Cycle Trading

[Duma]

The market is so afraid of the China trade issue, but I had not heard any numbers until I watched a program last night. I did some research on my own. I was shocked at what a small part of our GDP China is.

Our total GDP for 2018 was 18.57T. To make it easier that is 18,570B.

Our exports to China were 179B which amounts to 1% of our GDP. So if China stopped buying anything from us, our GDP would drop 1%. Pretty much nothing. But can they? The top 2 imports for them is soybeans and airplanes. I know Trump is talking about helping the soybean farmers.

But here is the key. If our GDP is expected to grow at 3% then we need 594B more in something for 2019. Our imports from China were 558B, so our net imports were -378B. If we stop buying China's products because they become too expensive, this will actually raise our GDP growth. So not only will we gain on net exports, we will also have the tariffs boasting the GDP growth. Seems like a win win to me.

Seems to me that China is in a very bad position because they just don't buy much from us.

So how will China respond? I think two ways 1. Stop buying US treasuries and 2. Curtail shipments of rare earth materials. I personally like both of these. I think interest rate are too low and has given rise to all the unicorn companies that are set to collapse just like the dotcoms did. We are very capable of producing our own rare earth metals, but they ran our companies out of business decades ago with low prices which they have now raised big time. This was also a big surprise to me. Rare earth elements are really not rare, they are just hard to extract.

Here are some interesting facts. Walmart sales in 2018 was 500B and cost of goods was 373B. So how much of the 558B in imports went to Walmart, half? For sure prices are going to increase at Walmart and I know a lot of people are worried about that. I am not so worried, I already try my best to not buy anything from China. I do buy a lot of tools, so that may have to stop.