Game Theory #25: Trump Visits China

Trump is in China. He came in last night, and this morning he met with President Xi at the Great Hall of the People.He brought his entire cabinet, including Marco Rubio, the Secretary of State, as well as Pete Hegseth, who is the Secretary of War.

The last time an American president visited was nine years ago, in November 2017. This was a very historical meeting. As you may remember, after Trump visited Beijing, they started the trade war, and we've been in a trade war ever since. I think that this meeting is very optimistic for US-China relations. A lot has to do with who came with Trump.

On Weibo, the Chinese Twitter, the Chinese are focusing on is who came with Trump. Many of his family members came, including his son Eric and his daughter-in-law Lara, and they were excited about coming to China.

Much more important is the number of business executives who came with Trump. You have Elon Musk of Tesla, and of course, he does a lot of business in China. Tim Cook of Apple also does a lot of business in China. Boeing is trying to secure a $50 billion sale to Chinese airlines. These are three very important business people.

Then you have some of the leading financial people in America, including:

• Larry Fink of BlackRock
• Stephen Schwarzman of Blackstone
• David Solomon of Goldman Sachs
• Representatives from Citigroup, Mastercard, and Visa

These are the leading financial companies in America. Altogether, if you put all their companies' net worth together, they are worth over $12 trillion. That's a lot of money, and these are very busy people. Quite honestly, I've worked in business negotiations. You do not bring these people together in one room unless you have a mega-deal to announce to the world.

My prediction is that by tomorrow, we should have the broad contours of a US-China grand bargain where the two nations reconcile their differences. They will start a new chapter in world history where they work together to stabilize the global economy.

Let's discuss how we got here, why a grand bargain will happen, and what this grand bargain will look like.

Events Leading to the Summit

Let's discuss some of the events that led to this meeting between Xi and Trump. David Lee from Twitter, talking about what happened over the past month wrote:

The first thing that happened is that China blocked Manus. Manus is an AI company that Mark Zuckerberg tried to buy. Manus was incubated in China, and if you're a successful AI company, you want to go to the United States because that's where all the money and talent is. That's how you become really big. But because it was incubated in China, Beijing said no, you can't go to the United States because this will set a bad precedent. China is trying to grow its own talent. This shows the AI war being fought between China and the United States.

Another thing that happened is that the US imposed sanctions on Chinese companies that do business with Iran, including satellite companies that sell commercial intelligence to Iran on where US bases are, and "teapot" refineries which take Iranian oil and convert it into energy that China can use. In response, China said, "No, you cannot impose sanctions on us. If you impose sanctions on us and if people comply with these sanctions, then we, the Chinese government, will sanction these people as well." This is something called the blocking order.

This also seems like an escalation in the US-China trade war. Previously, Chinese institutions, banks, and individuals complied with US sanctions. This is the first time the Chinese government said to its people, "If you're a Chinese citizen and you comply with US sanctions, then we will sanction you." This is a very big deal.

Nvidia was not able to sell chips into China, and this is going to affect Nvidia's bottom line. Nvidia is right now the world's most valuable company, primarily because AI depends on their chips.

China invited Iranian Foreign Minister Araghchi to Beijing because China is very interested in the outcome of this war between the United States and Iran. Right now, Iran is blocking the Strait of Hormuz, and China depends on 50 to 60% of its energy needs from the Middle East.

Before Trump took off, it was announced that Jensen Huang, who is the head of Nvidia, would not come to China. This is a very big deal because, in this grand bargain, what China would want is access to Nvidia chips—semiconductors—in order to fuel its AI.

The United States and six other nations had a war game in the Philippines, and China sent 28 warships. Trump sent Iran an ultimatum; Iran made modifications, and Trump said no. It seems like the war will only increase in the Middle East. After Iran had responded, China announced Trump's state visit.

Yesterday and the day before, He Lifeng, who was a vice premier in China, and Scott Bessent, who is the Treasury Secretary, met in South Korea to try to negotiate a deal. Then, what's going to happen is that Putin will visit China after Trump leaves.

If you just look at what's happening, it seems as though there's still a lot of friction between the United States and China. What I want to show you today is that you can just ignore all of this. This is all that's happening right now, but if we use game theory—if we just look at the broad contours of what's happening—we would make much better predictions as to what will happen. I think all of this is just theater.

China and the United States are not actually fighting an AI war. It's all theater. They're actually working together to promote AI. These sanctions are happening, but eventually, the US and China will come to a grand bargain and they will become much more economically integrated.

And Iran? China doesn't really care about Iran. China cares first and foremost about its relationship with the United States. One piece of evidence for that is that when Foreign Minister Araghchi went to Moscow, Putin met with him for 90 minutes and expressed his sympathy and support to the Iranian people. When Araghchi came to Beijing, he only met with his counterpart, the foreign minister, Wang Yi.

Another important thing is that Scott Bessent is the one who is leading the US team in China. Scott Bessent is the Treasury Secretary. This goes against protocol because it's usually the Secretary of State, Marco Rubio, and the National Security Advisor, who also happens to be Marco Rubio. This team is the one that sets the agenda for the US-China visit. Because it's Scott Bessent, we can probably guess that this is going to be an economic negotiation and the focus will be on finance. Basically, what America wants is for China to open up its financial sector for companies like BlackRock and Blackstone to come in to sell financial instruments to Chinese people.

The Geopolitical Landscape

It seems as though America is trying to contain China. China is trying to build a high-speed rail network from Beijing all the way across Central Asia and into Europe. This is a land route that Beijing wants to take in order to maintain trade with Europe.

As you can tell from this map, Iran is the pivot or the hub of this trade network. Without Iran, Beijing could not access Europe. Moscow also sees Iran as very important for its north-south trade axis. Without Iran, Beijing is completely reliant on Russia. Beijing does not want to become reliant on Russia; it sees itself as the third axis of power in the world. You have the United States, you have Russia, and then you have China. From a geopolitical perspective, China doesn't want to become partners with either the United States or Russia. It wants to become independent and create its own sphere of influence. That's why Iran is very, very important.

A lot of geopolitical analysts believe that Beijing is forced to support Iran in this war. What I want to show you is that's not actually the case. China may want to become independent of the United States and Russia, but it cannot, actually.

A couple of days ago, there was a rumor that one deal Trump and Xi will sign in Beijing is that Xi Jinping will commit a $1 trillion investment into America, primarily for factories that manufacture EV cars. This is a huge deal. Laura Ingraham, who works at Fox News, thinks it's a bad thing. She thinks that this is about China coming in and trying to buy out the United States. As I'll show you later, I think this deal will happen, but this is a deal that shows China is ultimately dependent on America, as opposed to China wanting to take over America.

The Nixon Analogy: A Powerful Way to Understand the Present

How can we understand the Trump visit? Historical analogies are a really powerful way to understand the present. The Trump visit today is analogous to Nixon's visit in 1972.

Before 1972, America was hostile towards China, primarily because of Taiwan. During the Chinese Civil War, the Americans were very supportive of Chiang Kai-shek and the KMT. They lost and went to Taiwan. When that happened, America said that first of all, we will only recognize Taiwan as the official government of China. Second, we will refuse to do any business with the PRC. And third, we will help Taiwan eventually try to take over China.

In 1972, when Nixon visited, this marked a radical departure from 20 years of American foreign policy. The question then is, why would he do that? The answer is the 1971 Nixon Shock.

If you talk to historians, they'll give you lots of different reasons as to why Nixon visited China. The main reason, in their perspective, is that Henry Kissinger, who was National Security Advisor to Richard Nixon, was trying to triangulate between China and the Soviet Union. He was trying to get China on the side of the United States in order to defeat the Soviet Union. That's not true. That's something that historians made up. The real reason is that in 1971, Nixon removed the US dollar from the gold standard.

Now, the US dollar is worth nothing. Before, you could take the dollar and change it for gold; now, it's worth nothing. If it's worth nothing, what you have to do now is create a demand for it. You basically have to create a Ponzi scheme. Nixon did two things to resolve this issue and create the US dollar Ponzi scheme.

1. The first thing he did was create something called the petrodollar. The petrodollar is where Saudi Arabia and other Middle East countries like Qatar and the UAE only sell their oil in US dollars. Before, the value of US dollars was tied to gold—the gold standard. Now, the value of US dollars is tied to oil. If you want to buy oil, and everyone wants to buy oil, you need US dollars.
2. The second thing, which is relevant to us, is China. The strategy was to turn China into a manufacturing base for the global economy. The Middle East sells oil to the world, but China will now sell manufactured goods to the world, and China will also do so using US dollars. These two things together created the current global economy.

This is something called the Shanghai Communiqué, published in 1972. This basically spells out the basic framework for all future US-China cooperation and dialogue. The framework resolves the Taiwan question, and with regard to the Taiwan question, America practices something called strategic ambiguity. This means the United States will not be clear about the issue of Taiwan with regard to China.

What the United States has been saying for a long time is, "We do not support Taiwan independence." That's strategic ambiguity. China would prefer the United States to say, "We oppose Taiwan independence," in which case the United States is obligated to prevent Taiwan from becoming independent. That's what China would prefer, but the United States practices strategic ambiguity by saying, "We do not support."

I would not be surprised if, over the next few months, Trump radically changes this attitude and declares that the United States is opposed to Taiwan independence. In fact, the United States supports the unification of China and Taiwan. This would be a radical sea shift from previous administrations. I'll explain later on why Trump would do this and also why it's actually very strategic and smart for the United States to want to support Taiwan and China reunifying.

A Theory of How the World Works

Let me explain now what the China-US relationship really is, using the theories we've learned. This is something that you will not learn anywhere else, and this is speculation on my part. This is my theory of how the US and China work together. Once you understand this theory, you can then go on to make certain predictions about how the United States and China will behave moving forward. Based on whether these predictions are correct or not, you can then figure out if this theory is correct.

The first thing to understand is that reality is a hallucination. It is something that we collectively imagine together. The analogy I use is Plato's allegory of the cave, where you imagine about a million people chained together, all looking at a wall. This wall is empty. Behind the people is a great fire where the elite—we don't know who they are—project shadows onto the wall. The people who are chained don't know what's going on behind the scenes. They only see what's in front of them, which is the wall. They see these shadows and they start to create a reality around them. They think these shadows are real, and they create mythology, religion, an entire framework around these shadows. This is what we call reality.

The main message here is that true wealth is our attention. Our consciousness is what's true wealth. In fact, our consciousness is what's real. Everything else is just an illusion. Everything else is a shadow.

Your body is a shadow. The person in front of you is a shadow.What's real is the thing inside your head. Your consciousness is what's real. Now, what power is, is the capacity to direct and control this attention. How I exert power over you is by making you think the way I want you to think, by making you see what I want you to see. I can make you see these shadows and make you think it's real. That's what true power is.

This idea, once you understand it, explains the reality that we live in. I'm going to take this idea and apply it to reality and show you how it works.

At the very basis of reality is the empire. It is the American empire that's able to force you to sit down and look at the wall. The people manipulating the fire, casting the shadows, are the game masters, and these are the financial elite, including the Bank for International Settlements, the Federal Reserve, Wall Street, and the City of London—basically, private capital. They together create the conditions for this game. They're able to direct our attention, and the mechanism they do this with is, of course, capital, or US dollars.

From this, we create something called the global economy. But in order for this game to work, the game masters have to disguise the fact that they're really in charge. So they create institutions that pretend to be objective, international, impartial, and fair, but are in fact controlled by the game masters. These include the UN, the WTO, the EU, and the World Bank.

Then, in order to justify and legitimize this system—in order to make you think these shadows are real—the media, education, and culture brainwash you and indoctrinate you into believing the system is real when it's all just a hallucination. From this, of course, you have the legal system to enforce the system, as well as customs, habits, values, and norms. This is an enforcement mechanism to force you to believe that the system is real. Media, education, and culture brainwash you to believe the system is real, and then you yourself want to enforce the system on others through customs and norms.

This is a very fragile system because it's all just a hallucination. So there are enforcement mechanisms that make sure this system is stable, and these are crime, intelligence (spy networks), and science. These three mechanisms are controlled by the true powers of this world, and they include transnational capital (private capital), secret societies, and elite families. What binds them together? Their operating system is what we call the occult.

This is how the world is designed. Again, this is all a hallucination.

One thing that you don't appreciate about the system is that from this hallucination, I can actually project myself onto another force and create another hallucination. That's what Richard Nixon did. From this system, in order to maintain the empire and the supremacy of the US dollar, he created two new hallucinations: the GCC and China.

What underpinned this system before was gold—the fact that the US dollar could always be exchanged for gold. Once that's gone, you need to create two new hallucinations in order to disguise the hallucination. Over the next few decades, this system would transport itself and impose itself on the GCC and China.

In other words—and this is really important for you guys to understand—China is a hallucination of a hallucination. It's not real.

Once this hallucination is imposed onto the GCC and China, this creates demand for the US dollar. This creates a certain stability for the US dollar, and it made China very, very wealthy. But it's all just an illusion, a mirage. There are certain problems with this system.

1. China doesn't have any creativity. Why? Because if you're a hallucination of a hallucination, there's nothing for you to base yourself on. You're a shadow of a shadow.
2. Wealth extraction. The idea here is that whatever wealth China creates has to return to the source because the people inside China appreciate that the Renminbi's entire value is based on the US dollar. If you have a choice between the RMB or the US dollar, of course you want the US dollar.
3. The fragility of this system. If the original hallucination is unstable, then China is even more unstable because it's a hallucination of a hallucination.

Once we understand this, we can begin to reassess what happened these past 10 years. Why did the United States and China fight this trade war? The reason is that China believed it could be independent of this hallucination. In fact, it believed it could create its own hallucination. The United States said, "No, no, guys, no. You're completely dependent on us." So then they started to fight this trade war. Once this trade war happened, a lot of money and people started to flee China and move back to the United States.

Now, what China has recognized is that, first of all, we can't actually leave this hallucination. The solution is actually to recouple—to bind ourselves even greater to the system. The US global economy is under a lot of strain. There are two main beneficiaries of the global economy: the United States and China. So both are heavily invested in maintaining the illusion, the hallucination that is the global economy.

To appreciate how fragile all this is, think of the UAE. The UAE seemed as though it was a very prosperous place. It had universities from America like Georgetown and Cornell. It had the wealthiest people flocking to Dubai. It seemed invincible. But the moment you attack the UAE, like Iran just lobs a missile at the UAE, the illusion shatters. And now the UAE is gone. That's how precarious these hallucinations are. One hit at the right spot, and the entire illusion is shattered. You can never bring it back.

That's what China is afraid of. That's why China and the United States have to work together, because what's important is to maintain the nature of reality itself. The worst thing that can happen is if people wake up from this dream, because if people wake up from this dream, everything collapses all at once.

The Trade War and China's Dependence

The United States used to be the world's most powerful manufacturing country. Before, it was the UK, then the United States. Then China surpassed it. This was intentional. The intention was to use manufacturing to extract the wealth of China and transfer it to America.

Now China is the world's most powerful manufacturing country. This map shows it better, where China is now number one. The United States has moved to number two. Japan and Germany are pretty flat. This is intentional. The intention is to bind China to the global economy, to become dependent on the global economy, and therefore save the global economy when it's under strain.

One major consequence of China's rise is the trade deficit between America and China. This trade deficit is a natural consequence of China's manufacturing ascent. Why? Because the purpose is to force China to buy more US dollars in order to support the Ponzi scheme. This is a system that benefits the Americans. When Trump came into power in 2016, he said, "No, no, no. It shows that China is taking advantage of us." Trump doesn't really appreciate that it was designed this way. You need to create demand for US dollars. If China is buying a lot of US dollars, that's a good thing. China is trading real assets—the energy of its people—for fake assets, which are just US dollars. It's a great deal for America. But Trump said, "No, this is a bad deal," and this was what led to the trade war.

What led to the trade war was the WTO. In 1999, China negotiated to join the World Trade Organization. This is what would make China rich and the largest manufacturing power in the world. But in order to join the WTO, China had to agree to a lot of conditions. The two most important conditions were:

1. Protect IP. You have to protect other nations' intellectual property and you have to enforce it.
2. Open the financial sector. The goal is USD-Renminbi convertibility.

These are the two things America wanted from China. First, to ensure that all US IP would be protected in China vigorously. Second, to allow any Chinese person to convert their money into US dollars. As you can appreciate, these two demands are actually bad for China.

China was not very stringent about protecting IP. This is what led to the rise of Huawei. Basically, Huawei could take Apple IP and make these great computers. In 2016, when Trump first came into power, Huawei computers were actually better than Apple computers because Huawei was constantly innovating and trying to make their computers as cheap as possible, whereas Apple was essentially a monopoly. This led to the United States imposing trade sanctions on Huawei because it was too competitive against Apple.

The second problem is even worse. If you just open up your financial sector, all the money in China runs off to the United States because the Chinese appreciate that they are a hallucination of a hallucination. US dollars are more valuable than the Renminbi, which is based on US dollars. So wouldn't it make more sense to just convert it all into US dollars? But this would, of course, cause the collapse of the Chinese economy. The Chinese government refused to open the financial sector, and that's what started the trade war in 2018. For the last eight years, this war has been going on because America is trying to protect its IP and wants China to open up its financial sector.

The reason why Trump has come to China, the reason why he's brought so many executives, is because China has essentially agreed to open up its financial sector.

China's Vulnerabilities

For the past eight years, China and the United States have been attacking each other. There are two main mechanisms in which China attacked the United States.

1. Restricting the supply of rare earth minerals. As you can see from this chart, China produces most of the world's rare earth minerals. Now, you may not know this, but rare earths aren't that rare. The problem is in the extraction. It is very expensive and enormously costly. China is willing to pay these costs; the rest of the world isn't. That's why China has a monopoly over lithium, cobalt, graphite, and other rare earths that the EV, solar, and semiconductor industries are heavily dependent on.
2. Buying more gold. China appreciates that its value to the global economy is that it purchases a lot of US dollars. So, China started to buy more gold. You can see how its holdings of US treasuries went down, but gold went way up.

The problem is that China is much more vulnerable to attack than the United States. The United States is a hallucination, but China is a hallucination of a hallucination.

First, China's energy dependence is huge. China uses twice as much energy as America for its manufacturing sector in order to create exports. Therefore, China is vulnerable to embargos and sanctions. What America is doing right now with this war in the Middle East and by kidnapping Maduro in Venezuela is basically choking China off from its energy supply.

Second, China is very export-oriented. The entire economy is based on exporting manufactured goods cheaply to the rest of the world. You can tell because most of the world's busiest ports are based in China.

World's Busiest Ports:

• Shanghai
• Singapore
• Ningbo
• Shenzhen
• Qingdao
• Guangzhou

Five of the world's top six export hubs are based in China. This shows China's dependence on exports. But if America is controlling the seas and choke points like the Strait of Malacca and the Strait of Hormuz and the Panama Canal, this creates a huge problem for China.

Third is how many resources China uses. In only three years, from 2011 to 2013, China used more cement than America did in 100 years. That's crazy to think about. This shows how dependent China is on the global economy and the USD. It's only because the Renminbi can be exchanged for the USD that China can purchase so many resources from abroad.

The reality is that China is too dependent on America. This is something that Chinese policymakers have been trying to change for the past 10 years. It doesn't work because what Chinese policymakers don't understand is that you're in a hallucination of a hallucination. You only exist because America created you.

This is consumer confidence. 2018 is when the trade war started. At this time, people were still okay. But then COVID happened, and you saw this massive drop, and it never really recovered. People don't believe the economy is doing well. They are not willing to buy things, they aren't working, and they are losing income. The economy is not doing well.

At the same time, more and more Chinese students are choosing to study abroad. Even as the economy is failing, more Chinese are going to America to study. And guess what? The very best are not coming back. There's a gap of about a million students who stay in the West, and these are often the very best students. If you're a hallucination of a hallucination, you're anxious. You want to go back to the source. You know the RMB is based on US dollars; if you can change the RMB for dollars, you will do so. If you can flee the country and immigrate abroad, you will do so.

This is pretty stark data. This shows the current account balance. The current account basically means how much Chinese have in the bank due to trade. The blue line tracks the current account. The red line tracks the actual trade.

As you can see, for most of China's history up until about 2022, it tracked pretty closely. But starting in 2022, there's this huge divergence. You're talking about $500 billion a year. Why is this happening?

Capital flight and money laundering. People are using exports to move their money out of the country. It's a very simple thing. Maybe I buy a refrigerator from you. It should be $500. We agree on $500, but you charge me $1,000. Why? Basically, you take the extra $500 and put that money on my behalf into US real estate. You buy property or stocks for me. In other words, what's really driving China's export mania? A lot of it is money laundering as people try to flee the country. This is not good for China.

Another major problem in China is the household savings rate, which is the highest in the world. Chinese savers are saving 40% of their income. A lot of the reason is because Chinese aren't that wealthy. Even though the Chinese economy has boomed these past 30-40 years, the Chinese individual has not seen a huge improvement in his standard of living. There is not great confidence in the future, and that's why Chinese save a lot of their money. There also aren't that many investment vehicles.

From a US perspective, this is a great opportunity. If Chinese are saving all this money, if you're a financier like Blackstone or BlackRock, you're thinking, "Why not give it to me? I'll invest the money for you and give you bigger returns." This is why they're here in China. They want all that capital stored in Chinese banks, not doing anything. They're like, "Give it to us, and we'll make you more money."

The Grand Bargain: Financialization and Stablecoins

China has a closed capital account. Why do you have a closed capital account? Because you know for a fact that if you open it, the Chinese will take their RMB and convert it all into US dollars. That causes your economy and your banking system to collapse. So, what's the solution here?

First, we need to understand something really important: banks create money out of thin air. Money is just an illusion. For example, let's say you're a depositor and you put a million dollars into a bank. The way the bank makes money is by lending to entrepreneurs. So the bank gives a million-dollar loan to a restaurant entrepreneur. You might think that if the depositor put a million dollars in, and the bank loans it out, the bank should have zero in the bank. No. The bank now has $2 million.

Banks are allowed, according to accounting, to create money every time they issue a loan. Not only do they keep that million dollars from the depositor, but they also are able to print a million dollars to give to the restaurant entrepreneur.

How does this work?

Before, banks were just merchant alliances. Merchants needed capital to trade, so they came together and created their own bank. Merchants would deposit their gold into this alliance so that it could be distributed elsewhere. The problem with gold is that it's heavy, hard to transport, and dangerous because of pirates. So, the way they used gold to create business was with receipts. Receipts are contracts. Rather than me giving you the gold physically, I just give you a piece of paper saying that I guarantee this paper can be redeemed for gold at my bank.

To keep track of these exchanges, they created something called double-entry bookkeeping, which is basically assets and liabilities. Let's say I have a million dollars in gold. I put it into assets. Then someone comes and says, "I need to borrow a million dollars of gold." I'm like, "Fine, I'll give you a receipt for it." My problem is, do I put the receipt in liabilities or assets? Assets, of course. That's how the system works, and it's the system we still use today. That's why banks are allowed to create money out of thin air—because of double-entry bookkeeping.

This becomes the basis of the global banking system. You have these private banks in America and around the world. The US government does not have any money; it wants to borrow money. How do you borrow money? If you borrow from these banks individually, that's too hard. So, in 1913, the banks got together and created the Federal Reserve. The Federal Reserve is just a cartel of private banks in America. The US government can just work with the Federal Reserve and borrow money directly from it.

How does the US government borrow money from the Federal Reserve? It issues bonds, called US Treasuries. The Federal Reserve can print money to buy US Treasuries, and this money goes to the US government, which can then pay for expenses. This system is fine, but the problem is that the US government spends a lot of money. It fights wars, it wants to send a man to the moon, it wants people to have a good life. Today, America has $39 trillion in debt.

The problem is the interest rate, which is about 5%. In order to get the Federal Reserve—these private banks—to lend you the money, you have to give them an interest rate. Otherwise, why would they lend you the money? A 5% interest rate means that the US government has to pay the Federal Reserve about $2 trillion a year. Where does that $2 trillion come from? It has to borrow more money from the Federal Reserve. This system is really, really unstable.

So, how do you solve this problem? You solve this problem by getting more people to buy US Treasuries. You can get governments to buy US Treasuries, including the Chinese, Japanese, and UK governments. That's what's been happening. The problem is they only have a certain amount of money they can lend. So how do you get rid of this problem? You get more people to buy US Treasuries. And who are these people? Everyone in the world. You, me, everyone. This is what we call retail.

Previously, it was only institutions that bought US Treasuries. The strategy now is to get everyone to buy them. You create a new financial mechanism called stablecoins. The two most popular stablecoins are Tether and Circle. The idea is very simple: stablecoins are backed by US Treasuries, meaning Tether and Circle have to buy US Treasuries in order to sell stablecoins. And they can sell stablecoins to anyone and everyone, including in China, which has a 40% savings rate.

How? Through institutions like Apple, BlackRock, and Visa. Now you get around the problem of the closed capital account. A closed capital account means you cannot use RMB to buy US dollars. But with stablecoins, you can now use RMB to buy Tether or Circle. The US government is going to transfer that debt onto the Chinese people.

You might say, "$39 trillion is a lot of money. The Chinese people don't have $39 trillion. America will never get rid of this debt." But there's a mechanism America can use to control this debt. It's called financial repression.

How does this work? It's very simple. US Treasuries are at 5%. I'm going to make this 0%. You might think, "If it's 0%, I'm not going to buy US Treasuries." The solution is, I'll make you buy it. I'll force you to buy it by passing laws like the Genius Act and the Clarity Act, which compel stablecoins to use US Treasuries as the basis of their digital currency. And remember, if you're Chinese, and you can keep RMB at 5% a year or a US dollar-backed asset at 0% a year, what do you choose? You choose the US dollar at 0% a year.

That's the solution. Financial repression, where I drop the interest rate of US Treasuries to nothing, in which case inflation will destroy the debt over 50 years. And I force people to buy it by passing laws that force companies to back their digital currency with US Treasuries. Why do they want to do this? Because now they can access the Chinese consumer. They can sell digital currency to Chinese consumers. That's the grand plan.

Why Would China Agree to This?

Why would China agree to such a stupid deal? There are actually lots of reasons. The first major reason is Taiwan.

The United States doesn't really need Taiwan, what it does that's very important for the United States strategically is it blocks China from the Pacific. It's part of the first island chain.

That's why American policymakers think Taiwan is important. But think about it. If you're American, you might think, "Let's just say I lose Taiwan. Let's say I say to China, 'I want Taiwan to return to the motherland.'" What happens now? Well, now you create a problem because Taiwan can now block an area. It can separate Southeast Asia into two parts: South Korea and Japan on one part, and the Philippines, Southeast Asia, and Singapore on another part.

You can now divide Southeast Asia in two. This is important. Why? Because Japan and South Korea get most of their energy through the Strait of Malacca. You basically block off South Korea and Japan from a lot of the global economy. In which case, there's no way in hell South Korea and Japan would agree to let Taiwan return to China. By the United States saying, "Hey, I want China and Taiwan to marry again," what you've done is you've now transferred the Taiwan problem from the United States to South Korea and Japan. That's why, strategically, it makes perfect sense for Trump to say Taiwan belongs to China.

The Taiwan issue is solved. Now there's another issue. China, as we discussed, is very dependent on energy and food from South America.

You can see all these projects in yellow that China is building. The pink is what's already built or under construction. These are huge projects. What America has done is basically taken over Venezuela. Trump announced this two days ago: "We're going to make Venezuela the 51st state." Why would we want to do that? Because now he blocks China from South America.

The war in the Middle East means you can forget about that region. So China can now get energy from Russia or the Western Hemisphere. China doesn't want to depend entirely on Russia. China will buy more Russian oil, but it does not want to become entirely dependent on Russia. Also, Russia cannot actually meet all of China's energy needs. So now China is forced to negotiate with the United States to have access to the Western Hemisphere.

Does China care? The answer is no. China only cares about stability and price. I want to get things at a fair price, and I want this to be a stable and predictable relationship. If I'm China, I would prefer if America controlled the entire Western Hemisphere because now I can just negotiate with one government as opposed to all these other governments, many of whom are corrupt. Would China agree to this? Absolutely. China has no problem with America controlling the Western Hemisphere if it means stability and cost are controlled.

The last thing is AI. The United States is the world's leader in AI simply because it has the most data centers. In fact, America plans to build more and more data centers. China is trying to compete, but its data center development is constrained by the fact that it has limited access to semiconductors—to chips.

China wants more chips from the United States. And the United States can say yes. But you might ask, "Doesn't that mean that China could one day overtake the United States? Could China just reverse engineer and steal the IP from these semiconductors?" No. That's not how semiconductors work. Semiconductors are so sophisticated that it's an entire global supply chain. These semiconductors are designed in California, then sent to Taiwan to be manufactured, then sent to the Philippines for value-added processing, then sent to China to be added to components, and then sold to Europe. All the while, you have to extract resources from Africa and South America to feed these semiconductors.

In other words, there's no way that one nation can control the entire supply chain. As long as America can control the trade network, America will always have the advantage in semiconductors. There's no way China can reverse the production of semiconductors because it's too sophisticated and too expensive. Only one country can specialize in one field.

That's why this guy is important: Jensen Huang of Nvidia. Before, he was not supposed to come to China. It was announced he was not coming. Then, as Trump was flying through Alaska to refuel, he got on board. It was a last-minute addition. Not only that, but there were two business people with Trump on his plane: Elon Musk and Jensen Huang.

I work in business negotiations. I'll tell you exactly what happened. Scott Bessent and He Lifeng were negotiating the contours of this grand bargain in South Korea. China wants, first and foremost, Nvidia chips. Scott Bessent wants, first and foremost, access to the Chinese financial market. There was an impasse. So Trump basically said, "I'm not going to bring this guy." Then, as Trump was coming to China, there was a breakthrough, and Trump was like, "Okay, as a sign of goodwill, I will now bring him." This is how business negotiations work. This is confusing for people because usually, we don't want business people to run diplomacy, because they are unpredictable. But this is how business negotiations work.

The Framework of the Grand Bargain

This is the basic framework for how the US-China grand bargain will turn out, in my opinion.

What China wants:

• Access to cheap energy from the Western Hemisphere.
• Nvidia chips to fuel its AI.
• Access to the US market.

What America wants:

• Access to Chinese financial markets. Basically, it wants Chinese consumers to buy stablecoins in order to finance the US debt.
• To better control China's AI development. With AI, China and America are not competitors; they're partners. The entire point of AI is to create a surveillance state. America has the technology, but China has a lot of people and there's no privacy here. In other words, America can use China as a lab to test out surveillance technology that you could not test out in America.
• Chinese manufacturing. Chinese manufacturing is the best in the world. Not only does America want China to continue manufacturing in order to buy US dollars, but it also wants to import Chinese manufacturing into America and Venezuela. Venezuela has all these resources that can be extracted and turned into manufactured goods. The Americans don't want to do it because it's too expensive and too hard. But the Chinese will do this.

This is what the grand bargain will look like. These are predictions. This is the way I see the situation, and we'll know in a couple of days if I'm right or wrong.