The Art of the Deal meets the Art of War

You’ve probably heard about the escalating trade war between the United States and China.

Maybe you think it doesn’t really matter to you … or you aren’t sure how.

But it’s a story we’re paying close attention to because we think there’s more to the story than meets the eye … with potentially HUGE ramifications.

Here’s a summary of the story in a series of headlines …

• Trump administration adds to China trade pressure with higher tariff plan – Reuters, 8/1/18
• China Vows It Won’t Back Down After Trump’s Latest Tariff Threat – Bloomberg, 8/1/18
• China Says It’s Ready to Retaliate on Latest U.S. Tariff Threat– Bloomberg 8/2/18

Okay, so what? What does any of this mean to a Main Street real estate investor?

Think of it this way …

If this was a military war and not a trade war … and there was a chance a bomb could land on YOU … would you pay attention?

But a bomb isn’t really the best analogy. It’s more like biological warfare.

There are financial diseases which could be unleashed into the financial system … and YOUR portfolio and future opportunities might get infected.

So now it’s not as simple as just watching out for dropping bombs.

Now you need enough expertise to recognize the symptoms of diseases while there’s still time to apply an antidote.

But when you KNOW the threat is real and the stakes are high, isn’t it a top priority to get knowledgeable fast?

In Greek mythology, when Achilles was born it was foretold he would die young.

To prevent this, his mother dipped him in magic water which made him invincible.

But the magic water didn’t coat his ankle where his mother held Achilles over the water, so that small part of his body remained vulnerable.

Achilles grew into a mighty man who survived many fierce battles. But one day, someone figured out his weakness … and shot a poisoned arrow into his heel.

Achilles died from the poison.  Today, the term “Achilles heel” is synonymous with a weakness, which in spite of overall strength, can lead to downfall.

In a trade war with China, is it possible Uncle Sam has an Achilles heel?

And if you’re an investor depending on any aspect of U.S. strength for your prosperity, it’s important to be aware and prepare for a possible downfall.

However, China may not actually be interested in destroying the United States.

Nonetheless, they could well be working on a plan to gain advantage over the U.S. … with potentially severe ramifications for Main Street investors.

We realize most American press is filled with reassuring commentaries about Uncle Sam holding all the trump cards (sorry, we couldn’t help ourselves) …

… and that China’s going to back down in this trade war.

And we’ll concede that might APPEAR to happen. But what if China’s playing a different game?

Consider these quotes from famed Chinese military strategist and philosopher, Sun Tzu, in his classic book The Art of War …

“An army may be likened to water, for just as flowing water avoids the heights and hastens to the lowlands, so an army avoids strength and strikes weakness.”

“Therefore, those skilled in war bring the enemy to the field of battle and are not brought there by him.”

So even if Uncle Sam is more powerful … virtually invincible, as Achilles was … it’s possible for a strategic adversary to strike a victorious blow …

… just like the biblical story of little David taking on invincible giant Goliath.

The counter-argument is that China’s self-interest precludes it from inflicting serious harm on the United States … because China needs the U.S. to buy all it’s stuff.

True … but back to The Art of War …

“ … the best policy is to take a state intact; to ruin it is inferior to this … To subdue the enemy without fighting is the acme of skill.”

“Take advantage of the enemy’s unpreparedness; travel by unexpected routes and strike him where he has taken no precautions.”

And since we’re in the mood for quoting … here’s something we wrote heading into our Future of Money and Wealth conference …

A very interesting book we just finished is Exorbitant Privilege by Barry Eichengreen. He’s Professor of Political Science and Economics at Cal Berkeley.

Eichengreen published this book in 2011, which means he probably wrote it in 2010. Keep this in mind as we share these excerpts …

“What if foreigners dump their holdings and abandon the currency [dollar]? What, if anything, could U.S. policymakers do about it?”

“… it would have to start with what precipitated the crash and caused foreigners to abandon the dollar.”

“One trigger could be political conflict between the United States and China. The simmering dispute over trade and exchange rates could break into the open … American politicians … could impose an across-the-board tariff on imports from [China].”

Eichenberg wrote this at least FIVE years before Donald Trump even announced his candidacy, much less started his Presidency.

He’s basically saying the U.S. dollar could be America’s Achilles heel. One that Uncle Sam may not be taking adequate precautions to protect.

So …. did China “bring the enemy to the field of battle”?

We don’t know.

But as discussed in detail at Future of Money and Wealth, it sure seems there’s a bigger game being played.

For individual investors to understand all this and take appropriate precautions takes an investment of time, money, and energy.

It’s a bit more complex than just watching for big bombs to drop.  And sadly, it’s too much effort for most folks.

So they’ll just hope for the best, and trust the people in charge to have the skills and motivations to do the right thing.

But after hearing Ben Bernanke tell everyone in 2007 that the sub-prime crisis was contained and there’s nothing to worry about … we’re not convinced.

So we’ll close with this final quote from Sun Tzu …

“To rely on rustics and not prepare is the greatest of crimes; to be prepared beforehand for any contingency is the greatest of virtues.”

If you think it’s a good idea to be aware and prepared for the ramifications of what the news is only hinting at …

… consider investing the time and money to watch the Future of Money and Wealth.

Until next time … good investing!

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