Investors Watch as US, China Tensions Renew

Key Concepts

Totalitarian State: A system of government that is centralized and dictatorial and requires complete subservience to the state, characterized by unreliability in honoring agreements.
Detente: The easing of hostility or strained relations, especially between countries.
Pull Back from the Brink: A retreat from a dangerous or disastrous situation.
90-day Extension: A temporary postponement of a deadline, specifically referring to trade negotiation periods.
Rare Earths: A group of 17 metallic elements critical for many high-tech applications, where China currently holds significant leverage.
Tit for Tat: A retaliation or counter-attack, describing the incremental nature of the US-China struggle.
Export Controls: Government regulations restricting the export of certain goods or technologies.
Tariffs: Taxes imposed on imported goods and services.
National Security Industries: Sectors deemed vital for a nation's defense and strategic interests.
Autonomous Vessels: Self-operating ships or boats, representing a next-generation technology.
American Dominance: The strategic goal of the United States achieving preeminence in next-generation industries to mitigate China's influence.
Speed as a Weapon: The concept that rapid innovation, development, and manufacturing can be a decisive competitive advantage for the US.

The Inherent Volatility of Dealing with China

The speaker addresses the prevailing anxiety regarding US-China relations, asserting that the current volatility is "just the cost of doing business with a totalitarian state." This uncertainty is presented as a "fact rather than a problem" when engaging with China.

Two critical points are highlighted for business leaders:

Negotiation Extensions are Not Pauses: A 90-day extension in negotiations is not a period of calm but merely "another inning of negotiations." This posturing is expected to continue, and markets should "bake that in," anticipating similar cycles in the future (e.g., noting for February if another extension occurs in November).
Agreements with China are Unreliable: Even if an agreement is reached, the US "still can't relax" because the Chinese Communist Party, as a totalitarian state, is "not in the business of honoring agreements, but near the point that it becomes inconvenient for them." This fundamental unreliability means that real, long-term stability cannot be achieved solely through agreements.

The Path to Long-Term Stability: American Dominance

True stability, the speaker argues, will not come from mere agreements but "from when there's total American dominance in the next generation of industries. So China becomes a non-issue." This perspective shifts the focus from negotiation to strategic competition and technological superiority.

The example of rare earths is used to illustrate China's current leverage due to US dependence. The speaker notes that China is exerting this leverage as the US begins to show independence, citing MP Materials as an example of domestic efforts to build self-reliance. The overall struggle is characterized as a "tit for tat and a grinding, incremental struggle until the United States pulls away."

The Role of the Private Sector and Government

Achieving "total American dominance" is primarily seen as a function of the private sector. While the government plays a crucial "defense" role through measures like export controls and tariffs to "level the playing field," the "offense" – building new technologies and industries – is a private sector responsibility.

Key actions for the private sector include:

Building new technologies.
Manufacturing them domestically.
Creating new categories of products and services.
Regaining control over materials and entire supply chains.
Moving with extreme speed.

Examples of private sector innovation mentioned include Palantir (with Michele and Palmer Lucky) and Saronic in Austin, which is developing "next generation of autonomous vessels, building them here at home with speed and scale." This type of rapid, domestic innovation is what "victory looks like."

The Imperative of Speed and Capital Investment

The speaker emphasizes that "Speed has to be our next weapon" against China. China's competitive edge stems from its ability to move fast due to its top-down, totalitarian structure. For the United States, capital investment is crucial to enable businesses to accelerate their efforts.

The JPMorgan event is highlighted, signaling an investment of $1.5 trillion (an additional $500 billion more than perhaps anticipated) into "really important national security industries." This capital infusion is not just "lip service" but a practical means to allow these businesses to "go faster," enabling the US to "build, to rebuild and to dominate these important sectors in order for us to lead the 21st century."

Conclusion

The core message is that the US-China relationship is inherently volatile due to China's nature as a totalitarian state that does not reliably honor agreements. Therefore, long-term stability for the US hinges not on diplomatic agreements but on achieving "total American dominance" in next-generation industries, effectively making China a non-issue. This dominance will be driven by the private sector's rapid innovation, domestic manufacturing, and control over supply chains, supported by government defense measures and significant capital investment (e.g., JPMorgan's $1.5 trillion). Ultimately, "speed" is identified as the critical competitive advantage for the United States in this ongoing struggle.