Will China Invade Taiwan?

The biggest threat to the global economy is not the Fed or Ukraine. It is China/Taiwan.
An invasion of Taiwan by China could:
• Create a world war
• Plunge the world into depression
• Create more authoritarianism around the world as countries react to China’s invasion
So the question is: will China invade Taiwan?
The only way to answer this is to ask what are the motivations of Xi Xi Ping and the ruling class of China. So let’s start there.
Xi has been working very hard to get “elected” for an unprecedented third term as President of China at a party congress this fall. This would be the first time since Mao died that anybody has been in power this long. The thinking is that he will remain in power forever.
He first came to power in 2012 when he was elected to the head of the Communist Party and Head of the military. These are two of the three most powerful organs of power. But the CCP did not make him head of the third power point, the police.
Until recently, the police have been run by people who supported Xi but were tepid about him. But Xi got one of his long time protégés appointed head recently so now he control all three levers of power in China. Please note that the budget for police is far bigger than the military budget. That is how important it is in China.
But Xi had to arrest three vice heads of the state police to do it.
So, on one hand, he looks solidly in power in China.
But things are not good for the people of China.
I have detailed extensively the problems that China has so I will simply list some of them here:
• Declining population
• Declining economy
• Bankrupt economy including the banks
• Aging population
• The property implosion leading to mortgage strikes
• Having to suppress the Uyghurs
• Increasing corruption
So the average Chinese citizen is getting squeezed from all directions with little hope for the future.
Sure, there is no democracy in China but there are factions. Mao ruled through terror but Xi has yet to resort to terror the way Mao did. So he needs to maintain the support of as many factions as he can. Otherwise those factions may rebel against his rule.
In a democracy, we throw the bums out. But in authoritarian regimes, the bums are often killed in their sleep or hung from poles. So Xi doesn’t want to end up there. So he needs to at least get grudging support from other factions.
The biggest problem is the economy. Xi’s policies, and the policies of the CCP, have created severe problems in the economy and this means that the Chinese people are restless and unhappy.
So look for Xi to do everything in his power to keep butter on the table. That would include:
• A looser monetary policy
• A looser fiscal policy
• Supporting the housing sector
• Selectively stopping corruption
Now we get to the point.
Samuel Johnson said that patriotism is the last refuge of the scoundrel. It is an old trick of politicians to wrap themselves in their flag when they are worried about their popularity. All politicians do it.
So the saber rattling around Taiwan could simply be a scoundrel wrapping himself in the flag. People will forget their personal travails when they feel there is an overseas threat.
So Xi is likely just using Nancy’s visit to Taiwan as a pretext to do some flag wrapping to ensure that he is reelected in the fall. In addition, he can eliminate more rivals by accusing them of treason or related to treason.
It is clear that Xi wants to take back Taiwan but it is not clear that he is willing to pay the potential price.
What would the price be?
• Potential retaliation by the US and other countries like Japan and other Asian countries. But Xi has seen that the West did little to stop Putin in the invasion of Ukraine so he might think that they are even less likely to retaliate with violence if he invades Taiwan.
• Definitely economic sanctions and possibly a blockade of China. This is a much more likely reaction from the West. China’s economy is dependent on the West, particularly the US and Europe for buying their goods and from multiple countries for raw materials like oil and metals. The Chinese would then retaliate with cutting off the supply of things like rare earths.
So what will Xi do?
I think he will:
• Keep the pressure on shipping lanes and air corridors for a long time. I’m flying to the US from Singapore next week. I’m pretty sure the flight will go waaay around Taiwan to avoid the Chinese planes patrolling the air corridors. They are not shut down but airlines are avoiding Taiwan right now.
• He will focus the propaganda machine on the evils of the West meddling in internal Chinese affairs and how the Taiwanese people are clamoring to reunite with their brothers and sisters in mainland China
• In other words, he will wrap himself in the flag but do nothing to threaten a shooting war.
So how do we make money from this?
One effect of this situation is that it is bearish for US stocks and bullish for US bonds. So that gives a couple of ideas:
• Sell QQQ
• Buy TLT
It’s probably too late to buy defense companies but you should try to find a way to buy an ETF like DFEN .
The best way I can help you through this potential crisis is through my Stock Navigator service where I share my analysis and my actual trades.
Click here to learn more now!