There’s always a larger geopolitical dynamic when you assess the economic alliances that President Trump puts together…. Always and underlying plan…  Sometimes it just takes time to surface.
As we have noted, even going back to 2017, Japanese Prime Minister Shinzo Abe always appeared to be the fulcrum for President Trump’s Indo-Pacific strategy.  

Remember the trip to Japan as honored guests of Emperor Naruhito and Empress Masako at the Imperial Palace?  Remember last month’s (May 25th) unprecedented reception with the titans of Japanese business?  Remember the private reception set up by a very nervous U.S. Ambassador William F. Hagerty?  A reception with the most influential business CEO’s in Japan and Southeast Asia? 
Well…

TOKYO (Reuters) – Japan’s Tokyo Electron, the world’s No.3 supplier of semiconductor manufacturing equipment, will not supply to Chinese clients blacklisted by Washington, a senior company executive told Reuters.
The decision shows how Washington’s effort to bar sales of technology to Chinese firms, including Huawei Technologies, is ensnaring non-American firms that are not obliged to follow U.S. law.

China, which is locked in a crippling trade war with the United States, is pushing to build its semiconductor industry to reduce its reliance on U.S., Japanese and European suppliers for chip-making machinery.
“We would not do businesses with Chinese clients with whom Applied Materials and Lam Research are barred from doing businesses,” the executive said, referring to the top U.S. chip equipment firms.
“It’s crucial for us that the U.S. government and industry see us as a fair company,” he said, citing Tokyo Electron’s long U.S. partnership since the 1960s, when it started off as an importer of U.S. equipment.
He did not want to be named given the sensitivity of the matter. Applied Materials and Lam Research declined to comment.
Another major Japanese chip equipment supplier is also considering halting shipments to blacklisted Chinese firms, a person familiar with the matter said.
“The issue is beyond something we can decide on our own,” said the person, who also declined to be identified.
Executives at other equipment suppliers said they were communicating closely with the Japanese industry ministry. (read more)

Now the design of President Trump’s multidimensional strategy to confront China gains clarity.  Now we see the benefits of personal investment…
President Trump is executing one of the most brilliant geopolitical economic resets in the history of global trade. It really is stunningly remarkable how President Trump has controlled the entire landscape. The consequential phase has begun.
It is fascinating how the financial pundits didn’t see this coming. Perhaps one of the best indicators of where things are comes from this quote within the South China Post:

…“The Administration’s Section 301 tariffs and China’s retaliatory tariffs will now further disrupt – or even break – many thousands of supply chains in both countries.”…
[Nelson Dong, a senior partner at Dorsey & Whitney]


The quote by Nelson Dong is stated *as if* shifting/breaking supply chains is a flaw in the approach. It’s not. Exactly the opposite is true; this is a feature of the strategic reset.  A specific and purposeful feature designed by President Trump.
What Dong is predicting is the deconstruction of “one-belt, one-road”.
As President Trump highlights, over time (and it won’t take long) there will be an exodus of multinational manufacturing away from China.  Corporations will shift their purchase agreements, manufacturing and assembly plans to ASEAN countries outside the investment ‘risk zone’ that is now China.
Notice some of the nuance (specific references) within President Trump’s tweets. Japan, Vietnam (President Trang Dai Quang), South Korea (KORUS), Philippines and India are positioned to pick-up business.
To counteract the predictable exodus the Chinese state-run enterprises (and banks) will offer incentives to retain the corporate manufacturing business. This process means China, in essence, subsidizes the tariffs:

China has no choice if they want to retain their economic model. Remember, China’s economy is deep (manufacturing) but also narrow. They are dependent on raw materials, customers and market access. {Go Deep}
Additionally, President Trump announced he has not made any decision on the next phase of 25% tariffs on the remaining $350 billion in Chinese products.  He doesn’t need to.  Merely the possibility of additional tariffs will pause any further investment; and some companies not currently impacted will make decisions to avoid the possibility of impact.
President Trump has walked Chairman Xi into a trap.  There is only downside for China in the current dynamic.  In an effort to avoid the downside, China will bleed cash to retain their economic position…. However, this can only last so long.

President Trump knows the strength of our U.S. position is that our economy is deep and wide.  The U.S. is a self-sustaining economy.  Almost 80% of our internal production and manufacturing is purchased within our own market.
In the big picture – economic strength is an outcome of the ability of a nation, any nation, to support itself first and foremost. If a nations’ economy is dependent on other nations to survive it is less strong than a nation whose economy is more independent.
The reality of China as a dependent economic model; heck, they cannot even feed themselves; puts them at greater risk from the effects of global economic contraction.  However, more importantly it puts China at risk from President Trump’s strategic use of geopolitical economic leverage to weaken their economy.  Trump is exploiting that risk.
As things go forward, China cannot sustain a long-term economic conflict with the U.S.  As each day passes the ASEAN alliance will see inbound investment grow as companies pull-out of China and invest in Japan, S-Korea, Vietnam, Philippines, India etc.
The GDP of our allies (including Mexico, think recent ‘migration deal’) grows, and the controlled GDP of China, as an adversary, shrinks.

(LA Times) GoPro Inc. will move most of its U.S.-bound camera production out of China by summer, becoming one of the first brand-name electronics makers to take such action to minimize the impact of the U.S.-China trade war.
“Today’s geopolitical business environment requires agility,” GoPro Chief Financial Officer Brian McGee said in a statement Monday. “We’re proactively addressing tariff concerns.” The company is still deciding where to put the manufacturing operation. (more)

All of this was entirely predictable.  President Trump and Ambassador Lighthizer told the world what to expect in 2017:
Da Nang, Vietnam – United States Trade Representative Robert Lighthizer today released the following statement in response to President Trump’s speech on trade between the United States and the Indo-Pacific region, at the Asia Pacific Economic Cooperation (APEC) CEO Summit (emphasis mine):

“The President spoke loud and clear: the era of trade compromised by massive state intervention, subsidies, closed markets and mercantilism is ending. Free, fair and reciprocal trade that leads to market outcomes and greater prosperity is on the horizon.
“President Trump understands that too many nations talk about free trade abroad, only to shield their economies behind tariff and non-tariff barriers at home. The United States will no longer allow these actions to continue, and we are willing to use our economic leverage to pursue truly fair and balanced trade.
“I look forward to doing as the President instructed me and to pursue policies that will improve the lives of our workers, farmers and ranchers.” (link)

  • Kiyotaka Ise, President of Aisin Seiki
  • Peter Jennings, President of the American Chamber of Commerce in Japan
  • Noriyuki Inoue, Chairman of Daikin Industries
  • Koji Arima, President and Chief Executive Officer of DENSO
  • Hiroyuki Ochiai, President of Fuel Total System
  • Toshiaki Higashihara, Chairman of Hitachi
  • Toshiaki Mikoshiba, Chairman and Director of Honda
  • Masatsugu Nagato, President and Chief Executive Officer of Japan Post Holdings Co.
  • Yuzaburo Mogi, Honorary Chief Executive Officer and Chairman of the Board of Directors for Kikkoman
  • Akira Marumoto, President and Chief Executive Officer of Mazda
  • Ken Kobayashi, Chairman of Mitsubishi Corporation (Trading House)
  • Masaki Sakuyama, President and Chief Executive Officer of Mitsubishi Electric Corporation
  • Seiji Izumisawa, President and Chief Executive Officer for Mitsubishi Heavy Industry
  • Nobuyuki Hirano, Chairman and Corporate Executive for Mitsubishi UFJ Financial Group, Inc.
  • Shigenobu Nagamori, Founder, Chairman, and Chief Executive Officer for Nidec Corporation
  • Hiroto Salikawa, President and Chief Executive Officer for Nissan
  • Junko Nakagawa, Executive Managing Director for Nomura Asset Management Co.
  • Hiroshi Mikitani, Chief Executive Officer for Rakuten
  • Yasuhiko Saitoh, President of Shin-Etsu Chemical
  • Masayoshi Son, Chief Executive Officer of Softbank
  • Masayoshi Fujimoto, President and Chief Executive Officer for Sojtz
  • Shiro Kambe, Executive Vice President for Sony
  • Tomomi Nakamura, President of Subaru (Fuji Heavy Industries)
  • Masayuki Hyodo, Representative Director, President and Chief Executive Officer of Sumitomo Corporation
  • Takeshi Niinami, President and Chief Executive Officer of Suntory
  • Christoph Weber, President and Chief Executive Officer of Takeda Pharmaceuticals Co.
  • Michiaki Hirose, Chairman of Tokyo Gas Co.
  • Satoshi Tsunakawa, President of Toshiba Akio Toyoda, President of Toyota
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