Blain’s Morning Porridge July 21 2025 – Trade and China point to where the world is headed.
I can’t believe we are still talking about Epstein Hunter Biden’s Laptop.
Trade tensions are set to dominate this week – particularly for Europe and Japan. While Trump upsets his allies, the global nexus is moving to the wealth concentration in South East Asia and the future evolution of tech – nothing lasts forever.
And so begins another week in global markets! Big themes for the week might, or might not include some of the following:
- EU vs Trump Tariffs – word is the Europeans are somewhat miffed the Americans want to charge high tariffs across the board, while demanding Europe drops theirs. I have an idea…
- What’s occurring in China. It’s over six-weeks since the first rumours all is not well with Emperor Xi reached these shore… While the economy brushed off Trump’s tariffs, how investible is it? Can you afford to miss it?
- Japan Election – the LDP lost its outright majority but can form a coalition. Should global investors start to worry about the Yen and JGB market if Japan’s homogenous political system looks wobbly?
- US Results – what will this week’s slew of US company numbers tell us? Probably that the American economy is thriving – but these numbers look backwards, and not at the post tariff world we are about see reflected in the data.
Europe : We have 10 days for the USA and Europe to agree some form of trade accommodation. It will be a fudged compromise; a full agreement is impossible in such a time frame – especially within the EU where urgency is not a thing. In the absence of any agreement, the EU will have little choice but to respond to Trump’s punishment regime with countermeasures, triggering likely Orange fury and a round of further punitive tariffs.
None of which is great for US/European cooperation on Ukraine – where its European nations that are paying top dollar for the weapons Donald Trump is statesman-like giving to the beleaguered nation. Trump is waving a hefty tariff stick, but the carrot of dealing with the USA looks vanishingly small. What’s the point of remaining a close trading partner of an unreliable USA, when the future growth nexus of the global economy will be South East Asia, including China?
It’s difficult to see how a European/US trade war benefits anyone except China. US Commerce Secretary Howeard Lutnick is quoted in BBerg saying :”these key counties will figure out it is better open their markets to the USA than pay a significant tariff.” That was once true – whether it remains so… is debatable.
Front page of the FT this morning: Can Europe break free of American tech supremacy? is well worth a read. The issue is “Tech Sovereignty”. The Americans make the assumption their Tech will also be the first choice, but history shows that technology is a fluid thing. (150 years the best ships in the world were “Clyde-Built”. Today the only commercial boats built in Scotland are 2 CalMac Ferries that are years late, overbudget and leak.) Could the same thing happen to US tech as Tech and Geopolitics continue to evolve?
Which leads us to China… I’ve been told to ignore the rumours swirlling around Emperor Xi’s potential longevity – such things are “unclear”. Swift political change is unlikely right up to the moment it has happened, (note the use of “has”), unless it has not happened. The key issue is the economy, which remains troubled but growing. It was not closed down by the US Trade war posturing, but instead it was Trump who Taco’d back. The deft application of Rare-Earth threats worked a treat.
There are three larger China themes:
- The purges of China’s tech entrepreneurial class in the 2010s damaged confidence in the investibility of China at a time when the geopolitical narrative was being shifted against it. The result is global managers remain massively underweight China. But increasing doubts on the US and other heavily indebted G7 nations, plus the extreme over-valuation of US stocks requires new strategies. The China dominated BRICS now accounts for 45% of the global population and over 35% of GDP. As part of the wider South East Asian market – the wealthiest concentration of middle class consumers – the arguments to invest only get stronger.
- Is China intent on conflict to recover Taiwan? Opinion is split between hawks who expect China to move violently as soon as it feels America is distracted, and those who believe China will be content to be strong militarily and a de-facto regional hegemon for now, but sees no need to acquire Taiwan through hostility if trade could lead to stronger bonds.
- Is Chinese tech set to eclipse America? A recent Gavekal report put China’s potential in context – plentiful and cheap electricity, demonstrating its own capabilities in micro-processors, EV dominance, and a host of other reasons confirm is well past just being a manufacturing centre. In a rapidly evolving global economy, China may have the ability to surpass US tech leadership. It is beginning to demonstrate it.
Japan: 40 years ago…. We though the success and wealth of Japanese businesses would enable them to acquire the whole of corporate America. Everyone has a Sony Walkman, and we all carried Japanese Cameras. Japanese cars were in vogue. The grounds of the emperor’s palace was worth more than whole of California. The world changes.
Yesterday Japan’s LDP took a beasting at the polls and lacks a majority. It will be able to construct a working coalition to keep Premier Shigeru Ishiba in power, but concerns on how effectively it can address economic risks – including a 25% Trump tariff threat – and the size of Japan’s outstanding debt. Any signs of Political wobble and instability will impact yen and the JGB market.
Japan’s debt at 200% plus of GDP is the highest in the G7, and it now seen as the canary in the coal mine that could trigger a global debt market slide. However, it’s a threat more imagined than real – its largely domestic and the Bank of Japan uses liability management meaning the effective debt/gdp ratio is really around 115%.
US firms reporting this week include Alphabet, with Tesla providing the light, comic relief on Wednesday. I can’t wait to hear how they spin this one… Look to see how much Google is spending on AI and Tesla on not building robots… and ask how much cheaper will the Chinese do it?
Out of time and back to the day job..
Bill Blain
Author, The Morning Porridge
Partner Shard Capital
3 Comments
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The rumours (see, I used the u you are so proUd of…) of Xi’s power loss expose the biggest problems with investing in China. If the people you are working with are suddenly out of the inner circle, your investment is toast. Also, the State is in control, and there is no guarantee that whatever benefit you might have working with them won’t be taken away for any and all reasons.
I know you know this, and China is the big gorilla in the room, but it continues to appear you suffer from China Derangement Syndrome (CDS). That is, you ignore all the horrors in hopes of making a quick pound.
Is China the lead in tech right now? EV? AI? Sure, when you hold 17% of the people of the entire world as slaves, and propagandize them into submission with an “iron rice bowl,” of course you’ll inevitably outpace your chaotic and distracted rivals.
I wonder, though. Do all those EVs have secret kill switches connected to a button on Xi’s laptop? And just what is the ultimate purpose of Chinese AI?
The other caveat has been brought up before (see Robert Kaplan): What happens if China spins way out of control, along the lines of the Balkans? Unlikely? Things go bad slowly, then all at once, as you imply. What’s interesting is how the world seems to be in lock step opposition to North Korea, but China is actually admired on the left. Funny, though, how Socialist Scotland can’t build a ferry worth riding…
All the best!
I could respond with something about China’s 3000 year history, or its post Mao realisation that trade is only way to beat capitalist nations… But… believe what you will. I see Europe moving towards a stronger trading relationship with SE Asia rather then US.
Ok, well, China’s 3000 year history is mainly one of them being the Middle Kingdom with the view that the rest of the world should be vassals. Does that mindset still exist in the background? I often hear people complain about how the US is imperialistic, but China and its weary belt and road, that’s not imperialistic? Going into Africa to build infrastructure to extract natural resources without providing any real concern about local populations, that’s not colonial? And you speak much about climate change, but China is still using coal for over 50% of its energy needs. Sure, they’ve rejected Mao (though seems like the Left in the West is still enamored…) but it’s still a command economy. Everyone complains loudly about Trump being a “King,” yet they willing bow and scrape to the would-be emperor Xi.
I believe what I see, not some wishful hope strategy that by going hat-in-hand to the Chinese I might be able to make some money before they nationalize my investment.
I completely agree that the chaos in the US will change markets, to the advantage of SE Asia, and others. So be it, and I lay the blame directly on the Left. They had multiple opportunities to provide a normal alternative to populism on the right. They chose populism on the Left, and lost. I look forward to seeing if we can emerge from this squall without too much damage to the rigging. I suppose you think it more of a hurricane.
You have friends in America who, for the most part, are in concert with you! Maybe I’m misreading you, and your view on China is only your reading of the wind? I have a more jaundiced view I guess, and I so see that China is not the whole of SE Asia.
Apologies for another rant….