Can China Defeat America In The Trade War? | Brent Johnson

**Brent Johnson** (0:00)
So again, when I break it down to first principles and do a comparative advantage, the US despite all this problem, still has a number of advantages. And because of all those advantages, and because of all the challenges that the other countries have, I think once we get through this period of, hey, you're being a really mean guy, and I don't like the way you're saying that to me, I think once people really have to make a decision, when countries really have to make a decision, I don't think they will choose China over the United States for a whole number of reasons.

**Adam Taggart** (0:40)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Of all the disruptive policies President Trump has made so far in his second term, his hardball strategy to reform global trade has received the most scorn. His detractors call it nonsensical and ham-fisted, that it's based on faulty logic, poor math, and has done grave injury to relations with our closest allies. They fear it's actually driving the rest of the world into China's, our chief competitor's, arms, and, as a result, substantially damaging America's future prospects. Is this true? And is this the reason my bond yields are rising, the dollar is weakening, and gold is soaring? And most importantly, will China end up drinking America's milkshake? For answers, we're fortunate to welcome back to the program Brent Johnson, CEO and portfolio manager at Santiago Capital and publisher of The Macro Alchemist. Brent, it's great to see you again. Thanks so much for joining us today.

**Brent Johnson** (1:38)
Yeah, sure. Thanks for the invite.

**Adam Taggart** (1:40)
Hey, you're very welcome. Well, look, for the question of, is China going to drink America's milkshake? Couldn't think of anybody better to talk about this with than the developer of the dollar milkshake theory. There's a lot going on, a lot to talk about. If you don't mind, Brent, let me just start by reading something that you just recently wrote at The Macro Alchemist in your post, The Donald and the Damage Done. Basically, you said that anyone who's been surprised by the Liberation Day tariff drama, well, then they haven't been paying attention, close enough attention.
Let me read this quick session here. You said, quote, America is telling the world exactly what's coming. This is not the chaos of decline. This is not the flailing of a fading empire. This is the world's dominant power consolidating its control, unapologetically, aggressively, and with the full weight of its economic engine behind it. The playbook is not subtle. The Trump administration has thrown out the ivory tower frameworks of globalization, free trade, and rules-based cooperation and replace them with something far older, simpler, and more ruthless. Real politic and statecraft backed by financial warfare. Tariffs are not policy details. They are pressure points. Supply chains are not economic abstractions. They are leverage. Foreign governments and multinational CEOs are not partners. They are counter parties in a zero-sum contest for control. Access to the American market, the largest, wealthiest, and most consumption-driven in human history is no longer free. It will come with a price. But power moves like this do not come without consequences. Global capital is shifting. Markets are trembling. Foreign holders of US assets lulled for decades by predictability and privilege are discovering that what the US giveth, the US can take it away. This is not about trade policy and it's not about tariffs. It's about power. Who has it? Who does not? And what happens when the world's largest economy decides to stop pretending otherwise?

**Brent Johnson** (3:44)
All right.

**Adam Taggart** (3:45)
So very clearly to you.

**Brent Johnson** (3:47)
Very subtle, right?

**Adam Taggart** (3:48)
Very subtle. But yeah, but in your eyes, it's actually very clear what's going on. It's not a chaos of people just making stuff up on the fly who don't know what they're doing.
You're saying, no, no, no, this is a very clear strategy, and it's actually not even that complex. It's quite simple. It's all about power at the end of the day. And this may be one of the biggest power flexes the world has seen in recent decades. So I want to dig into all this with you, but if we can, let me just start with this. Do you think, just asking you for your best assessment or probabilities, do you think that this plan is likely to work?

**Brent Johnson** (4:29)
Well, it depends on who for, I guess, is the question I would immediately ask.

**Adam Taggart** (4:36)
Let's start for Americans.

**Brent Johnson** (4:38)
Well, then we have to figure out which set of Americans, right? And so I would say overall, yes, but it will not be easy, and it will not be smooth, and there will be great pain involved in it working. I think the best way for me to describe what's happening is not just what I stand by everything that you just said and that I wrote, but at the end of the day, in really simplified terms, the United States is changing the way it does business with the world, and changing the way it has interacted with the world for the last half a century or more. And even under the best circumstances, that would be a very volatile transition. And I think it's easy to look at the world and say, we don't have the best circumstances under which to try to do this. And I don't think it will work perfectly, but I do think it will work better than many seem to think it will. I'm open to being wrong and nothing in this world is certain. But I think when we get down the road another nine months a year, and we get more clarity on how this is actually going to work and what policies are ultimately going to be put in place, I'm not as apocalyptic as many people are.