1 May 2025
Is President Trump nuts or is there strategic purpose in his tariffs? And in his relationship with US allies?
The short answer is some of both.
Leaving aside that President Trump has personal behavior characteristics which many find undesirable, the fact is that he is the most powerful politician in the Western world so we cannot ignore his strategy. His strategy and his successes get drowned out by the noise surrounding him and some of his unusual appointees.
He inherited a US economy where the government was running vast deficits with no serious attempt to get the budget into shape. One strategy is cutting the US federal bureaucracy, but his appointee Elon Musk will find it tougher to do so than the seeming easy cuts promised in Trump’s election campaign. However, the enormous deficit and debt must be addressed and wherever cuts fall there is loud resistance.
A related strategy is to rebuild American industry behind tariff walls and simultaneously raise money from tariffs to reduce the US budget deficit. That will prove challenging but is a necessary objective. Both strategies will have a substantial impact and are expected to significantly reduce America’s deficit over President Trump’s second term as president.
Making US allies lift their defense spending.
For decades US policymakers have complained that other nations including the European members of NATO as well as Britain, Canada, Australia and New Zealand have been relying on US military protection but have stoically avoided lifting their own defense spending to remotely close to the same proportion of their national GDP as does the USA. The beneficiaries of the US defense alliances made polite noises but avoided meeting their obligations to the alliances from which they benefited—essentially freeriding. President Trump applied shock and awe where generations of polite diplomacy had failed and threatened to withdraw the US from its NATO obligations, and by extension, from other security arrangements. Alliances only work long term if all members pull their weight. Trump’s threat worked and a succession of alliance members, particularly the Europeans, are significantly increasing their defense spending and hence their contributions to mutual security arrangements.
This is largely unacknowledged by President Trump’s critics.
Resistance to change.
Experts in change management have long noted that resistance to change is more heavily focused on the means of bringing about change rather than change itself. It is unsurprising that there is widespread criticism of President Trump’s shock and awe negotiating tactics.
China and its strategic contest with America.
The US tariff strategy is predominantly aimed at China which has been shameless in abusing Western intellectual property and using import bans for its own political purposes. For example, its various bans on Australian products because we asked where Covid originated.
The dire state of the Chinese economy.
President Trump is sure to be fully informed on the current dire state of the Chinese economy. China is experiencing massive unemployment, particularly youth unemployment. Last year the CCP stopped issuing unemployment statistics after youth unemployment topped 20 percent. Recent Chinese Australian visitors to China have told me of huge unemployment and widespread business failure. The dire straits of China’s economy is far too obvious to paper over. The CCP leadership appear to have no answers to China’s economic problems.
Chinese population aging and declining.
The Chinese population is now in substantial decline. New births have declined massively and hence China has an ageing and declining population. The Mao era “one child policy” has boomeranged through the generations and also resulted in a majority of male births. The current generation of females are reluctant to become mothers at similar early ages as were their mothers and grandmothers. Lifting the one child policy has had negligible impact on the number of births and the population decline is steady.
Declining Chinese population met building boom head-on leading to disaster.
The declining population confronted the building of vast numbers of high-rise apartments being sold to investors with 100 percent payment upfront head on. This had been the most popular form of investment. New sales dwindled and huge building companies such as Evergrande went into a Chinese form of liquidation leaving vast buildings uncompleted. Chinese friends have told me that existing investment apartments have halved in value as the declining population and unemployment have destroyed the market. Vast numbers of apartments, paid for off the plan, have not been completed and many are unlikely to be. Lots of Chinese citizens have seen their savings evaporate, having paid for investment property which has not been delivered, but for which they borrowed to pay 100 percent of purchase off the plan. This is unlike the Australian experience of paying 10 percent deposit on high rise apartments and the balance only on completion of the building.
China depends on export of manufactured goods. Trump threatens chaos to its exports.
The USA and China are now the major world powers and are in a strategic contest of which economic factors dominate. China replaced manufacturers in the USA, Europe and elsewhere with its own producers and supplied the rest of the world with Chinese manufactured goods thereby creating employment and an improving living standard for its population. It imported very little other than raw materials. Over time a huge amount of global manufacturing shifted to China. Other countries have long complained of unfair trading policies and of Chinese disregard for international rules. President Trump has caused a massive disruption with his tariff impositions. After throwing a curve ball at most of the world, President Trump made a strategic adjustment to non-China tariffs reducing them to 10 percent with 90 days for each country to negotiate with the USA but leaving China tariffs at 145 percent in a breathtaking move.
The necessary solution to China’s economic woes.
The Chinese economy desperately needs its own population to spend significantly more on goods and services but the population, either unemployed or fearful of unemployment of themselves or family members, are desperately hanging on to savings rather than spending. Economic history records that this occurred in America after the great Wall Street Crash of 1929 and resulted in massive unemployment.
Chinese exports a vast amount of manufactured goods, much of which is not essential to our lives. Trump’s goals of placing punitive tariffs on Chinese goods to create space for US manufacturing and simultaneously raising income to reduce the US deficit will be challenging but will have a huge impact on China, whose manufacturers are already experiencing a shrinking market at a time of high and rising unemployment. The rest of the world is unlikely to absorb the reduction of Chinese goods flowing into the US as a result of imposition of punitive tariffs. Chinese vehicle exports are facing blockages in both the USA and Europe which will shield their own motor industries.
Chinese strategic rivalry in defense and contest for global leadership.
China has become a strategic rival to the USA, which under President Trump has identified its significant economic weakness. The huge growth in the Chinese People’s Liberation Army, Navy and AirForce are designed to counter the USA across the Pacific. The US has been the dominant Pacific power since World War Two. Since the dismemberment of the USSR its Pacific strategy has surpassed its interest in Europe with the rise of China and the decline of Russia. President Trumps tariff strategy has the secondary objective of weakening China economically and hence reducing its global influence.
Market changes
Global share markets have gyrated substantially while trying to get a read on President Trump’s strategy falling in early April then recovering substantially. We avoided trading rather than risking a sell down and missing the recovery.
Readers need to be cautious, take professional advice as required and watch the underlying international strategies at play rather than being overly distracted by the peripheral noise surrounding the Trump Administration.
Best wishes to all readers
Graham Middleton
grahamgeorgemiddleton@gmail.com
General advice and need to confirm.
As I sold out of an accounting and financial services group, of which I had been a founding partner, on 30 June 2020 I am no longer licensed. The above is general advice and should be confirmed with a currently licensed investment adviser. One I would recommend to you is Campbell Thompson at Ord Minette who is both courteous and experienced. His number is 0407 839 229. His assistant Simone Shelton 0402 085 892 is a helpful person also. If you are after simple transaction advice, they are ideal. I use them but have absolutely no financial interest in any services that they provide to others.
My Financial interest.
I have no financial interest in the advice I provided and seek no fee. I am secure financially and I seek no personal remuneration. If you find it worthwhile you are able to acknowledge it by making a tax-deductible donation to the registered charity which I support, the Delany Foundation who, I am confident, will apply it to worthy use.
Financial Success for Dentists
Financial Success for Dentists: Rules for How to Approach Your Dental Career sets out the key strategies which make dentists successful. It is specifically written for those dentists and dental specialists owning their own practices and for those aspiring to own practices. Among the topics included:
· Understand key practice valuation criteria.
· Learn how some dentists inadvertently reduce the value of their practice by $500,000
· Avoid long term errors when purchasing your practice.
There are many accountants, financial advisers, marketing consultants, web site designers and practice advisers who give advice from their particular disciplinary experience, but very few have the wider breadth of experience to define for their clients the key rules to follow to optimize their practice and their long-term financial outcomes. An otherwise competent financial adviser may have little understanding of what makes one practice much more successful than another. Many accountants have detailed knowledge of the taxation rules but cannot identify if a dental client has broached invisible barriers to practice growth or a threat to practice goodwill value.
Please Pass On
If you like these newsletters, please pass them on to colleagues. Past newsletters and articles in Australasian Dental magazine on business issues are at grahammiddleton.com. I can be contacted directly by email at graham.george.middleton@gmail.com and by mail at Graham Middleton, 37 Charteris Drive, Ivanhoe East, VIC 3079.
