I’ll spell it out explicitly one last time.
Everyone thinks Trump wants balanced trade. He does not.
He wants to force allies to stop trading with China. Completely. Zero inbound supply.
Because it’s not just because of American jobs. It’s a proactive move to slow down Chinas industrial rise.
Everything is downstream of this. Reserve currency status. The ability to address fiscal debt.
It’s a crazy risk because China has a vote.
It’s a crazy risk because you are forcing Europe to commit seppeku because they have very little leverage or say in the matter.
It’s a crazy risk because Xi might bomb the fabs in Taiwan and the world doesn’t get AGI.
It’s a crazy risk because China knows how financialized we are and will dump bonds and equities to drive anger towards trump.
But it also has benefits if it works.
If your allies can’t trade with China there is no near peer compe or to worry about.
That has a ton of benefits. Just look at what happened after WW2/USSR collapse when American was the last man standing.
Hegemony.
Trumps advisors like Miran believe that you can coerce your allies to pay for your security umbrella in the form of buying longer dated treasuries.
This removes the overhangs of the debt load while allowing you to pump markets in time for midterms.
If Mexico can’t import from China then you solved the fentanyl crisis because they won’t have precursors.
More importantly by establishing a tolerance for risk the level of fear you can instill in cartels is an order of magnitude higher.
“ if they risked WW3 they won’t think twice about droning Sinaloa. “
This same “logic” applies to the Middle East.
Now I will repeat for the 100x that this is not advocacy.
I’m only telling you guys what the people in power believe. And I’m telling you that what happens next if I’m right will come down to how Xi wants to fight.
He can go gloves off or glove on. There are real constraints as I have outlined in prior tweets.
But there is a plan and therefore the tolerance for market pain is way way higher than you think.
Because first you need Europe to be willing to commit economic seppuku. And they won’t want to (rightly). So Trump will crush them economically until they cry uncle. And then they still won’t want to and he’s going to threaten to defang NATO. And then they still won’t want to and he will withdraw swap lines.
Or a lot more likely, he will do it all very forcefully and all at once to maximize leverage.
Now you’ll rightly ask… why wasn’t this messaged better? Why have midwits like Lutnik on the team?
Because you are attempting to execute a reckless gambit where the big variables are not what the tariffs rates are. Or if you tariff penguins. Or if the person sounds dumb on TV. Non of that matters.
What matters is - will Japan capitulate quickly and agree to buy a large amount of treasuries? Will Saudi capitulate quickly with your B2 bombers waiting in Diego Garcia to bomb Iran? Will China invade Taiwan?
Many of you think everyone around Trump is re ed. I get it. You hate the guy and everything he stands for. But I will say this until I’m blue in the face. Bessant, and even Miran, have higher IQs than most if not all of you. They thought through the second order effects. Believe me. If I, a dumb TMT L/S bro thought this far ahead, they certainly did too. Which means they warned Trump how risky this was and how deeply irrational it is if you planned to eventually cut a deal with China. Therefore you have to assume Trump heard the risks and said “ it we ball” anyways.
Economic Blitzkrieg. That’s what we’re seeing. And it’s only the start.
https://x.com/TMTLongShort/status/1909491586641047713
Trumps tolerance for market pain is a lot higher than you think.
Because there is a plan.
It might not be a good plan. But it is a complex plan that anticipated a crash.
Not because they want a crash.
Not because they are dumb enough to think equities down -50% is good for the yield curve.
Because the only way to coerce a full global decoupling from China is to play max hardball and move quickly.
Because the first counter-attack was always going to be financial - because China correctly understands the West is over-financialized - and most people in Washington know China thinks that because Xi has been saying it loudly and proudly for years.
So sequencing matters.
Bessant is being rushed to Japan & likely Saudi next to attempt to stabilize the yield curve. That is priority number one.
Priority number two? Game theory.
Ensure you provide sufficient incentive for the first big pieces to flip your way.
Coerce Japan to agree to put up massive tariffs not just on China imports. But also on imports from countries who in-turn trade with China.
Establish a pattern for network effects where if you’re left out of the new sphere you lose out not just on trade with the U.S. but also on trade with the early adopters of the new accords.
Again economic coercion alone will be insufficient to cause the desired cascade. Which is why Rubio and Hegseth will be heavily involved and why starting with Japan makes sense.
Japan is terrified of what a China-led sphere would entail.
Again, not saying it’s a good plan. But more pain has been anticipated and has been embraced.
Economic Blitzkrieg. Position accordingly.
https://x.com/TMTLongShort/status/1909944559037018332
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Blake Cramer 