Macro economic analysis on US/China 2018/2019 Trade war

The 196 pages of Chinese goods to be taxed by the US governments are spread across 6 categories. Where US manufacturers cannot find alternative sources of supplies, price increase of end product will be expected. 

Based on what was observed in December. The ability of the US government to sustain the trade war is predicated upon the Feds keeping interest rate low. 

Taxed categories include 

  • agricultural produce 
  • textiles
  • chemical compounds
  • hardware parts
  • mechanical parts
  • electronic parts

The December 2018 US market financial meltdown can be attributed to US government tariffs to reduce demand for foreign material supplies from China coupled with Feds interest rate hike to limit capital needed to boost domestic production.

The trade war seems to serve three purposes:

  • Drive up demand for domestic supplies
  • To keep inflation in check the economy grows (traditionally a role played by Fed Interest Rates)
  • Keep China in check.

Related references

Book summary: The Fate of Rome

Climate is both an enabler and disruptor of human endeavors. Nature balances the population it supports. Technology enables increased rate of energy extraction from environment to further human purposes.

Conducive climate results in bountiful yield and has allowed Rome to rise. Land is cleared and trade networks flourish during the rise of the empire. Clearance of wild lands unlocked microbes into the human civilization.

Microbes evolve to utilize humans and other mammals as vectors of infection. Dense population and connected trading network serve as a multiplier. The worst pandemic is the white pestilence (Black Death). This wiped out more than half of human population.

Trading network collapse as a result of the decimated population. Military rank diminishes both as a result of population decimation. Problem is further compounded by collapse of financial system which makes it difficult to sustain an army.

Grounds are fertile for spread of monotheistic dooms day religion like Christianity. Emperor Justinian converts to Christianity. Classical Greek school of thoughts gets displaced.

Climate change for the worse force nomads with superior military power to migrate westwards into Roman territory.

Roman Empire with decimated population gets further crippled.

Insights from dinner with Yuan

Conversations with Wang Ji Lei (Google)

China’s 996 practice has allowed China to close the 30 years technology gap between China and the US within the past 5 years. Some segments like cashless commerce have already surpassed US. The norm is some labor regulations are considered formalities and adherence is not necessary.

China’s distribution path starts from Beijing, 1st tier cities, 2nd tier cities, 3rd tier cities and finally remote villages. While double digits growth has been the norm over the past five years, market saturation has been achieved within the Chinese digital space and most apps are having problems growing.

Baidu’s Ads revenue model via search is increasingly being disrupted by Tic Toc. They have lost 50% ofvtheir search revenue last year. Similar trend is being observed with Google’s Ad revenue model which is bring increasingly disrupted by Amazon in the below USD75 consumer goods segment, Facebook between the USD75 and USD2000 consumer goods segment.

Tic Toc and WeChat dominate the bulk of the mobile usage bandwidth in China. Tic Toc with string positions within the short video entertainment segment while WeChat in the social conversations segment. Both companies face significant challenges encroaching into the other’s territory.

Tic Toc is the only Chinese mobile entertainment app that has made significant headway out of China. They have a well defined playbook which specialized tiger teams follow to gain traction in new territories. Maintenance is transferred to local team once penetration threshold is achieved. Due to fickle nature of users, retention remains the number 1 challenge. Position can be easily displaced by new entrants. Thebunderlyimg thesis is that city dwellers have lots of fragmented time spread across a day. Each video is restricted to 45secs to reduce anxiety that user has to stop watching between engagements. This also helps induce the habit of chipping in between engagements.

Typical engineer’s salary in Beijing is USD50,000 per year while a house cost around USD2million. While typical engineering salary in Silicon Valley is at least USD100,000 per year while house cost at least USD1 million. Wealth is mainly retained at the upper levels in China. Given the ratio of salary to house price as well as the comparative working hours, there is significant pull of talents to Silicon Valley.

Average green card waiting time for EB1 is now five since it’s been expended to include executives.

Major housing development is occurring in South Bay given huge influx of population and hiring by google (50,000 people) and other giants. Heavy recruitment is happening as Google continues to build out its cloud team.

Google cloud’s market share continues to lag with Amazon leading, Microsoft Azure in Second and AliCloud 3rd. Google cloud organization is facing an inflection point as upper management faces difficulties with zeroing in on a clear strategy. The symptoms are the dilemma between engineering culture (Google Default) versus customer culture (Amazon) and SMB versu Enterprise. Google’s traditional engineering culture has the effect of causing company to drift towards heavy engineering solutions which might be an overkill for SMB needs coupled with a lot of wastage which no one needs. This opens up a gap for customer focused companies.

Societal comparison between our current day and age versus the era of communism’s rise

In Karl Marx’s Das Kapital, I see huge similarities between the society during his time of writing and our current day. Corporations well optimized for profitability while workers work long hours without making enough to sustain themselves.

Currently, blue collared workers are either unemployed or getting paid close to minimal wage. With the growing prevalence of trend 996, where overworking gets glorified, even knowledge workers are working increasingly long hours while stuck living in areas paying ever increasing rent.

The only distinct between what is observed now and then is the promise of upward mobility through hard work, some call it the “American Dream”. Based on my observation even that is getting slaughtered.

Based on the current trajectory, I foresee a day majority of our population wakes up to realize the dream is in fact just a dream and a set of ideology similar to Karl Marx’s gain widespread popularity amongst the masses.

Related references

Blitzscaling with Microsoft

  • At scale, making sure everyone knows and adheres to mission, vision and values is very important
  • Handling Technological disruption is easy, handling business model disruptions are hard as it requires slaughtering your current cash cow
  • Need to set some ground rules that are baked into the core to mitigate against negative societal impact when operating at scale.
  • Ask permission from investors to use a different set of leading indicator metric when exploring into new terrain to help show progress every quarter

Book summary: George Orwell’s 1984

George Orwell

Key take aways

  • To control a population first control the language and supported concepts. This helps frame and thus restrict the thoughts of its users.
  • The further up the hierarchy the increase the need to process contradictory ideas
  • In a totalitarian state, even harboring a thought with no corresponding action is considered a crime
  • The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function, F. Scott Fitzgerald
  • Control over the past allows control of the future. Control of the present allows control of the past
  • Tiers of control and effects
    • Control body without the control mind will lead to martyr – Romans and the Christians
    • Control of body and superficial control of the mind leads to a brittle regime – Soviet Union
    • Control of body and absolute control of mind through history leads a long lasting regime – Missionaries and the catholic church.

Related Readings

Key take aways from the guide to a good life

A guide to the good life

Overview

The core of Stoicism as a philosophy is to live a good life (where peace of mind is deemed the highest good) by learning how to manage negative thoughts like:

  • anger
  • anxiety
  • fear
  • grief
  • envy

Techniques

This is done through the employment of these two techniques

Negative visualization techniques

  • Managing against hedonic adaptation by learning to desire what we already have. To do so, we must constantly remind ourselves the transient nature of things.

Focus of attention on what is within our loci of control

  • Totally within our control – focus our attention of these things
  • Partially within our control – internalize goals around parts where we have control
  • Totally out of our control – learn to be at peace with whatever outcome

Deliberate self denial

By deliberately depriving self the luxuries, one builds courage and self-control

Manage needs and desires

  • natural and necessary
    • Food and shelter
    • to fulfill
  • natural and unnecessary
    • Fine wine and luxurious food
    • to fulfill if not too much hassle
  • unnatural and unnecessary
    • fame and social status
    • to shun
  • unnatural and necessary
    • nothing exist in this category

Attitude towards time

  • The past and the immediate present is beyond change – be grateful for all that has came to pass and accept it with equanimity
  • The immediate future is where our loci of control falls – this is where we should channel our attention

Eras of stoiscism

  • Greek Stoics
  • Roman Stoics

The roman empire eventually adopted Christian religion as a the philosophical framework for state craft. This eventually displaced stoicism and other greek schools of philosophy.

Prominent stoic practitioners

  • Socrates
  • Marcus Aurelius
  • Xeno
  • Seneca

Related schools of philosophy

  • The Cynics – see Diogenes
  • Enlightened hedonism – see Epicurus

Related references

  • Meditations, Marcus Aurelius

Key observations of Chinese One Belt Road Initiative in Africa

Territories observed

  • Egypt
  • Sudan
  • Ethiopia
  • Kenya
  • Tanzania
  • South Africa

Similarities observed

  • Heavy Chinese enterprise involvement in the building of roads and houses
  • Shops with Chinese labels observed in operation
  • In areas where there are construction operations, Chinese supervision and management observed aided by local manual labor
  • Ubiquity of mobile internet connection
  • Ubiquity of Samsung, Huawei and Tenco Android mobile phones ranging from USD50 among local adult and adolescent population

Macro trends

With the rise of the Chinese middle class, there is now increasing domestic demand for goods and services within China. This has driven the need to increase the overall throughput volume of such commodities. It can be speculated that the level of consumption is expected to surpass the level of production within China at some point.

Economic growth in China has for now hit a road block due to the following factors:

In light of these, China needs to start shifting its policy from an export focused economy to a domestic focused economy. To do so, it needs to feed and drive domestic demand for goods and services.

Regional trends

The Chinese government has been observed to enter into agreement with local African government to fund the build out of infrastructure, primarily roads and buildings. At the date of writing 85% of roads in Ethiopia has been completed within the country while in Zanzibar, Tanzania, all major roads are under construction and a sports stadium named Mao ZeDong stadium has been observed.

In exchange for the funding, local governments are restricted to engaging the service of Chinese companies. This safeguards the effectiveness of funds deployment for the operations aspects of the agreement while serving to three specific purposes. It minimizes the actual volume of liquidity that is tied up in loans to local government, while boosting demand for construction services within China and increasing maximum possible throughput volume of commodity exports from the region.

What is not obvious during the time of observation is how effective local governments are at managing funds during the stage between its receipt from China to its payment to the engaged Chinese companies. Discounting the inherent effectiveness of the various projects in driving local GDP, differing levels of corruption and maturity of national identify within the region will result in variance between actual ROI versus expected ROI for these projects.

On deciphering Chinese end goal within the region

At the moment of writing, it is yet clear how Chinese African relationship will crystalize for the future. Two key observations need to be made before we can get a glimpse of it.

Key observation #1 would be how China would react when the loans come to maturity and the local government have yet made sufficient returns from the infrastructure investments to pay off the debt.

Key observation #2 would be how Chinese companies would handle the post construction phase of projects that require ongoing maintenance in terms of knowledge transfer.

Related readings

Key observations in Ethiopia

Addis Ababa, a city under construction

On society

  • 120 million relatively young population
  • 65% of youth graduate from college
  • unemployment rate is 85%
  •  The Youth is hungry for opportunity to advance in life
  • The Youth is highly optimistic and have faith in their prime minister
  • Shifting away from a tribal centric identity to a nation identity is the key challenge for the country. Tribal warfare was observed in Matema region.

On infrastructure

  • One belt one road initiative has thus far rebuilt 85% of all major highways
  • significant levels of Chinese operated construction observed in Addis Ababa where Chinese occupy the management layer while the locals occupy the manual layer.
  • Significant levels of new housing construction in villages by locals. Projects are facilitated by ease of material transport due to improved road conditions.
  • At the moment of writing, Chinese built daily train is in operation from Addis Ababa to Djibouti. Chinese management is in process of doing knowledge transfer to local with the intention of handing eventual management.

On nature and agriculture

  • mixed of highland and grassland terrain
  • lowlands are utilized for the cultivation of wheat, corn and coffee
  • highlands are utilized for the cultivation of potato and barley

On technology

  • Ethiopia’s own version of Uber was launched earlier this year.
  • Country-wide established 3G networks has been observed
  • Majority of people were seen using Android mobile phones like Samsung and Huawei.
  • Tenco is a locally manufactured Android phone ran by Chinese management. Typical phone sells for USD50.

On foreign relations with China

  • China is the largest trading partner where food is the main export.
  • China’s one belt one road initiative in Ethiopia aims to increase supplies of raw materials available to the middle class rich in China by building up critical infrastructure like roads and manufacturing facilities to increase overall throughput volume from this agriculturally fertile region.
  • The approach is to utilize Chinese capital, Chinese management expertise and operations technique gained from the rebuilding of their economy, local raw materials and local human labor.
  • Where maintenance is required knowledge transfer occurs. This serves to help conserve Chinese human capital as they further their initiative across the region.
  • The observed build up of educated youth will likely help facilitate the necessary knowledge to ensure infrastructure gets maintained beyond the time period of the initiative.

Related readings

  • Why the west rules for now, Morris Ian

Reflections on self mastery

The ability to fully master yourself is predicated upon the ability to cut through the narratives thrown off by your limbic brain in situations of stress to tap directly into your sensations and be at peace with them.

The ability to master the environment is predicated upon the ability to physically execute upon a series of actions which in the process yields a corresponding set of sensations and results.

The ability to master other sapiens and mammals is predicated upon the ability to bend them to your will, namely the disciplined application of the carrot and the stick. In Sapiens, it is necessary to utilize narratives to  manage their limbic brain.

Any property in nature brought to its extreme form counter-intuitively appears on the surface to be its exact opposite. High levels of Self-mastery on occasions gets perceived as Sociopathy by the casual observer.

Forecoming social experiment: To practice exploiting the unsuspecting street tout without yielding a single dollar.

References

  • Steve Jobs, by Walter Isacson
  • The Elon Musk blog series, by Urban Tim
  • Titan: the life of a John D Rockefeller, by Chernow Ron
  • Anabasis, Xenophon
  • Mein Kampf by Adolf Hitler
  • The everything store: Jeff Bezos and the age of Amazon by Stone Brad
  • The Facebook effect: The inside story of the company by Kirkpatrick David
  • Machina by Sebastian Marshal
  • Be slightly evil, by Vankatesh G Rao
  • Sapiens: a brief history of humankind by Yuval Noah Harrari
  • Why the west rules for now by Morris Ian
  • Analysis of Arabic Street tout aggressive sales technique by Gary Teh
  • Observations in Sudan by Gary Teh
  • Summary of learnings into the subject of Mundfulness by Gary Teh