In New Jersey, we observe in our video Shell Game: the Lower Trenton bridge has a sign on it that reads “Trenton Makes, The World Takes.”

We pass the sign each time we take the Acela from Baltimore to New York. Each time we’re briefly intrigued that the city keeps the sign maintained.

All the neon bulbs work at night.

The sign used to symbolize the pride its citizens had in the products made locally and shipped around the world. Alas, now it’s just an historical artifact.

For decades, big American corporations have been shipping good jobs overseas thanks to high taxes and increasingly onerous environmental and labor regulations.

In 2000, manufacturing accounted for 13.9% of US GDP. By 2022, that share had fallen to 11.9%. Manufacturing employment has also declined sharply, from 17.4 million jobs in 2000 to 12.9 million jobs in 2022.

Fact is, “Globalization”—the trend of outsourcing manufacturing that got underway in earnest at the turn of this century—has wrought disaster for large swaths of the US economy.

Go to any small to midsize town in America and you’ll see the rusting hulk of what used to be the manufacturing backbone of the global economy.

Outsourcing made sense on paper. American corporations were able to save a lot of money on labor and production.

And, ultimately, Amazon, Best Buy and Home Depot gave us the “cheap stuff” we love… everything from electronics to baby diapers and new power tools. Apple and Tesla wouldn’t be where they are without cheap labor. Walmart shelves wouldn’t be full of toys and other gee gaws. Nor would any number of cheap “brands” at Target.

Over the last 40 years, China has leapfrogged all other third world nations to become the second largest economy in the world. Our TVs, smartphones…clothes… our cheap furniture. They’re all labeled “Made In China.”

But as we demonstrate in Shell Game, the era of “cheap” we’ve enjoyed is coming to an end. Just like the bond market has been turned on its head, so has the balance of global trade.

The Chinese economy has developed its own debt allergy in commercial property, residential real estate and infrastructure.

The CSI300 index—an index of the largest Chinese stocks trading in Hong Kong—is down 18% from its peak in 2023.

The exodus of capital has put stress on “structured” investments which depend on continued growth, giving derivative traders for pension funds around the world the willies.

Reading reports of the Chinese government’s efforts to arrest a stampede from markets is reminiscent of financial news in the US in the fall of 2008.

Reuters, today:

China’s benchmark CSI300 Index staged a moderate rebound from 4-1/2-year lows this week, after state fund Central Huijin Investment started buying exchange-traded funds (ETFs) on Monday, adding substance to the central bank’s pledge over the weekend to fend off financial risks.

Investors were also excited by Tuesday’s approval of an additional 1 trillion yuan ($136.76 billion) of sovereign bond issuance.

Drawing investors back into China’s $10.5 trillion stock market, particularly the foreign buyers that have fled in droves this year, would stem further slides in a market which fell to its lowest since 2019 earlier this week.

The policy efforts could also halt capital outflows and ease the yuan’s depreciation and a stronger market could help fund a rejuvenation of the world’s second-largest economy.

Following Evergrande’s bankruptcy last year, we’ve had our eye on China’s largest developer Country Garden. Last week, on October 18, Country Garden missed an $18.4 million dollar “dollar bond” payment.

Today, they’re scheduled to make another $40 million dollar payment on another bond. The conventional wisdom on the Street is they won’t be able to do so.

“With $186 billion of total liabilities,” writes Pearl Lui in Bloomberg, “Country Garden is one of the world’s most indebted builders and a symbol of China’s broader property debt woes.”

Why does this matter at all?

A debt crisis of any magnitude in China would create massive ripples of economic depravity, unemployment, market crashes, and unrest all around the world… and especially in the United States.

And that’s because of the very concept that was touted and brought us American “cheap” in the first place: Globalization.

While it’s tempting to compare China’s 40-year boom to the U.S. financial crisis in 2008 because, just like in the US, China’s prosperity and infrastructure boom were built on a mountain debt. And while the Chinese party line has been they are immune to debt crises… it turns out they aren’t.

Rather than 2008, however, the striking feature of the economic crisis unfolding in China is how eerily similar it is to America in the 1930s.

Back then, when our own Great Depression struck, America was at the pinnacle of its manufacturing power… the U.S. produced 32% percent of all manufactured goods on the planet.

Then came the stock market crash of ‘29… a massive implosion of debt… and, yes, a national banking crisis. Over 9,000 banks failed over three years.

The economic shock that followed devastated the national economy… and spread to every country in the world that was doing business with the United States.

Everything collapsed—stock markets, personal income, prices, tax revenues. International trade fell by 50%. Unemployment shot up to 33% in some countries. Commerce virtually came to a grinding halt—from Europe to Asia. It was a total global disaster. And some maintain it led directly to World War II.

Now it’s China’s turn. Because of its own 40-year “economic miracle,” China makes up about 30% of global manufacturing… and does business with countries all over the world.

Imagine what it would look like if trade with China slowed further. We could say goodbye to cheap labor… cheap imports… electric vehicles… smart phones.

Everything would be more expensive and less available… If you think inflation is bad now, wait until you see what happens if China’s economy collapses.

More than just disruption to the global financial structure, the “end of cheap” would be tantamount to another surge in inflation regardless of interest rate machinations of the Fed.

Regards,

Addison Wiggin,
The Wiggin Sessions

P.S. “So it goes…”

“Just stop that please,” reader J. Best writes. “You sound exactly like Linda Ellerbe when she closed her NBC News Overnight segments. It became a repeated phrase for a while in popular America. Oops, what’s the correct term? A meme? A trope? I hate those words.

“Suffice to say almost everyone ended telephone calls and casual conversations with “and so it goes” in the 1980’s. It was the title of a book she wrote and it glared at passengers from every airport shop. With the advent of the television show Married with Children, Ellerbe’s phrase soon morphed into ‘whatever’ accompanied by a look of dumb puzzlement and disassociation.

“There’s a whiff of surrender and protestant belief in the inevitability of the inevitable about the phrase. You deserve better. Even Garner Ted Armstrong closed his thousands of daily AM radio broadcasts with a simple ‘….that’s it. Goodnight.’ ”

We’d never heard of Linda Ellerbee. And didn’t spend a lot of time in front of the T.V. when Married With Children was still running new episodes.

Our use of the term “so it goes” bubbled up from memory, having read Kurt Vonnegut’s Slaughterhouse Five some 40 years ago.

Whatevs.

We thought you might be entertained by Mr. Best’s remark. It is Friday after all. Have a good weekend.