.8 trillion yuan, a year-on-year increase of 34.8%; The total cross-border payment and receipt amount of RMB for incoming processing was 1.6 trillion yuan, a year-on-year increase of 8.9%. From January to August 2024, the total cross-border payment and receipt amount of goods trade in RMB was 7.9 trillion yuan, a year-on-year increase of 16.8%; The proportion of cross-border receipts and payments in domestic and foreign currencies during the same period was 26.5%, an increase of 1.7 percentage points compared to the whole year of 2023.

At the same time, China has also increased its substitution of the US dollar for foreign trade. First of all, regarding the trade balance, compared to 2017 during the first trade war, China’s current trade balance has not only not narrowed, but has also expanded. China has a considerable amount of US dollars in its hands, and its ability to adjust is much stronger than in 2017. The overall export volume has also increased significantly compared to 2017.

There are currently two directions, one is debt substitution for developing countries, and the other is developing trade with developing countries.

Debt substitution for developing countries

At present, although China has abundant foreign exchange reserves, for the vast majority of developing countries, due to annual trade deficits, they owe a lot of US dollar debt. Although the domestic joke is that the US dollar is green paper, for other developing countries, it is not paper, but real debt. They are forced to owe US dollar debt, and the interest rates of US bonds have increased, coupled with the tidal effect of the US dollar, which is a heavy burden for many countries.

And with enough US dollars in our hands, there is a strong risk of keeping them: you never know when the United States will suddenly impose sanctions, and the US dollars in your hands will become worthless. This is a lesson from Russia’s past.

So replacing the debt of developing countries, for example, if developing country A owes US dollar debt, lending US dollars to repay it and turning the debt into RMB debt, this alleviates the debt burden of country A. Some countries are driven crazy by creditors and forced to sell their domestic assets

At the same time, it also mitigates the US dollar risk in China’s hands, which is one of them.

There are a lot of dollars in their hands, and they can also issue dollar debt. Last time, they issued dollar debt in Saudi Arabia. Don’t Americans like dollars? Then give him everything and weaken his financial influence.

Of course, the Americans can’t be indifferent, but there are three points. One is that at the moment when Donald Trump and Joe Biden are taking over the shift, the situation is chaotic, so we should start first.

The second is Donald Trump’s character. He thought it was a good thing that the US dollar returned to the United States.

The third and most important thing is that any measures to weaken the flow of the US dollar are harmful to the hegemony of the US dollar itself. Whether it is threatening other countries not to use Chinese dollars or restricting China’s ability to clear US dollar transactions, they will in turn threaten the liquidity of the US dollar and shake its hegemony.

Trade substitution in developing countries

I have repeatedly emphasized that the future development of foreign trade will definitely be in developing countries, not developed countries. The first time I realized this issue was when I saw a picture:

This is the “World Inequality Report 2022” released by the World Inequality Institute in 2022. Since the Reagan era, global inequality has suddenly turned around, from inequality between countries to inequality within countries. Developing countries have developed faster, while problems within developed countries have increased, and the turning point was in 1980.

Why has “inequality between countries” turned into “inequality within countries”? This is naturally due to Reagan’s neoliberalism, but if fundamentally speaking, Reagan only accelerated this phenomenon, the fundamental problem still lies in the diffusion of information and wealth.

The earliest steam locomotive railway was the Stockton and Darlington Railway in 1825, while China built its first railway, the Tangxu Railway, in 1881, which was also a horse drawn one. 56 years later, the world’s first modern car was invented by Karl Benz in 1886, and China’s first car was produced by the Fengtian Manufacturing Plant in 1931, 45 years later. Looking back now, almost all new things have been popularized worldwide within ten years, such as mobile communication technology, smartphones, and mobile payments.

For example, mobile payments. In many African countries, they don’t even have a bank account, but they have a payment account, such as M-Pesa in Kenya, SnapScan and Zapper in South Africa.

The best performing examples include Kenya, where the digital payment population has reached 75%, South Africa, 70.5%, Ghana, 63.7%, Gabon, 62.3%, and Namibia, 58.5%. The diffusion of such technologies is highly beneficial for business.

Like mobile payments, there is also new energy. The popularity of new energy in Africa is even better than many people think. Although some places have not even repaired basic roads, have not laid good power grids, frequently experience power outages, and suffer from severe gasoline shortages, it’s not a problem. You can buy second-hand solar panels from China, add a charging device, purchase new energy tricycles, and be self-sufficient. If you don’t have money, you can use charging piles as the core for borrowing or leasing, and even complete the finance.

This is something that was unimaginable in the past.

Afterwards, the diffusion of productivity became increasingly rapid, and there were two key milestones in between: one was the collapse of the Bretton Woods system from colonial independence after World War II, and the other was the prevalence of neoliberalism in the 1980s.

Colonial independence means that a country can truly control its own destiny, and partially independent colonies can truly begin to operate domestic politics without becoming a source of raw materials and a market for commodity sales for other countries. For example, in India, Tata Group entered the commercial vehicle field in 1954 through a joint venture with Mercedes Benz and began producing cars. And our country also produced liberation trucks through cooperation with the Soviet Union.

At this point, there is only information diffusion, but developing countries still lack a fatal thing: capital.

As shown in the figure, this is the situation of China’s foreign exchange reserves:

In the 1960s, the year with the highest foreign exchange reserves in China was 1969, with a total of 483 million US dollars in foreign exchange reserves. Until the late 1970s, China’s foreign exchange reserves did not exceed 1 billion.

Many people wonder why South Korea is developing so fast. During the Vietnam War, South Korea obtained a large amount of foreign exchange reserves with the help of the Vietnam War. Just take the U.S. aid as an example: between 1965 and 1970, the U.S. spent 928 million dollars to support South Korea’s military assistance to Vietnam, of which nearly 546 million dollars were directly earned by South Koreans, not including the massive labor service sent abroad by South Koreans in the era of Park Chung hee.

However, the population of South Korea is only 28 times that of China.

It can be said that the blood of Vietnamese people has contributed to the rise of the South Korean economy. The reason for Japan’s rise is similar to that of the Korean War.

Under the Bretton Woods system, due to the direct linkage between the US dollar and gold, it was very difficult for the US dollar to flow out, after all, the value of gold was here. At that time, the US dollar was the real US dollar.

Since the collapse of the Bretton Woods system, especially in the era of neoliberalism, the decoupled gold dollar has lost its original value. In order to obtain higher returns, American capital had to make significant investments abroad. These investments not only allowed American capital to enjoy the dividends of developing countries, but also objectively helped developing countries establish modern industrial systems.

We can see the resistance of developing countries at present: Vietnam has spent a quarter of its foreign exchange reserves to fill a hole in the bad debt of Saigon Commercial Bank since the real estate accident, which is not a big hole. Since the Chinese Internet said that Vietnam was thriving, it immediately turned 180 degrees and began to sing bad words about Vietnam.

However, the reality is that the economic growth rate in the first nine months of 2024 will reach 6.82%, which is still on the premise that the United States will significantly raise interest rates with the intention of bursting other countries.

Similarly, there is also India. Although everyone likes to criticize India, the reality is that Modi’s bull talk of surpassing Japan by 2025 is really possible, because in the first half of this year, India was $1869.6 billion and Japan was $19612, which is almost the same. India becoming the third largest economy is not a dream.

Modi has some blowing.

And the truly sluggish countries are allies of the United States such as Germany, the United Kingdom, and France. Although Chinese economists, such as Fu Peng, boasted about the Japanese economy a few years ago, looking back now, according to the calculation released by the Japanese Cabinet Office at the economic and financial consultation meeting on July 19, Japan’s real GDP growth rate for 2024 has dropped to 0.9%.

This is not far from the “takeoff of the Japanese economy”, let alone the fact that Japan’s main industries, such as automobiles, are currently under siege. According to a bunch of financial terms, such as “Japanese stocks have risen” and “short end interest rates, long end short interest rates”, may not be able to boost the Japanese economy. However, Japan’s inflation is not small, especially asset prices.

On November 21st, Modi’s most important ally, Indian billionaire Adani, had an incident:

Just a little bit, I know what Americans want to do.

Unfortunately, it’s too late. Joe Biden is going to step down, and the Democratic Party’s dirty tricks are over.

Just a reminder to everyone: the general trend is beneficial to developing countries. Whether you are doing import and export, investment, studying abroad or anything else, try to refer to this as a benchmark.