A Breakdown of Trade Exporting

What Country is the Largest Exporter of Goods?

If you said China by looking at this chart, then you are actually more wrong than right.  Here's why...

Before I begin this article, there are two things you should know about me. First, I view most things in relative terms, and second, I view most things as gray. I believe my ability to see things as gray keeps me open minded on most topics. Some of you have wrongfully assumed that my recent writings are in support of China with regard to the trade issue. This could not be farther from the truth. I am simply opposed to trade barriers of any kind, and believe each country should do and provide what they do best. If Country A has cows but no crops and country B has crops but no cows, should we not freely trade what our respective countries need most? What happens when Country B (that has crops but no Cows) loves to eat steak, and has the largest meat eating population in the World?

The Butcher, the Baker and the Candlestick Maker

If the Country with the largest meat eating population in World did not have Cows, they would become a huge importer of beef. Would we penalize Country A for having all the Cows? Would we punish Country A if they could not consume as much of our crops as we consume of their beef? I certainly do not think we would start a trade war over it and make the Beef exporting country pay a tariff for giving us the beef WE ARE ASKING FOR! Even if we did this, would the beef exporter have the ability to hold their prices while paying the new tariff? Of course not! The tarriff would lead to price increases for the beef consuming country. The beef eaters would be forced to eat something else, or pay the higher prices. Everyone loses. Lets bring this hypothetical example home. Lets pretend California makes candles really well and has a surplus of wax. Oregon makes bread and has a surplus of wheat. If wheat costs more than wax, and because California is much larger than Oregon, California would lose this pretend trade war because they are spending more on Oregon Wheat than Oregon is spending on California Wax. Who is the bad guy? Neither are bad and neither State picks up an economic advantage.

Did you know that China is over 4 times larger than the United States? If things are relative as they should be, China should be exporting 4 times more than we do, but they don't! In fact, China only exports $700 billion more than we do, which is 50% and not 400% as should be if things were measured on a relative basis. Ready for the big shocker? China only exports $1704 per person, while the US exports $4900 per person. We export almost 3 times China on a per capita (Person) basis. Are we sure we are losing?

The King of Exports is Far from being China!

As you can see above, the top 10 exporting Countries in the World export up to 50 times what China exports. Germany is the third largest over exporter in the World with a number very close to ours, but they are small and therefore export 4 times what we export and 10 times what China exports. Why all the focus on China?

Next, lets talk about making money and wealth by country. This is best measured by GDP (Total of all goods and services) on a per capita basis. China sits so far down the list in terms of success in this regard, that their closest competitor is Mexico. Can you imagine trying to compare the US to Mexico in terms of wealth and success? No way! The United States is the 8th best Country in the World when measuring GDP per capita, while Mexico is number 73! China is just one slot above Mexico at number 72. The US generates over $65k per year per person, while China generates only $10k per year. As you will see on the next page, China is not even close to playing in our league.

Where is China?

I am personally astounded to see just how far down the list China is AND that Countries like Panama, Barbados and Croatia are doing so much better than China.

All that said, I am not ignorant to the massive size and overall economic power China has become. They can absolutely pose a threat to the United States as they continue to invest in technology and intellectual capital. China has 10 cities that all have populations of over 10 million. They have scores of other cities with over 5 million people. Currently, China is working on a plan to create super cities out of the 10 largest cities and link them together as trading and investment partners. Each of these cities will serve as hubs as they then link in the numerous amounts of cities as spokes creating a massive hub and spoke system. This system will feed and support itself to the greatest extent possible. They also have their belt road initiative that is investing in super infrastructures within third World Countries. These Countries cannot pay for these roads, bridges and technology, so China is lending them the money, thus making these Countries beholden to China. It is a scary thought and it's clear that China wants to grow its economic dominance in the World. My point here is that they may absolutely be a threat and are not our friends, but I am still opposed to tariffs, and stand firm in my belief that there should be free trade across the globe. Lets all do what we do best. Trust me, if China's economy grows and succeeds, so will ours. The opposite is also true. If one gets sick, the other will also get sick. I would rather both sides win.

Hope for the best, prepare for the worst

Things are likely to get worse before they get better

The above press clip tells me that we are heading into a long-term battle with China. Restaurants are now charging Americans a 25% tax on their food, while the Chinese movie channel is now playing a number of anti-American movies. Chinese companies are telling their employees that they are not allowed to buy anything made in America and citizens have been quoted as saying they are embarrassed to pull an iphone out in public. Those things sound nasty, but will have little impact on the US. However, there are 5 economic nuclear weapons that China can use to do damage to the US.

1. China can dump our Treasury Bonds and send our interest rates soaring. Imagine if a fixed rate mortgage suddenly went up by 1-2%. I do not lose sleep over this one, because China will be hurt in such a move. It would devalue their holdings.

2. China can increase government regulations for US companies operating in their Country.

3. China can devalue their currency. This is already happening to some extent. Also, lets not forget that when China buys our bonds, they are doing so to help prop up our dollar. The US dollar is used as the benchmark to measure the Yuan. So, not only can they devalue their currency, they can force ours up. This would be the opposite of selling our treasuries but could also inflict damage.

4. China could slow down their Oil exportation which is something the world needs to keep oil prices down.

5. Last but not least, China could stop exporting rare earth materials. They hold a virtual monopoly on rare earth materials. In fact, their lands hold 105,000 metric tons, while the US holds just 4,100. These rare earth materials are used to make many of our electronics, batteries and other vital technologies. This move in my opinion would hurt China the least, while maximizing the pain they can inflict on the US the most.

Rare Earth Materials are an example of why Countries should work together.

Some have what we need and we have what others need. Again I ask, is it right to measure who exports the most, if it's something we need?

Please note, I don't lose sleep over any of this nor should you. My job is to get you to think about what is happening so that you can profit from the unintended consequences which may follow. Lets begin with the threat that concerns me most, which is the threat of China ceasing to export Rare Earth Materials. Guess what? There is a stock play here. There is an ETF that trades in these materials and you can buy shares in this ETF just as you buy shares in a company.

On the following page, I will show you what happened to the stock price of this ETF back in 2011 when China started a trade war with Japan.

Rare Earth ETF is Trading at $14.67

The Rare Earth ETF Symbol is REMX- Currently Trading Near its all Time Low

Considering the stock is near its all time low, and considering it spiked to almost $120 in 2011 when the trade war broke out between China and Japan, it sure seems like a logical bet. We are going to make an investment, but at a fraction of the investment that would involve simply buying the shares. We will use Call options which require less cash and can deliver triple digit returns. If you want to learn more about how this works, you can sign up up for one of our trading/training programs. The programs we offer can be found at www.UniversityOfOptions.com. We have programs that provide education and live trade alerts starting as low as $59 per month. You will be amazed at how much your can increase your ROI when options are strategically deployed.

In Closing, I would like to remind you to be careful. While I don't see dire consequences as a result of the trade war, I absolutely believe it will tip us into a recession and cause more pain in the stock market than most are prepared for. We currently hold very few stocks and what we do own, we own them as an income producing plan, which involves selling Covered Calls. Something everyone should be doing. If I am right, cash will soon be king and those on the sidelines will be in a position to buy stocks VERY inexpensively and see their wealth grow, while people that attempt to ride this out, could see their wealth shrink.

The market is now almost exactly where it was in January of 2018. What do you have to lose by being liquid right now? Well, in the last 17 months, you would have lost nothing. Even the best stocks are beginning to fall. We are seeing this happen with our weekly stock picks. These are all undervalued, great companies, and the weight of the market is pulling them down.