USA vs. China
The US has pitted itself against China/China has pitted itself against the US in a new Cold War. The US is scared, or at least feels threatened. China feels scared and definitely threatened. Any attempt to defuse the situation via a diplomatic trip or presidential visit means nothing, this will go on until one nation is vanquished and one nation stands victorious. Victory won’t be won on the battlefield, in fact, the USA and China will likely never enter into combat against each other, however, each country will seek to win an economic victory. Sort of like, if you’ve ever played Civilization 6, and you get a religious victory. You haven’t really beaten the other nation, but you are dominant. That’s how this economic war will play out. So, where are the economic fronts being fought? The first obvious answer is computer chips. China and the US have identified computer chips as being one of the most important resources. They have both focused on building factories in their own countries, and the US in particular has forked over massive subsidies to attract companies to their shores. It is my belief however that people are overrating the chip industry in the market. While it is true that governments are paying dump trucks of cash to build chip infrastructure and that is usually a great thing in an industry, it has not been awesome in the chip market. Both the US and China have been extremely hostile to chip companies or leading chip scientists that have chosen the other side. This industry divided will find it very hard to stand. I think that many have bought into the notion that these chips are the future and that only a loser would not see a great future for this industry. These people are buying the ceiling and the industry as a whole has become overvalued. While it is true that chips are the future and will be required in nearly every new technology that is on the horizon the industry is being sold as a dream. It definitely has faults that will at many points hinder growth as the atmosphere isn’t particularly growth-friendly from a governmental point of view. Now, I’m not saying that the industry isn’t looking good, I’m just saying that some people are being sold a pipe dream. The next economic front is AI. Sort of a mix between military and economic, AI has the ability to change every single industry on the face of the planet. In the same way that America hauled out subsidies for chips, they will also haul out subsidies for AI. Unfortunately, I’m not super aware of ways to invest in AI outside of buying companies that have invested in AI. I’m sure AI companies like OpenAI will hit the market soon and IPO to do great numbers. Until then, just keep an eye on the industry. The last industry in which this conflict has presented an opportunity is the most obvious one: defense. I know, it’s obvious but I just don’t care. The US will stop spending on defense when the Panthers win a Super Bowl (never) until then just keep buying defense. While many defense ETFs have struggled proportionally against SPY over the past five years if China continues to get more confident the US will continue to spend exponentially on defense.
