Blain’s Morning Porridge Sept 2^nd 2025 – Political Stress in the West while a New Asia Emerges

“The greatest victory is that which requires no fighting.”

Political stresses are undermining the West. While Europe bickers and America reinvents itself, the Asian century has begun. Yet, Modi and Xi embracing in Tianjin does not herald a new China-India axis, but that India has moved firmly into the new Asia camp. How these two nations compete will be the key to 21^st Century investment opportunities.

This morning’s Porridge is a tale of East and West. While politics in the West appears to be going to rackshit in the UK and France, and Washington is heading down its new self-obsessed direction, watch what is going on it Asia. The tectonic plates of geopolitics do not rest easy – but are not uninvestible.

The West

Here in the West we are now obsessed by the politics of failure and disappointment. If it’s not Sir Keir Starmer announcing yet another reset, appointing his own economics advisers and promising to do better, it’s the imminent collapse of the French government, and rising fears of how that may impact global bond markets. I am reading screeds of utterly ill-informed “market” comment on imminent defaults, IMF bailouts, and record bond yields. Relax – most of it is just foolish inflammatory noise – designed to spread fear and weakness in the face of pretty much standard political-economic difficulties. It gives opposition parties – especially right-wing populists – space to spin their tales and seize votes.

Yes, Westen nations face debt challenges and growth issues.

No, they are not about to go bust.

They face difficulties – not destruction. All the noise about the failure of incumbent governments obscures the reality there will be massive consequences from half-baked policies of populism – none of which are likely to solve any of the multiple real issues at the centre of Western economies; growth, infrastructure, education, defence, welfare. We are probably in for decades of noise. During which most of us will get on with the daily struggle of paying the increasing bills and growth struggles, inflation mounts and we wonder what went wrong… or maybe things will just fix themselves. (Actually… economic history suggests they do!)

The East

The Chinese Tianjin summit over the weekend saw Xi, Putin, Modi and the leaders of 21 other nations gathered to plot about overturning the dollar global order. Many had axes to hone – recently sharpened by Trump’s bullying behaviours on tariffs. While I am sure they all utterly distrust each other, the event was stage managed with Modi, Xi and Putin laughing, backslapping and engaged with each other. I bet they were each telling their funniest Trump stories.

Today, Xi’s will entertain Putin and North Korea to a military parade featuring the revamped and professionalised People’s Liberation Army armed to the teeth with new hypersonic weapons specifically on show to warn the West about interventions into Chinese areas of influence. It’s also a sharp nod to Putin that China has the weapons, and has been working on tactical doctrine to ensure the PLA is never squandered the way Russian Armies have been.

Xi is smiling because he knows he has the upper hand in the trade war with America. Trump can threaten all he wants. Xi can switch off US tech industries tomorrow by withholding rate-earths and/or breaking supply chains. Widgets matter as much as chips in modern production.

Despite the massive investment into the military, and costly reform, China’s goal is to win wars through economics. Deals were signed this week to normalise relationships between India and China – confirming how quickly India has swayed away from its traditional pro-Western stance. Russia signed a new gas pipeline deal – it will pumping its oil through Mongolia for the next 30 years. These deals confirm the shape of the new economic order China envisages – and its economic future addressing the huge consumer market of newly wealthy middle class families in South East Asia which is emerging. I can’t help but think about a new Asian Co-Prosperity Sphere.

In the past we’ve sneered at China’s previously clumsy attempts at debt diplomacy in Asia and Africa, but it’s now bearing fruit. Without fighting any wars, China has become the centre of the new Global South movement, backed up by BRICs, new Silk Roads, and the Belt and Road project. It’s generally been rejected as expensive, poorly done and ineffective – but watch what happens next. It’s happened because ineffective US administration of both hues enabled it.

More to the point, from an investment perspective, look at the recovery in China Tech stocks in the Hong Kong market. Smart western money figured out some time ago where the global economy is headed. (Surprising how many folk advised me to test drive some of the new Chinese cars yesterday!)

Meanwhile, the loss of India my prove the most significant switch on the geopolitical jigsaw since the Ribbentrop pact of 1939 when Russia and Germany agreed the carve up of Poland. It can be pinned on Trump.

A few month ago Trump mightily peeved India when he claimed credit for the ceasefire between Pakistan and India after a brief air-war. The Indians are furious – they don’t want Trump anywhere near their long-running disputes with Pakistan. They see their borders as an Indian issue – not an opportunity for an American to collect points towards a mail-order Nobel peace prize. Despite having relatively modern Western Aircraft, the Indians got spanked in the air – the Pakistanis had Chinese J-10 fighters armed with long-range Chinese hyper-fast missiles that allowed them to swat the Indians out of the battlespace.

The reason India is being “punished” with 50% tariffs for dealing in Russian oil transhipments appears largely due to Modi’s refusal to bow and scrape at Trump’s throne. The only other nation in the 50% bracket is Brazil, which is being punished for prosecuting former premier Bolsanaro, a political ally of Trump.  India is being punished because Modi won’t do sorry. India needs to replace lost US exports quickly – and a more reliable Asian market is attractive. Losing India to the China axes may prove Trump’s greatest mistake.

Back in the West

Yesterday I listened to a remarkable Bloomberg podcast, an interview with Liz Truss descrbing the doom loop facing the UK economy. Need I remind you how briefly she was UK premier? She did her usual thing of blaming everyone and everything else for her failure: the civil service, the Bank of England, The Treasury, the Office for Budget Responsibility, all of whom stood in her way. “Them”, “The Blob” ensconced at the heart of UK policy ensure nothing ever happens.  She described a left-wing Keynesian plot to undermine her. You can’t be a paranoid schizophrenic unless someone is out to get you….

The thing is Truss’ heart was probably in the right place (f*** knows where her head was). She is right the UK economy has become sclerotic and needs a shock. Donald Trump is also right about many of the problems in the US economy. They both perceive the problems that lie at the heart of the aging, debt ridden, low growth, low productivity economies they manage(d): the stultifying hand of bureaucracies, and the need to cut debt. Both saw tax cuts as the key to stimulating the economy, and massive cuts in spending (austerity) to balance the books.

The difference is Trump has the political power to make it happen – Truss did not. After her disastrous 2022 budget she was left high and dry, abandoned by her own party with little option but to resign. Her recollections of the events around her defenestration differ from my own. As gilts crashed triggering a potential meltdown in highly leveraged trades that would have catalysed a much wider crash, I watched the same agencies she blames for her downfall, swiftly engineer stability. The mechanisms of the state finances may be bureaucratic, but they were effective.

While Truss was a free market capitalist. Trump is something else – radical right-wing socialist populist, seems about the best description. His absolute control of the political process is enabling him, giving him the ability to think the unthinkable – like reversing the independence of the US Federal Reserve.

Trump wants control – he wants to set interest rates low to cut the cost of interest payments on the nation debt, assist consumers (being crushed by the rising cost of personal debt), and enable US corporates to borrow to invest. We all know what happens when interest rate are manipulated too low: corporates borrow to mount stock buybacks, figuring that’s more effective than running the business risks of investing borrowed cash into new factories, plant, infrastructure or acquisitive acquisitions.)

The issue for markets will be the consequences emerging from the shifting politics and geopolitics. I suspect the future could look something like this:

• China will seek to dominate the new Asian Economy, but that it will continue to batter/conflict with India – that dynamic will keep both nations… edgy and increasingly competitive. Pick your investments into both.
• Trump has founded the new MAGA/Republican movement – which will evolve after him into something that remains isolationist but stable.
• Europe has choices about future trade, but its political systems are the real root of the current turmoil. Unless the current rash of populism can be addressed, constrained and made effective, Europe will struggle to gain any toehold in the new Asia-Middle East-European Trade bar-bell I’ve previously described.

The future looks… interesting, but don’t despair: “Things are never as bad as we fear, but seldom as good as we hope.”

Out of time, and back to the day job…

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital