Market Outlook: The guest sees rising risks from U.S. protectionism, sanctions, and militarization, framing an undeclared economic war between the U.S. and China.
China: China is portrayed as holding key leverage via commodities, rare earths, and stockpiles, with a constructive view on Chinese assets and an undervalued yuan.
Commodities Supercycle: A new supercycle is expected, with critical materials demand surging for rearmament and energy transition; steel strength is cited as corroborating evidence.
Rare Earths: China’s control of ~95% of rare earths is a strategic chokepoint for U.S. defense replenishment and advanced manufacturing, reinforcing commodity pricing power.
Gold: The secular bull trend remains intact with a projected peak of $6,000–$7,000/oz, with China’s commodity demand acting as a key catalyst.
AI: China and the U.S. are “toe-to-toe” in AI, with China potentially ahead in certain areas and benefiting from a large engineering base and open-access AI approaches.
Clean Energy: Geopolitical disruptions are accelerating a pivot away from fossil fuels, benefiting China’s leadership in wind, solar panels, and EVs.
Rates & Dollar: Avoid bonds amid rising yields and fiscal strain, while dollar dominance persists; bank credit growth and renewed QE stoke inflation pressures.
Transcript
I think China just has all the cards. Basically, if they cut off the rare earth supply, the Chinese, the US economy ba basically in 6 to9 months would shut down for all practical purposes. You you want to stay away from bonds. The bond vigilantes are already coming out. I think the secular bull market is still in place and gold secular bull will probably peak out at $6,000 to $7,000 an ounce. >> Hello and welcome to Wealthon. I'm Maggie Lake. Joining me today to discuss the global economy is Stephen Hanky, professor of applied economics at John's Hopkins University and author of Making Money Work. Hi, Stephen. It's great to have you back on. Great to be with you, Maggie. >> Uh, a very warm welcome to all of you tuning in as well. Just a reminder before we get going, this is a complicated investing landscape as we are going to discuss. If you'd like to stress test your portfolio and make sure you are protected against risk, you can get a free review from an adviser in our network. Just click the lick click click the link rather in the description. That's a hard one to get out, but but we're doing this on a Monday, Stephen. Right. So uh I I'm I I want to sort of set the stage with um a a kind of a big question to frame it. When you look across the global economy right now, do you see resilience and reason for optimism or do you see risks and imbalances? >> I see risk and imbalances and where and well part of that uh it's the the leadership of the United States are the three great powers in the world. You've got the United States and you've got China and then you've got Russia. So, okay, we've got Russia tangled up in a war. They've they're they're benefiting kind of a a residual benefit of the war uh in Iran. >> Uh they're benefiting enormously from that. So, let's put them aside for the time being. The the the two big ones that are going toe-to-toe are US and China. And what what what are the policies that have been embraced by the Trump administration and and Biden before him? By the way, the the idea that somehow things have dramatically changed, uh I don't think that's correct. I think the fundamental ideas, all the bad ideas were embraced by in the Trump first administration and and Biden then elevated them even further. and not Trump has elevated them even further. Now, what what are those? Well, the first one deals with a a broad category of things I would call protectionism. And and we've got Trump's tariffs. That's that's part of the story. We've got sanctions. That that's that's another aspect of protectionism. Sanctions are in the same family as tariffs. and and we've got tremendous government intervention and industrial policy uh really on steroids in the United States. And and lastly, we've got militarism. We we've got, you know, this huge increase in uh military uh act allocated. Just look at the budget. The new proposed budget going going from about 1 trillion for the Department of Defense to 1.5 trillion. Now, of course, that's just basically wasted money. I mean, it's just money down the rat hole. >> So, all of those things are negative. We we know that from just principles economics. So, so the the US in short is is doing two things. It's building walls with regard to trade and uh commerce and and it's creating a lot of enemies, collecting enemies. So what so that's the US China oddly enough you've got communist China that's that's opening doors. I mean it's it's now especially with the war in in Iran they have pushed very hard for more trade. They they just dropped tariffs to zero on most imports from Africa and China. So So they're they're they're using kind of an Adam Smith Wealth of Nations 1776 playbook and China. uh and and in addition to that uh they they they have uh adopted kind of a hot stove policy. The hot stove is you put your finger on the hot stove and you're going to get burned. And and this by the way the blowback is that they finally uh la last week about 10 days ago indicated that it would be illegal for Chinese enterprises or Chinese citizens to abide by sanctions imposed on them from the United States or or anyone else for that matter. So, so all all of this is all of this is very dynamic with the US on the basically I think the losing side of the thing. We know from principles of economics that all these policies the United States is embracing in principle in principle are bad and in practice we know they're bad too. Just take sanctions for example. sanctions are are bad in principle because they they do what? Well, they interfere with commerce and free trade and and the benefits from trade are obvious. If if you're selling some something to a foreigner, you're benefiting. And if the foreigner is buying it from you, they're obviously benefiting or they wouldn't buy it from you. So, they're they're what the economists call gains from trade. They're gains. Well, the sanctions cut that off. So you you you destroy gains from trade. You you destroy net benefits from a from a trading transaction. So in principle, sanctions are bad. In practice, they're bad, too, because they they don't work. We have a huge scholarly literature on sanctions and and they rarely achieve their desired objectives and they usually actually are counterproductive. They you they usually create if they are imposed on a country they usually create a rally around the flag effect and you don't get the desired regime change or behavioral change in the country. The the the country hardens up. So, so Stephen, let me ask you, if this is if this is all clearly negative, then why is the Trump administration doing it? I mean, what what about this this narrative that's been put out there that, you know, the sort of free trade system that was set up had gone too far. It had sort of, you know, the balance had gotten out of whack. And this is a much needed reset to that. Well, at number one, the the the e the economic advice they're getting is just wrong. Uh it's it it it doesn't make any sense. Le let's talk about the balance thing, Maggie. Now, why why is the US had a a they're all worked up about we have a trade deficit? We we buy more from foreigners than we sell to foreigners. And they they conclude that that's bad. Remember Trump when he imposed the reciprocal tariffs, he he he said that was the basis for it and he said this was a national emergency. Well, it couldn't be a national emergency because we've had it since 1975. Every every year we have a trade deficit. Now, the question is and and in addition to that, they they argued that the reason we have it is because of nefarious activities by foreigners. remember Trump? He was always talking about foreigners are screwing us and taking us to the cleaners and engaged in unfair trade practices and all of this litany of of things that were supposedly causing the trade deficit. But the fact of the matter is Americans cause the trade deficit. It's made in the USA because Americans spend more than they produce. M >> and if you spend more than you produce, the the only way to make up the gap that's created by the difference between demand and the production that you're supplying is to import. And that's what we do. And it and it's very easy, by the way, for the US to finance it because of the absor exorbitant privilege that we have because we have the international currency, the dollar. Everyone wants to get in the dollar denominated assets. Almost twothirds of the of the stocks of the of the market cap in the world in the world is is denominated in US dollars. Everybody wants to get in dollars. Everybody buy >> we'll talk about whether that's still true or not because I I think that's the open question. Whenever I hear whenever I hear a conversation like this and the phone rings, I always think it's someone from the White House calling. by the way. >> Yeah. >> As we discuss whether the wisdom of this policy >> that was that was my that was my daughter calling which is more important than the White House. >> Yeah. Well, that's true. That's true. So, let So, we're going to we'll return to both of those points that you just made, but but I want to bring it a little near-term and stay on this China uh theme. Um, so we've got this summit finally happening this week. It sounds like you think that uh China is going into this in a strengthened position. What is the dynamic between the US and and uh and China between Trump and Xi because they we've got the Iran war, the straight is still closed. We have big issues when it comes to the supply of commodities as you mentioned trade and sanctions are on the table. Uh there's a lot to discuss. How do you see this that both positions going into this summit? >> Oh, I I think China just has all the cards. Basically, Trump's going to go, you know, he he's going to have to tiptoe through the tulips when he goes to Beijing big big time. He's going to tiptoe through the tulips. His great friend Z so forth and so on. All all of that. We'll get that from Trump. But he's gonna come away with basically nothing because China is is not number one been started started playing very hard ball with the United States and and basically said you're not going to continue to push us around. That that was with the blocking of sanctions. In other words, Chinese citizens were ordered it. illegal to abide by US sanctions in China. No. So, so that that's that's that's that's a red line. There's another red line and that is if you if if you look at commodities, we we we now our munitions inventory is is essentially been depleted. The stockpile of weapons in the United States has been drawn down tremendously with the number one the war in Ukraine, but then the the USIsraeli war on Iran >> and those have to be replaced but all of the replacements will require enormous amounts of critical materials particularly raw earth uh materials and and who controls it? China controls 95% of the rare earths. So, so to to replenish our military stockpile that's been depleted with these two wars that we've have going, we we will have to get permission from China. >> Has anyone told Pete Heget that or do they heet clearly isn't the sharpest knife in the drawer and has no idea what's going on? presumably someone in the Trump administration or in the armed forces understands the >> they they do some someone does. The problem is that Trump is running things you know as the emperor basically and and uh the courtiers are always afraid to tell the emperor that that he doesn't have any clothes. How much do you think China will be vocal about this in this meeting? I mean, or or do you think that I it's going to be sort of more of a behind thescenes hard ball game? >> Oh, I think that the the the Chinese play the long game and and they they don't play cha chess. They play go in China, which is much more complicated than chess. So, so they they know they know what they're doing. And and by the way, this gets back to a very important point. Why why are the Chinese so prepared with the commodities? Why do they have so such huge inventories of commodities? Oil, for example. They're they're they have plenty of oil in China. You say the straight is closed. Well, it's closed for everybody else, but China has plenty of inventory and and they're actually selling some of their inventory to friends and neighbors in Asia. Uh, and to it's not only good business, but it's good diplomacy. Uh, they're they're making friends by doing this. So, so how did this happen? Why why were the Chinese so smart that they they figured all this out? central planning was working and so forth. No, this was the result of remember how eight years ago when we number one arrested the chief financial officer of who is the daughter of the founder of in Canada. remember that with the long arm of the US law went into Vancouver and grabbed her, put her in jail and and so that that was eight years ago and and at that time in addition to that we stopped supplying vital chips to >> Hawei. >> So so the Chinese said, "Gee, we we're getting sanctioned by the United States. They can cut these supply chains off. We we better become independent. We better start becoming independent and stockpiling this these commodities. So why have they been buying oil and stockpiling? Why have they been buying wheat? Why have they been buying all the They have huge grain inventories in China and and and they're they're basically locked and loaded, but they've been doing this for eight years. It's it's not something they just decided all of a sudden because of the the central plan told us to do it. No, it wasn't that. It was they were reacting to the United States attacking China with how because sanctions, remember, are a weapon of war. Every every time the US puts sanctions on somebody or some country, that that's a weapon of war. They're engaged in warfare and and You just brought up a point that I I wanted to ask you which is are the US and China in an undeclared economic war or do they need each other more than the headlines would suggest? >> They they they are in an undeclared e economic war. There's there's no question about it. And and this started to lightly in Trump's first administration and then and then it became m much more aggressive with Biden and and and then when Trump did the reciprocal terrorists, it became very aggressive. But you notice, and this this is my main theme, Trump's tiptoeing through the tulips. He's backed off. Have you noticed he's backed off? He he's he's he stopped threatening China and all these things because some somebody did actually tell him that you know that if they cut off the rare earth supply the Chinese the US economy ba basically in six to nine months would shut down for all practical purposes. >> So what what does China what do you believe China will do with this leverage it has? What does China want? Well, I I no chi China basically wants to be left alone. That China wants to do business that chi China actually does want to do business and want to trade. A and I think China will be very cool because if you look at the P international perceptions index that that just came out 10 days ago, all of a sudden the international perception of the United States in the last two years has fallen from plus plus 22% favorable to minus 11%. And and where is China? It's plus seven. So pe internationally people are pivoting away from the United States, pivoting towards China. China has the lead with the bricks countries and the global south. Uh so they're they're going to it's a it's like a momentum trade. Why why why why would China want to change things? They just stay with the flow. H I mean China has its own weaknesses though, right? I mean when people talk about the demographics, they still have a lot of debt off balance sheet. Um they have a they have strategic reserves, but they are an energy importer although they've been making a lot of effort to you know electrify and bring those costs down. Um it's it it would are they are they able to sort of pull back from this bilateral relationship completely though? I mean for all all the leverage that they may have at the moment. >> Yeah. Well, that's a that's a good point. I don't I don't think anyone can completely pull back from the United States because it it it it when the the the thing that the United States dominates in, it all revolves around the the US dollar and and capital markets in the United States. There there's just no there's no other option for all practical purposes in terms of liquidity and and preference. I mean, yeah, okay, there's Swiss Frank is great, but you know how how how much can you pour into the Swiss Frank? >> Yeah, China's been buying a lot of gold. >> Oh, the China's incre the last two months they've increased their purchases substantially. But if if if you actually go into the balance sheets of it, it looks like the reserves the dollar reserves that central bank has have come have come down in China. But but in fact they've gone up because the US dollar reserves are held in banks and other financial institutions in China not the central bank. Ah, >> so they the all these the the US treasuries are there but they're they're hidden. They're they're not quite so clear. It's but if you tally them all up they're they're they're not only buying gold but they're buying US treasuries. >> That's interesting because yeah that's a that's a narrative that's a I think that people see those headlines from the central bank and the gold buying and think that they're reducing their exposure. >> No, they're actually increasing. M >> so so th this is this is one thing that the the the point is and and the important point is that you you don't just cut off the United States but at the margin you you can pivot away at the edges and and and that's what's happening. It's it's not that the it's not that the dollar is we're going to ddollarize and and the dollar is going to go by way of the dodo bird or anything like that. It's forget it. It's not happening. And and in fact if you if you go back Maggie uh about 2500 years there always for the last 2500 years and probably before that but the last 2500 years there's always a dominant international currency at any point in time. And how many have there been? There have been 14. So, so they don't once the king is in the on the throne, it's pretty hard to knock them off the throne for a whole variety of reasons. And that's why right now the dollar is in the throne and it's going to be hard to knock the dollar off the throne. The the challengers are not that attractive. The challengers have all kinds of problems. and and one if you look at the Chinese Juan the Chinese wan they have capital controls in China and they're probably not going to get rid of capital control. So so that that's a huge handicap and and if you look at the use of foreign currency over the last three years the use of the dollar has gone up a little bit >> in in a proportion of the total. The euro's gone down a little bit and the one has gone up quite a bit, but the one's coming from almost zero there. It's it's we're talking about a very tiny amounts. The the percentage changes and the increase, you get a a big jump in the wand's use and a percentage point basis, but in fact in in nominal terms, it doesn't really amount to too much. We we we've been talking about the the dominance in critical minerals uh for China and processing which they've really cornered the market with and and a lot of their leverage is coming for that from that. Uh what where are we in terms of uh catching up on the AI tech front? >> Well that the AI tech let's let's talk just we'll start with the minerals and then we'll go to the AI. So, so the minerals thing has been is a longunning thing. Uh remember that Deng Xiaoping in the early 1980s said OPEC has oil and we have critical materials. So they they realized that that he r he said actually we have rare earths not critical materials but all of that space is what I call the three M's mining, metallurgy and material science. and and China is very strong. If you look at the universities, for example, they they they're they're up in way at the top dominating dominating the US by the way in the rest of the world in in mining and and metal energy. Material science, not quite so much, but but still very strong. And that's that's that's the commodity picture. Now, the US, what did the US do? The the US actually got rid of the Bureau of Minds in 1986. We don't even have a Bureau of Minds anymore. And and and and this uh I follow because the the the the first faculty position I actually had was I was 24 years of age. It was in the late 1960s, Colorado School of Mines, >> the the world's number one mining school. So, the first course in mineral economics that was taught at mines, I I taught it. >> Wow. >> And and and actually in 1967. So, so it's it's something I I follow and and in and the US especially with the environmental movement, mining became without the production of these things became out and and the processing of metals and minerals was out and and sure shortly there as we went out chi China went in basically so there is a strategic thing and and right now by the way we're talking here about markets and things like that I think and you ask about tech So, so on the tech side, they they have an army of a huge army of engineers, well-trained engineers in China, and and they're clearly going toe-to-toe on AI with the United States. And and uh it's it's not clear who's going to win that race, but it's it's extremely competitive. So, they're dominating on mining and processing and minerals, metallurgy, and they're catching up quickly on AI. >> Well, they might be ahead. There's it's ahead. It's it's a debate about if they're ahead or we're ahead. It's it's not it's not very clear, actually. >> So, uh and and and the AI that they have is open access. So, so that's a that that model is not not not a model that we're using. So so so that that's one thing. Now the current market get getting back into the current market they they're in a strong position because with the war in Iran and closing of the straight of Hermuz all of a sudden everybody's gone back into the transition for clean energy and away from fossil fuels. We have to diversify. We can't rely it it's not it's not the global warming motivation and rationale for going clean energy. That that has nothing to do with it. It's it's basically to diversify away from fossil fuel. Well, who has the cards there? China. Wind power, silicone panels, electric vehicles are they're way ahead of of the West in all these areas. So uh in fact even today there's a there's a long article in the New York Times about precisely this. They the the war is basically get in a way everybody says oh the war you know that's really bad for China because they import a lot of oil from Iran. It's bad for China. It's bad for China because of that. Well that that's only a part of the story. the the other part of the story, it's good for China because everybody wants to go to what? Clean and and if you want to go clean, China's ahead of everyone. >> So, does does the We talked a little bit right at the start about the US following a policy of heavy government intervention in industrial policy. Isn't this why because they're trying to play catchup so that they can have some resilience over the supply chain? um source some of that those critical minerals at home um continue to pour in capex into AI if we're in an arms race with China. Isn't that needed at this point if China does have an upper hand on so many of these >> well the the the the history of industrial policy is one that is is ne highly negative. In other words, you're what what you're suggesting if you go with industrial policy, Maggie, is that you you Washington DC should be allocating capital, not the markets. >> This is just a no-go. I mean, you you this the the history of of of the the the industrial policy throughout the world is is not very good with of course the ultimate look at the Soviet Union. They they had industrial policy. It it didn't work very well. Look look at all of Eastern Europe. It industrial policy didn't work very well. We they we called it socialism then. But it's it's industrial policy and it's central planning and and and and the best way to accumulate knowledge and allocate capital is with a market system. Incredible to think under a Republican administration that you're talking about industrial planning on on a Soviet level. >> It's exactly what's going on though. I mean that's what remember when we started talking I said one thing we've embraced is interventionism >> and interventionism is is just another word for socialism. We're we're not talking about Marx and Engle where you know you you take over the ownership even though the US has taken over some ownership of of private enterprises or at least taken a piece of the action. Uh but but we're talking about government policies that influence capital allocation one way or another. And and the critical materials actually they're they're actually pouring money in into trying to catch up. >> So, we're in a situation where we are likely to see commodities moving up. Commodities are in a super cycle. Does that mean that we will also see inflation moving higher? >> Well, I think we'll see inflation moving higher simply because the money supply has been accelerating. So, so we got two two different things going on. And the the causality in inflation runs from changes in the money supply to changes in inflation. The the broad measures of inflation like the consumer price index that that's driven by what happened with the money supply a year ago or 18 months ago or maybe two years ago. And and from the last 18 months, the money supply has been been accelerating. And therefore I think as I said before the inflation genie is not going to be put back in the bottle. Now as a separate thing and what will confuse people is that I think we are entering a super cycle in commodities and commodity prices will be going up but that that that is not going to be the cause of the inflation going up. It's the money supply. >> Yeah that's really that's really important because people will think it's because of that. Um, and if we see gas start to move lower, people might think that inflation's going to follow suit. Why are we seeing money supply uh move higher? And do you think that's going to continue? What what are is it is it the Fed? What are they trying to do? >> Well, the Well, the the big elephant in the room for the money supply is commercial banks. Commercial banks produce about 80% of the money. 80% of the money is not not produced by the central bank. is not produced by the Fed. It's produced by commercial banks. And they're the the the loans that they've been making are ex accelerating. And you know, the three-month annualized number now that's up like growing at about 10%. So, a lot of credit is going out and and when when they make a loan to you, Maggie, what what is what happens? you you that money that credit is put into your checking account and checking accounts are part of the money supply. >> So the money supply goes up. So that's a that's a key thing and and it looks to me like the banks uh have adequate reserves uh m and their profits have been very strong by the way. So their capital base and reserves go up. when their profits go up, their reserves and capital go up and they have more firepower to make more loans which which they make. >> So, so that's one aspect. Another reason that they have more availability of reserves is that bank regulations are loosening up and and the banks won't be required to hold quite as many reserves against their liabilities. So so that that's another reason. So, so there's a a loosening of monetary policy as it affects banks which produce most of the money. Now, going to the Fed also, they're loosening because until December, they were in in a quantitative tightening mode, meaning they were shrinking the balance sheet of the of the Fed. their contribution to the money supply was was actually very low in some months even negative. And now after December, they've gone to quantitative easing. They're buying Treasury bills. And when they buy Treasury bills, that increases the money supply. So they're adding, too. >> So is this uh they're adding, but probably not actually calling it QA, right? They probably got some other acronym for it. uh because they don't like to say they're going back there. >> Depending on who you're reading, it's actually they they they do indicate QT has stopped and QE has started. >> Wow. So, is this run it hot? What does this mean for the US economy? Well, it it it it it does mean given the stock market, even though I think the stock market's in a bubble, usually bubbles only collapse when monetary policy tightens up. >> So, so what this means is that well, okay, we're in a bubble. Maybe the bubble isn't going to pop because the money the the monetary policy it's not tightening doesn't appear to be in the cards. A and as you indicated, we we've got a bi-election coming up at the, you know, in November. So, I I can't imagine that the monetary policy would all of a sudden get on a tightening course, uh, going into the elections in November. >> Not if any of the Fed governors want to keep their job. >> That's right. >> So, uh, potentially moves into assets. What does that mean? Uh, stocks specifically. What does that mean for bonds? If we have >> Oh, you want to stay for cycle and inflation moving higher? >> You you want to stay away from bonds. The the the bond vigilantes are already coming out. We we have, you know, the the the 10-year uh which is a key interest rate has moved from, you know, around 4.1% to 4.4. I think when it goes over 4.5, that's going to be a big that that'll be a big deal. By the way, that that's a real problem because it will indicate that the refinancing cost of government debt will be going up and the interest cost will be going up and and and now we have about 19% of all taxpayer revenue going in. It's it's to pay interest on debt. So, you get nothing for it. >> 20% of your >> taxes go for servicing debt. So they don't go for income transfer payments. They don't they don't go for any government services. They don't go for government subsidies. They they don't go for any government spending except servicing debt. So so as interest rates go up uh that that number will increase actually. And uh so that's that that's that's definitely a problem. Uh the 30-year is is almost up of it's just right under 5%. So when when that goes over 5% this is going to be big political problems. The the 30-year going over 5% which which I think it will do short shortly. It it went over last week. It went over for one day. It was up over 5% a little bit. >> But that will be a big political issue because that that fact that the tenure is factors into mortgages. >> Yeah. >> So, so you want to you you want to be very careful about being in your bonds. Uh because right now uh when you look at the markets, commodity markets are up, equity markets are up, bonds are you know flat to down. >> What happens to gold here? >> Goes up. It's consolidating right now and I think the secular bull market is still in place and gold secular bull will probably peak out at $6,000 to $7,000 an ounce. What's the catalyst for this next move higher? Because there are also people who are thinking it could roll over and kind of retest lows or maybe hang out here for a while. What do you think the catalyst is for a move higher? Is it trouble in bonds that creates that? Is it the inflation prints that spark another leg higher? >> Well, I I think it's what you mentioned earlier. It's China. If if if you're in commodities, China is the elephant in the room. I don't care what the commodity. I don't care if it's a precious metal or gold or silver or or any of these critical materials or base metals. Steel is up. By the way, that's another indicator of the super cycle. >> If that if we are on the cusp of a super super cycle for commodities, does that mean that we should see the Chinese economy follow suit? And how do you feel about in do we follow that investments in China will do well or no? because of the nature of >> I I think investments in China will will do well. I think the Chinese Juan is is under undervalued right now by a considerable amount. Uh so that's that's that's that's a plus. If if you're in in China, you're going to you're going to see not a depreciating but an appreciating currency. So you get a a currency pop >> and and and a lot of these technologies, these clean technologies and so forth look very interesting in in China. >> Are we I mean given given where we started talking about the imbalances uh and that you see risks and imbalances, what what is the main imbalance that you're worried about and and like what what are the what are the implications of that? Uh I think the I think the main thing it's it's it's not e economic imbalances in in kind of an maybe in an old-fashioned economic imbalance thing. But I think I think the fact that you have China with such a huge trade surplus and and by the way the reason that they have such a huge trade surplus is is is because they they they spend a lot less than they produce. Remember I said the reason we have a deficit. >> So it's all made in China. That their trade surplus is made in China. they they produce a lot more than they consume. In short, they save a lot because they and and they and they don't cons they don't consume very much. So, and and countries that do that historically, think of Germany. Why did Germany always have a big surplus? They they don't anymore, but because they saved a lot. They didn't consume very much. So they so so I I think I think the fact that we have this deficit and China has a surplus that that is if you want to say an an imbalance and and and that that's where the trade war is. >> Yeah. I mean if it maybe imbalance is is the is from an economic perspective not exactly the right term but that's where the source of tension is certainly um that we that everything seems to be revolving around uh right now. >> Exactly. When I said imbalance in an old-fashioned sense, I mean as in a disequilibrium kind of >> and and in trade, by the way, >> this this is another nutty idea that basically Trump and and a lot of the people around Trump follow that somehow everything should be balanced. The trade balances every place should be zero. >> Well, no, they shouldn't be zero. Uh, Stephen, you always give us so much food for thought every time we get together. We so appreciate your time. >> Great to be with you, Maggie. Look forward to seeing you again soon.
China Has America Cornered | Steve Hanke
Summary
Transcript
I think China just has all the cards. Basically, if they cut off the rare earth supply, the Chinese, the US economy ba basically in 6 to9 months would shut down for all practical purposes. You you want to stay away from bonds. The bond vigilantes are already coming out. I think the secular bull market is still in place and gold secular bull will probably peak out at $6,000 to $7,000 an ounce. >> Hello and welcome to Wealthon. I'm Maggie Lake. Joining me today to discuss the global economy is Stephen Hanky, professor of applied economics at John's Hopkins University and author of Making Money Work. Hi, Stephen. It's great to have you back on. Great to be with you, Maggie. >> Uh, a very warm welcome to all of you tuning in as well. Just a reminder before we get going, this is a complicated investing landscape as we are going to discuss. If you'd like to stress test your portfolio and make sure you are protected against risk, you can get a free review from an adviser in our network. Just click the lick click click the link rather in the description. That's a hard one to get out, but but we're doing this on a Monday, Stephen. Right. So uh I I'm I I want to sort of set the stage with um a a kind of a big question to frame it. When you look across the global economy right now, do you see resilience and reason for optimism or do you see risks and imbalances? >> I see risk and imbalances and where and well part of that uh it's the the leadership of the United States are the three great powers in the world. You've got the United States and you've got China and then you've got Russia. So, okay, we've got Russia tangled up in a war. They've they're they're benefiting kind of a a residual benefit of the war uh in Iran. >> Uh they're benefiting enormously from that. So, let's put them aside for the time being. The the the two big ones that are going toe-to-toe are US and China. And what what what are the policies that have been embraced by the Trump administration and and Biden before him? By the way, the the idea that somehow things have dramatically changed, uh I don't think that's correct. I think the fundamental ideas, all the bad ideas were embraced by in the Trump first administration and and Biden then elevated them even further. and not Trump has elevated them even further. Now, what what are those? Well, the first one deals with a a broad category of things I would call protectionism. And and we've got Trump's tariffs. That's that's part of the story. We've got sanctions. That that's that's another aspect of protectionism. Sanctions are in the same family as tariffs. and and we've got tremendous government intervention and industrial policy uh really on steroids in the United States. And and lastly, we've got militarism. We we've got, you know, this huge increase in uh military uh act allocated. Just look at the budget. The new proposed budget going going from about 1 trillion for the Department of Defense to 1.5 trillion. Now, of course, that's just basically wasted money. I mean, it's just money down the rat hole. >> So, all of those things are negative. We we know that from just principles economics. So, so the the US in short is is doing two things. It's building walls with regard to trade and uh commerce and and it's creating a lot of enemies, collecting enemies. So what so that's the US China oddly enough you've got communist China that's that's opening doors. I mean it's it's now especially with the war in in Iran they have pushed very hard for more trade. They they just dropped tariffs to zero on most imports from Africa and China. So So they're they're they're using kind of an Adam Smith Wealth of Nations 1776 playbook and China. uh and and in addition to that uh they they they have uh adopted kind of a hot stove policy. The hot stove is you put your finger on the hot stove and you're going to get burned. And and this by the way the blowback is that they finally uh la last week about 10 days ago indicated that it would be illegal for Chinese enterprises or Chinese citizens to abide by sanctions imposed on them from the United States or or anyone else for that matter. So, so all all of this is all of this is very dynamic with the US on the basically I think the losing side of the thing. We know from principles of economics that all these policies the United States is embracing in principle in principle are bad and in practice we know they're bad too. Just take sanctions for example. sanctions are are bad in principle because they they do what? Well, they interfere with commerce and free trade and and the benefits from trade are obvious. If if you're selling some something to a foreigner, you're benefiting. And if the foreigner is buying it from you, they're obviously benefiting or they wouldn't buy it from you. So, they're they're what the economists call gains from trade. They're gains. Well, the sanctions cut that off. So you you you destroy gains from trade. You you destroy net benefits from a from a trading transaction. So in principle, sanctions are bad. In practice, they're bad, too, because they they don't work. We have a huge scholarly literature on sanctions and and they rarely achieve their desired objectives and they usually actually are counterproductive. They you they usually create if they are imposed on a country they usually create a rally around the flag effect and you don't get the desired regime change or behavioral change in the country. The the the country hardens up. So, so Stephen, let me ask you, if this is if this is all clearly negative, then why is the Trump administration doing it? I mean, what what about this this narrative that's been put out there that, you know, the sort of free trade system that was set up had gone too far. It had sort of, you know, the balance had gotten out of whack. And this is a much needed reset to that. Well, at number one, the the the e the economic advice they're getting is just wrong. Uh it's it it it doesn't make any sense. Le let's talk about the balance thing, Maggie. Now, why why is the US had a a they're all worked up about we have a trade deficit? We we buy more from foreigners than we sell to foreigners. And they they conclude that that's bad. Remember Trump when he imposed the reciprocal tariffs, he he he said that was the basis for it and he said this was a national emergency. Well, it couldn't be a national emergency because we've had it since 1975. Every every year we have a trade deficit. Now, the question is and and in addition to that, they they argued that the reason we have it is because of nefarious activities by foreigners. remember Trump? He was always talking about foreigners are screwing us and taking us to the cleaners and engaged in unfair trade practices and all of this litany of of things that were supposedly causing the trade deficit. But the fact of the matter is Americans cause the trade deficit. It's made in the USA because Americans spend more than they produce. M >> and if you spend more than you produce, the the only way to make up the gap that's created by the difference between demand and the production that you're supplying is to import. And that's what we do. And it and it's very easy, by the way, for the US to finance it because of the absor exorbitant privilege that we have because we have the international currency, the dollar. Everyone wants to get in the dollar denominated assets. Almost twothirds of the of the stocks of the of the market cap in the world in the world is is denominated in US dollars. Everybody wants to get in dollars. Everybody buy >> we'll talk about whether that's still true or not because I I think that's the open question. Whenever I hear whenever I hear a conversation like this and the phone rings, I always think it's someone from the White House calling. by the way. >> Yeah. >> As we discuss whether the wisdom of this policy >> that was that was my that was my daughter calling which is more important than the White House. >> Yeah. Well, that's true. That's true. So, let So, we're going to we'll return to both of those points that you just made, but but I want to bring it a little near-term and stay on this China uh theme. Um, so we've got this summit finally happening this week. It sounds like you think that uh China is going into this in a strengthened position. What is the dynamic between the US and and uh and China between Trump and Xi because they we've got the Iran war, the straight is still closed. We have big issues when it comes to the supply of commodities as you mentioned trade and sanctions are on the table. Uh there's a lot to discuss. How do you see this that both positions going into this summit? >> Oh, I I think China just has all the cards. Basically, Trump's going to go, you know, he he's going to have to tiptoe through the tulips when he goes to Beijing big big time. He's going to tiptoe through the tulips. His great friend Z so forth and so on. All all of that. We'll get that from Trump. But he's gonna come away with basically nothing because China is is not number one been started started playing very hard ball with the United States and and basically said you're not going to continue to push us around. That that was with the blocking of sanctions. In other words, Chinese citizens were ordered it. illegal to abide by US sanctions in China. No. So, so that that's that's that's that's a red line. There's another red line and that is if you if if you look at commodities, we we we now our munitions inventory is is essentially been depleted. The stockpile of weapons in the United States has been drawn down tremendously with the number one the war in Ukraine, but then the the USIsraeli war on Iran >> and those have to be replaced but all of the replacements will require enormous amounts of critical materials particularly raw earth uh materials and and who controls it? China controls 95% of the rare earths. So, so to to replenish our military stockpile that's been depleted with these two wars that we've have going, we we will have to get permission from China. >> Has anyone told Pete Heget that or do they heet clearly isn't the sharpest knife in the drawer and has no idea what's going on? presumably someone in the Trump administration or in the armed forces understands the >> they they do some someone does. The problem is that Trump is running things you know as the emperor basically and and uh the courtiers are always afraid to tell the emperor that that he doesn't have any clothes. How much do you think China will be vocal about this in this meeting? I mean, or or do you think that I it's going to be sort of more of a behind thescenes hard ball game? >> Oh, I think that the the the Chinese play the long game and and they they don't play cha chess. They play go in China, which is much more complicated than chess. So, so they they know they know what they're doing. And and by the way, this gets back to a very important point. Why why are the Chinese so prepared with the commodities? Why do they have so such huge inventories of commodities? Oil, for example. They're they're they have plenty of oil in China. You say the straight is closed. Well, it's closed for everybody else, but China has plenty of inventory and and they're actually selling some of their inventory to friends and neighbors in Asia. Uh, and to it's not only good business, but it's good diplomacy. Uh, they're they're making friends by doing this. So, so how did this happen? Why why were the Chinese so smart that they they figured all this out? central planning was working and so forth. No, this was the result of remember how eight years ago when we number one arrested the chief financial officer of who is the daughter of the founder of in Canada. remember that with the long arm of the US law went into Vancouver and grabbed her, put her in jail and and so that that was eight years ago and and at that time in addition to that we stopped supplying vital chips to >> Hawei. >> So so the Chinese said, "Gee, we we're getting sanctioned by the United States. They can cut these supply chains off. We we better become independent. We better start becoming independent and stockpiling this these commodities. So why have they been buying oil and stockpiling? Why have they been buying wheat? Why have they been buying all the They have huge grain inventories in China and and and they're they're basically locked and loaded, but they've been doing this for eight years. It's it's not something they just decided all of a sudden because of the the central plan told us to do it. No, it wasn't that. It was they were reacting to the United States attacking China with how because sanctions, remember, are a weapon of war. Every every time the US puts sanctions on somebody or some country, that that's a weapon of war. They're engaged in warfare and and You just brought up a point that I I wanted to ask you which is are the US and China in an undeclared economic war or do they need each other more than the headlines would suggest? >> They they they are in an undeclared e economic war. There's there's no question about it. And and this started to lightly in Trump's first administration and then and then it became m much more aggressive with Biden and and and then when Trump did the reciprocal terrorists, it became very aggressive. But you notice, and this this is my main theme, Trump's tiptoeing through the tulips. He's backed off. Have you noticed he's backed off? He he's he's he stopped threatening China and all these things because some somebody did actually tell him that you know that if they cut off the rare earth supply the Chinese the US economy ba basically in six to nine months would shut down for all practical purposes. >> So what what does China what do you believe China will do with this leverage it has? What does China want? Well, I I no chi China basically wants to be left alone. That China wants to do business that chi China actually does want to do business and want to trade. A and I think China will be very cool because if you look at the P international perceptions index that that just came out 10 days ago, all of a sudden the international perception of the United States in the last two years has fallen from plus plus 22% favorable to minus 11%. And and where is China? It's plus seven. So pe internationally people are pivoting away from the United States, pivoting towards China. China has the lead with the bricks countries and the global south. Uh so they're they're going to it's a it's like a momentum trade. Why why why why would China want to change things? They just stay with the flow. H I mean China has its own weaknesses though, right? I mean when people talk about the demographics, they still have a lot of debt off balance sheet. Um they have a they have strategic reserves, but they are an energy importer although they've been making a lot of effort to you know electrify and bring those costs down. Um it's it it would are they are they able to sort of pull back from this bilateral relationship completely though? I mean for all all the leverage that they may have at the moment. >> Yeah. Well, that's a that's a good point. I don't I don't think anyone can completely pull back from the United States because it it it it when the the the thing that the United States dominates in, it all revolves around the the US dollar and and capital markets in the United States. There there's just no there's no other option for all practical purposes in terms of liquidity and and preference. I mean, yeah, okay, there's Swiss Frank is great, but you know how how how much can you pour into the Swiss Frank? >> Yeah, China's been buying a lot of gold. >> Oh, the China's incre the last two months they've increased their purchases substantially. But if if if you actually go into the balance sheets of it, it looks like the reserves the dollar reserves that central bank has have come have come down in China. But but in fact they've gone up because the US dollar reserves are held in banks and other financial institutions in China not the central bank. Ah, >> so they the all these the the US treasuries are there but they're they're hidden. They're they're not quite so clear. It's but if you tally them all up they're they're they're not only buying gold but they're buying US treasuries. >> That's interesting because yeah that's a that's a narrative that's a I think that people see those headlines from the central bank and the gold buying and think that they're reducing their exposure. >> No, they're actually increasing. M >> so so th this is this is one thing that the the the point is and and the important point is that you you don't just cut off the United States but at the margin you you can pivot away at the edges and and and that's what's happening. It's it's not that the it's not that the dollar is we're going to ddollarize and and the dollar is going to go by way of the dodo bird or anything like that. It's forget it. It's not happening. And and in fact if you if you go back Maggie uh about 2500 years there always for the last 2500 years and probably before that but the last 2500 years there's always a dominant international currency at any point in time. And how many have there been? There have been 14. So, so they don't once the king is in the on the throne, it's pretty hard to knock them off the throne for a whole variety of reasons. And that's why right now the dollar is in the throne and it's going to be hard to knock the dollar off the throne. The the challengers are not that attractive. The challengers have all kinds of problems. and and one if you look at the Chinese Juan the Chinese wan they have capital controls in China and they're probably not going to get rid of capital control. So so that that's a huge handicap and and if you look at the use of foreign currency over the last three years the use of the dollar has gone up a little bit >> in in a proportion of the total. The euro's gone down a little bit and the one has gone up quite a bit, but the one's coming from almost zero there. It's it's we're talking about a very tiny amounts. The the percentage changes and the increase, you get a a big jump in the wand's use and a percentage point basis, but in fact in in nominal terms, it doesn't really amount to too much. We we we've been talking about the the dominance in critical minerals uh for China and processing which they've really cornered the market with and and a lot of their leverage is coming for that from that. Uh what where are we in terms of uh catching up on the AI tech front? >> Well that the AI tech let's let's talk just we'll start with the minerals and then we'll go to the AI. So, so the minerals thing has been is a longunning thing. Uh remember that Deng Xiaoping in the early 1980s said OPEC has oil and we have critical materials. So they they realized that that he r he said actually we have rare earths not critical materials but all of that space is what I call the three M's mining, metallurgy and material science. and and China is very strong. If you look at the universities, for example, they they they're they're up in way at the top dominating dominating the US by the way in the rest of the world in in mining and and metal energy. Material science, not quite so much, but but still very strong. And that's that's that's the commodity picture. Now, the US, what did the US do? The the US actually got rid of the Bureau of Minds in 1986. We don't even have a Bureau of Minds anymore. And and and and this uh I follow because the the the the first faculty position I actually had was I was 24 years of age. It was in the late 1960s, Colorado School of Mines, >> the the world's number one mining school. So, the first course in mineral economics that was taught at mines, I I taught it. >> Wow. >> And and and actually in 1967. So, so it's it's something I I follow and and in and the US especially with the environmental movement, mining became without the production of these things became out and and the processing of metals and minerals was out and and sure shortly there as we went out chi China went in basically so there is a strategic thing and and right now by the way we're talking here about markets and things like that I think and you ask about tech So, so on the tech side, they they have an army of a huge army of engineers, well-trained engineers in China, and and they're clearly going toe-to-toe on AI with the United States. And and uh it's it's not clear who's going to win that race, but it's it's extremely competitive. So, they're dominating on mining and processing and minerals, metallurgy, and they're catching up quickly on AI. >> Well, they might be ahead. There's it's ahead. It's it's a debate about if they're ahead or we're ahead. It's it's not it's not very clear, actually. >> So, uh and and and the AI that they have is open access. So, so that's a that that model is not not not a model that we're using. So so so that that's one thing. Now the current market get getting back into the current market they they're in a strong position because with the war in Iran and closing of the straight of Hermuz all of a sudden everybody's gone back into the transition for clean energy and away from fossil fuels. We have to diversify. We can't rely it it's not it's not the global warming motivation and rationale for going clean energy. That that has nothing to do with it. It's it's basically to diversify away from fossil fuel. Well, who has the cards there? China. Wind power, silicone panels, electric vehicles are they're way ahead of of the West in all these areas. So uh in fact even today there's a there's a long article in the New York Times about precisely this. They the the war is basically get in a way everybody says oh the war you know that's really bad for China because they import a lot of oil from Iran. It's bad for China. It's bad for China because of that. Well that that's only a part of the story. the the other part of the story, it's good for China because everybody wants to go to what? Clean and and if you want to go clean, China's ahead of everyone. >> So, does does the We talked a little bit right at the start about the US following a policy of heavy government intervention in industrial policy. Isn't this why because they're trying to play catchup so that they can have some resilience over the supply chain? um source some of that those critical minerals at home um continue to pour in capex into AI if we're in an arms race with China. Isn't that needed at this point if China does have an upper hand on so many of these >> well the the the the history of industrial policy is one that is is ne highly negative. In other words, you're what what you're suggesting if you go with industrial policy, Maggie, is that you you Washington DC should be allocating capital, not the markets. >> This is just a no-go. I mean, you you this the the history of of of the the the industrial policy throughout the world is is not very good with of course the ultimate look at the Soviet Union. They they had industrial policy. It it didn't work very well. Look look at all of Eastern Europe. It industrial policy didn't work very well. We they we called it socialism then. But it's it's industrial policy and it's central planning and and and and the best way to accumulate knowledge and allocate capital is with a market system. Incredible to think under a Republican administration that you're talking about industrial planning on on a Soviet level. >> It's exactly what's going on though. I mean that's what remember when we started talking I said one thing we've embraced is interventionism >> and interventionism is is just another word for socialism. We're we're not talking about Marx and Engle where you know you you take over the ownership even though the US has taken over some ownership of of private enterprises or at least taken a piece of the action. Uh but but we're talking about government policies that influence capital allocation one way or another. And and the critical materials actually they're they're actually pouring money in into trying to catch up. >> So, we're in a situation where we are likely to see commodities moving up. Commodities are in a super cycle. Does that mean that we will also see inflation moving higher? >> Well, I think we'll see inflation moving higher simply because the money supply has been accelerating. So, so we got two two different things going on. And the the causality in inflation runs from changes in the money supply to changes in inflation. The the broad measures of inflation like the consumer price index that that's driven by what happened with the money supply a year ago or 18 months ago or maybe two years ago. And and from the last 18 months, the money supply has been been accelerating. And therefore I think as I said before the inflation genie is not going to be put back in the bottle. Now as a separate thing and what will confuse people is that I think we are entering a super cycle in commodities and commodity prices will be going up but that that that is not going to be the cause of the inflation going up. It's the money supply. >> Yeah that's really that's really important because people will think it's because of that. Um, and if we see gas start to move lower, people might think that inflation's going to follow suit. Why are we seeing money supply uh move higher? And do you think that's going to continue? What what are is it is it the Fed? What are they trying to do? >> Well, the Well, the the big elephant in the room for the money supply is commercial banks. Commercial banks produce about 80% of the money. 80% of the money is not not produced by the central bank. is not produced by the Fed. It's produced by commercial banks. And they're the the the loans that they've been making are ex accelerating. And you know, the three-month annualized number now that's up like growing at about 10%. So, a lot of credit is going out and and when when they make a loan to you, Maggie, what what is what happens? you you that money that credit is put into your checking account and checking accounts are part of the money supply. >> So the money supply goes up. So that's a that's a key thing and and it looks to me like the banks uh have adequate reserves uh m and their profits have been very strong by the way. So their capital base and reserves go up. when their profits go up, their reserves and capital go up and they have more firepower to make more loans which which they make. >> So, so that's one aspect. Another reason that they have more availability of reserves is that bank regulations are loosening up and and the banks won't be required to hold quite as many reserves against their liabilities. So so that that's another reason. So, so there's a a loosening of monetary policy as it affects banks which produce most of the money. Now, going to the Fed also, they're loosening because until December, they were in in a quantitative tightening mode, meaning they were shrinking the balance sheet of the of the Fed. their contribution to the money supply was was actually very low in some months even negative. And now after December, they've gone to quantitative easing. They're buying Treasury bills. And when they buy Treasury bills, that increases the money supply. So they're adding, too. >> So is this uh they're adding, but probably not actually calling it QA, right? They probably got some other acronym for it. uh because they don't like to say they're going back there. >> Depending on who you're reading, it's actually they they they do indicate QT has stopped and QE has started. >> Wow. So, is this run it hot? What does this mean for the US economy? Well, it it it it it does mean given the stock market, even though I think the stock market's in a bubble, usually bubbles only collapse when monetary policy tightens up. >> So, so what this means is that well, okay, we're in a bubble. Maybe the bubble isn't going to pop because the money the the monetary policy it's not tightening doesn't appear to be in the cards. A and as you indicated, we we've got a bi-election coming up at the, you know, in November. So, I I can't imagine that the monetary policy would all of a sudden get on a tightening course, uh, going into the elections in November. >> Not if any of the Fed governors want to keep their job. >> That's right. >> So, uh, potentially moves into assets. What does that mean? Uh, stocks specifically. What does that mean for bonds? If we have >> Oh, you want to stay for cycle and inflation moving higher? >> You you want to stay away from bonds. The the the bond vigilantes are already coming out. We we have, you know, the the the 10-year uh which is a key interest rate has moved from, you know, around 4.1% to 4.4. I think when it goes over 4.5, that's going to be a big that that'll be a big deal. By the way, that that's a real problem because it will indicate that the refinancing cost of government debt will be going up and the interest cost will be going up and and and now we have about 19% of all taxpayer revenue going in. It's it's to pay interest on debt. So, you get nothing for it. >> 20% of your >> taxes go for servicing debt. So they don't go for income transfer payments. They don't they don't go for any government services. They don't go for government subsidies. They they don't go for any government spending except servicing debt. So so as interest rates go up uh that that number will increase actually. And uh so that's that that's that's definitely a problem. Uh the 30-year is is almost up of it's just right under 5%. So when when that goes over 5% this is going to be big political problems. The the 30-year going over 5% which which I think it will do short shortly. It it went over last week. It went over for one day. It was up over 5% a little bit. >> But that will be a big political issue because that that fact that the tenure is factors into mortgages. >> Yeah. >> So, so you want to you you want to be very careful about being in your bonds. Uh because right now uh when you look at the markets, commodity markets are up, equity markets are up, bonds are you know flat to down. >> What happens to gold here? >> Goes up. It's consolidating right now and I think the secular bull market is still in place and gold secular bull will probably peak out at $6,000 to $7,000 an ounce. What's the catalyst for this next move higher? Because there are also people who are thinking it could roll over and kind of retest lows or maybe hang out here for a while. What do you think the catalyst is for a move higher? Is it trouble in bonds that creates that? Is it the inflation prints that spark another leg higher? >> Well, I I think it's what you mentioned earlier. It's China. If if if you're in commodities, China is the elephant in the room. I don't care what the commodity. I don't care if it's a precious metal or gold or silver or or any of these critical materials or base metals. Steel is up. By the way, that's another indicator of the super cycle. >> If that if we are on the cusp of a super super cycle for commodities, does that mean that we should see the Chinese economy follow suit? And how do you feel about in do we follow that investments in China will do well or no? because of the nature of >> I I think investments in China will will do well. I think the Chinese Juan is is under undervalued right now by a considerable amount. Uh so that's that's that's that's a plus. If if you're in in China, you're going to you're going to see not a depreciating but an appreciating currency. So you get a a currency pop >> and and and a lot of these technologies, these clean technologies and so forth look very interesting in in China. >> Are we I mean given given where we started talking about the imbalances uh and that you see risks and imbalances, what what is the main imbalance that you're worried about and and like what what are the what are the implications of that? Uh I think the I think the main thing it's it's it's not e economic imbalances in in kind of an maybe in an old-fashioned economic imbalance thing. But I think I think the fact that you have China with such a huge trade surplus and and by the way the reason that they have such a huge trade surplus is is is because they they they spend a lot less than they produce. Remember I said the reason we have a deficit. >> So it's all made in China. That their trade surplus is made in China. they they produce a lot more than they consume. In short, they save a lot because they and and they and they don't cons they don't consume very much. So, and and countries that do that historically, think of Germany. Why did Germany always have a big surplus? They they don't anymore, but because they saved a lot. They didn't consume very much. So they so so I I think I think the fact that we have this deficit and China has a surplus that that is if you want to say an an imbalance and and and that that's where the trade war is. >> Yeah. I mean if it maybe imbalance is is the is from an economic perspective not exactly the right term but that's where the source of tension is certainly um that we that everything seems to be revolving around uh right now. >> Exactly. When I said imbalance in an old-fashioned sense, I mean as in a disequilibrium kind of >> and and in trade, by the way, >> this this is another nutty idea that basically Trump and and a lot of the people around Trump follow that somehow everything should be balanced. The trade balances every place should be zero. >> Well, no, they shouldn't be zero. Uh, Stephen, you always give us so much food for thought every time we get together. We so appreciate your time. >> Great to be with you, Maggie. Look forward to seeing you again soon.