Blain’s Morning Porridge 13^th October 2025 – Hard Hats to the Ready as Trade War Threatens Crash

“By the pricking of my thumb, something wicked this way comes..”

The World shifted over the weekend. Trump’s 100% China Tariff threat was a snap reaction to the reality is China is now the key power in global trade, and holds most of the cards. There are significant risks ahead, not the least being the AI bubble popping – which would kill US sentiment as the whole stock market edifice will trumble.

Trumble – my new word to suggest a cascading crumble/tumble market correction. This is going to be an interesting week. The thing about market No-See-Um moments is they have always been hiding in plain sight.

The Friday US/China Trade shock is a great example of a No-See-Um triggering the market. (Others might call it a black swan.) We had assumed Trump and Xi would agree some form of trade deal and future accommodation later this month. Nope. China is playing Trump’s game right back at him – putting export controls on critical rare earths, immediately exposing massive supply chain vulnerabilities, and leaving the US president the supplicant begging for a meeting. It’s a clear sign of how China now feels strong enough to push back on Trump and challenge directly.

The result is Global Risks have suddenly multiplied. A global depression triggered by something akin to Covid-era Chip shortages is now a real risk.  Staflation is again a possible outcome. This morning there is speculation Trump will be forced into a new TACO trade, but rather than meaning Trump Always Chickens Out, this time it stands for Turnaround And Capitulation Opportunity (thanks to the marvellous Steen Jakobson for that observation.)

The World is watching. Trump’s success in upsetting and dishing America’s allies – most critically driving Modi’s India towards China over his bombastic claims on the recent Pakistan/India flashpoint – points to one potential future; nations choosing to deal with a stronger, more attractive, more trade driven China and less with an increasingly isolated USA. Economics supports such a shift – China sits at the heart of the new global centre-of-gravity of consumer/middle-class prosperity – South-East Asia.

I dropped a Morning Porridge Saturday special over the weekend and used the classic Sun Tsu quote: “the supreme art of war is to subdue the enemy without fighting.” It seemed to sum up what China seeks to achieve neatly. China has taken a long-term perspective, building 20-years toward this moment – now dominating global manufacturing with a defacto monopoly on critical mineral resources, and also on energy through its construction of both fossil and renewable sources.

Compare and contrast China’s economic reality vs the increasingly fractured and deeply polarised US economy. Lots of promises of massive investment into the USA were made by international companies under Trump’s cosh, but when energy and infrastructure is lacking, and Trump will likely be gone in a few years… who will actually spend any money. And even though America is run by lawyers, the legal system and the rule of law now seems under attack.

The fact someone front-ran Trump’s 100% tariff threat by 30 mins, scoring a massive $200mm win by shorting the thin and illiquid BitCoin market shows not everyone had missed the significance of a renewed trade war! In the current Wild West of Opportunism that is the White House, there is no point wondering or asking who it was – it will be denied, and anyone trying to finger an insider will likely find themselves in court alongside anyone else that’s upset the President. In makes the US look more than a little corrupt and done.

On Bitcoin, a couple of my crypto mates have been telling me how clever they’ve been buying more Buttcon at the bottom of the crash on Sunday. They look at me like I’m a Martian when I ask how Buttcon, which claims to be digital gold, crashed so precipitously when it’s supposed to be a risk adverse store of value in times of instability and uncertainty? Gold went higher. As said before… BTC is most closely correlated to risky stocks.

Trump has made multiple promises to the US electorate. One is to make it the global centre of the Crypto-industry. That’s fine. Be our guest. He’s made off like a bandit from his meme-coin, his stable-coin, and attracted political donations from the crypto-community – but, to this day, can anyone show me what crypto has actually made better? What is its utility? As Friday’s crash showed – it is a small, scared and nervous market which depends on FOMO to suck in the next greater fool. What else does it do?

If you take a look at my imaginary market doomsday clock, the hands are now at 3 minutes to the next major correction. A couple of weeks ago I was asked what could trigger the downshift I’ve been sensing this way comes. I suggested a number of things, a shock to the AI bubble narrative, an economic shock from rising inflation or downturn, or a credit-event shock in terms of an unforeseen corporate collapse.

We could argue these have all occurred. Data is scarce because of the shutdown. There is the MIT Survey that says 95% of the AI applications innovated by companies have thus far failed to generate any kind of upside (and often made their businesses less attractive to customers or new hires). Such overpromised AI gains are now termed digital slop. This article from BBerg is well worth a read: “AI Promised Productivity. It’s Delivering “Workslop”.

AI is simply not delivering – the promises of how it will transform businesses and the economy has driven an enormous bubble with the stocks associated with it driving all the upside in US stocks. The massive infrastructure spending and investment is around 2.5% of US GDP. Yet the reality seems to be fewer job openings for graduates, worse service for customers trapped in AI doom-loop customer service, and “Workslop” to describe the time wasted trying to integrate AI into workflows. There is a great story of an AI Firm, Thinking Machines, founded by one of the rebellious Open-AI execs who tried to sack Sam Altman, Mira Murati, raising $2 bln for a $10 bln valuation despite having no products to tell funders about…!

Meanwhile, the collapse of over-levered First Brands Group suddenly exposes just how a single dodgy entrepreneur can still pull the wool over the eyes of sophisticated banks. The fact one of the supply chain financing wriggles he was using was run by a former employee of the well-dodgy Greensill, should have been a wake up and smell the coffee moment! The WSJ tells the whole story: “Behind the Collapse of an Auto-Parts Giant: $2 billion Hole and Mysterious CEO.”

I’ve been warning of the frothy AI market for months, focusing on the dodgy circularity of funding, the likelihood Closed-Weight Large Language Models driving infrastructure spending will be replaced by evolved simpler less costly Open-Weight SLMs, and how data sovereignty will become critical. When Meta suddenly announced it was no longer going to hire key staff with 9 digit packages, I reckon that was a clear signal of a deflating bubble. Now it might be another of the hyperscalers walking away from some data-centres – a move that would instantly slay the market. Not just for AI – but a market correction that will directly impact every stock holder and company.

This market already felt due a correction. A renewed global trade war between China and the USA – a war China has been preparing to fight for decades – will likely end badly for the West.

Hard hats to the ready…

Out of time and off to catch a train…

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital