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Putin's Russia & Trump's America - Cold War to Warm Embrace?

Whatever one thinks about Donald Trump, from his inclination to build a rival to the Great Wall to toying with the idea of putting electoral rivals onto a diet of Porridge, the man is no fool.

Mr Trump has promised to "make America great again". For great, read " hugely powerful in manufacturing". 

The United States used to be a manufacturing powerhouse, enjoying domination across a wide range of sectors. However, Far Eastern nations have cast a massive shadow over almost every element of American manufacturing. In particular, China will soon have the strongest economy on the planet, with large, modern factories churning out goods of all kinds, at very low prices, compared to those achievable by US manufacturers.

Many of the products carrying the label "Made in China"  make their way to the States, to the extent that 70% plus of manufactured goods in Americas largest retailer -  Wal-Mart  - originate from China.

Of course, none of this is particularly new. As long ago as the early years of the new Millennium, Wal-Mart moved their Chinese procurement HQ from Hong Kong to Guangdong Province. Wal-Mart didn't get to where they are today by missing big opportunities - and Chinese factory-gate prices continue to represent such an opportunity.

There has been something of a comeback by US manufacturing in recent years. Americans love a comeback and have been delighted to see the likes of IKEA move manufacturing of bulky items to the States.

However, the revival of manufacturing has so far been fairly low-key. It is certainly not currently at a level likely to lead to the creation of the millions of Blue Collar jobs needed to restore the faith of US voters in the greatness of their country.

So Donald Trump will have to put a stop to Free Trade. The need to create manufacturing jobs means he must somehow close the floodgates on the torrent of Chinese imports. 

However, previous US administrations have embraced Free Trade in general and China in particular, whilst growing increasingly intolerant of President Putin's military interventions around the world. This American strategy has lead to a flood of imports from China, coupled with a Trade Embargo against Putin's Russia.

President-elect Trump seemingly does not see Russia or its leaders as a threat. Russia has been economically ham-strung by the Trade Embargo and low oil prices. The most powerful component of the former USSR also has no significant manufacturing base.  In short, economic competition between the US and Russia is negligible.

Trump and Putin have a largely shared agenda. Both would like oil prices to rise to $70 or more - US fracking  interests are desperate for this - and they also share an ambition to see off the threat of international terrorists. Minor disagreements, such as caused by Russia's interventions in the Ukraine, will not stop both Presidents firmly clutching the Olive Branch held between them.

China, of course, has little in the way of Natural Resources within its borders. This explains why it is spending the foothills of its foreign exchange mountain, derived from super-successful manufacturing, to buy up mineral assets anywhere and everywhere.

Donald Trump knows better than to fight simultaneous battles on two fronts against major rivals. Trade issues dictate that he must confront the Chinese, so Russia will now find itself warmly embraced by the pragmatist who is soon to be master of the Oval Office.

Neither of the newly-embracing Presidents is ever likely to earn a Nobel Prize for anything and certainly not for promoting Peace. However, both have an insatiable desire to win. They will link arms, maintaining a limpet-like grip on each other, as they cement an alliance they no doubt believe can first curtail and ultimately crush what they see as Chinese ambitions to rule the world through trade domination.

The Blond leading the Bear? Whichever President is seen as marginally more powerful, China will be watching developments with its usual seeming inscrutability. Underneath the facade, however, there are likely to be real concerns in Beijing that the end of the latest Cold War may herald an economic freeze like no other they have experienced in the last three decades of largely uninterrupted growth and prosperity. 

Chinese reaction to almost inevitably significant economic challenges will play a major role in defining all of our futures for many years to come.  

 

 

Tuesday, 13th December 2016

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