Bessent Confronts Japan’s Economy, Digital Dollar Threat Begins, China’s BYD Dominates Tesla

Bessent Confronts Japan’s Economy, Digital Dollar Threat Begins, China’s BYD Dominates Tesla

All right, guys. So, the tariff war continues and the US is on a world tour to punish their trading partners. Now, as we mentioned before, the game plan is to squeeze their major trading partners outside of China. And the goal is quite simple. Allow US goods to flow unimpeded to the world, but at the same time raise punitive trade barriers to prevent foreign goods from coming in. And if we look carefully at the countries being targeted with the biggest tariffs, there is a common theme and these are countries with big industrial bases manufacturing capabilities that Trump wants reshort to the US and this is the extent of damage the tariffs are about to do. China is obviously the most affected with over $150 billion worth of trade destroyed. But the next single biggest country on the hit list is Japan. Nearly $28 billion worth of trade is about to go up in flames. Europe is also on the hook for $92 billion worth of trade destruction. So the tariff war is real. A lot of money will evaporate away. Exporters will get hurt and a ton of jobs are at risk. But let’s focus on Japan for a bit. Now we know the situation there is dire. Bond yields are flying up. Exports are dropping and the country is on the brink of recession. Now remember the balance of power. As Japan’s fortunes start to fall, it pushes their companies more and more towards the US. It’s a big reason why the US is moving to encourage Japan to sign a deal. Now Scott Besson is in Tokyo trying to tell Ishiba to reach a good deal with the United States. Now this doesn’t sound like a friendly visit and one can guess what else was spoken behind closed doors. Now, Japan is facing a huge 25% tariff rate from the US market. Toyota is Japan’s biggest car manufacturer and their operating margins are around 15% at best. And this poses a tremendous problem. Even if Toyota destroys their margins, US consumers will still have to pay 10% more for the Japanese car, which means sales are obviously still going to hit down. So unfortunately for Japan, Besson is coming in with the advantage. The US economy has the leverage and Japanese exports are already feeling the pain. Car shipments to the US are already down and in total, US bound shipments are down by 11% yearonear. Globally, Japan is also selling 0.5% less as well. So imagine how much worse things could get if the tariffs eventually stick. A bigger collapse in exports to the US will happen. And there’s no escaping this. But what does the US want? This is the big question because a 25% tariff is a big deal. And Japan needs to drop that to the floor, which is around 10%. And we need to realize how severe this dependency is. 20% of Japan’s direct exports goes to the US consumer market. That is an enormous amount of trade that could collapse or even drop by half should a tariff stick. The next biggest markets are China and Asia, and these are problematic, too. China can easily replace Japanese goods in a heartbeat. So, expecting the Chinese to replace US demand is not really realistic. The rest of Asia also isn’t an open goal. They source their imports from China as well because prices are just so competitive. In other words, Japan is stuck in a very dark place. Now, I hate to say this, but the US has enormous leverage using tariffs on Japan. Trump wants to shift industrial production back to the US and just the Nepon steel deal itself tells us a lot, doesn’t it? Japan needs the US market, a market that is protected against China. That is a big downside that is being weaponized today by Trump. Now, when we narrow down to the type of exports being sold from Japan to the US, the trend is extremely clear. Over 70% are manufactured goods and equipment staff for heavy industry, 50% from transport equipment, electrical machinery, and nearly 40% from machinery, general manufactured goods, and chemicals. It sounds like the type of stuff the US wants to eventually manufacture themselves. Now, this all aligns with the rest of Trump’s reshoring plan. The threat against John Deere from reshoring is a good example of that. you better make your stuff in the US or face a wall of tariffs yourself. And it doesn’t matter if you’re a US company or not. So, it’s going to be interesting what Besson will demand from Japan. Maybe he’ll tell Ishiba to buy more US LNG. That could be on the cards and probably is. Maybe he’ll demand Japan to buy more Boeing planes, the same thing as Indonesia. But something tells me that the Fortress America plan will be on display, telling Japan to stop or at least reduce trade with China, and this could be both ways. Now, perhaps Japan will buy less stuff from Chinese exporters, but more likely than not, the plan probably would be to reduce critical exports like shipmaking gear to Beijing. And the same goes for South Korea, right? They also facing a 25% tariff. And something tells me this is part of Besson’s big encirirclement strategy against China. And will Japan fall? Maybe they might because Trump doesn’t seem to be joking this time. You’re going to send a letters. I’m going to send letters. That’s the end of the trade deal. I could send one to Japan. Dear Mr. Japan, here’s the story. You’re going to pay a 25% tariff on your cars. You know, so we give Japan no cars. They won’t take our cars. Right. But there is a limit to how much the US can push the world because the dollarization will become a side effect. As trade with the world starts to dry up, the need for dollars will also drop. It’s not some conspiracy. It’s just a natural order of things. And let’s use Japan as another beautiful example. When Japanese exporters sell stuff to the US, they get paid in dollars. 87% of trade is settled in the reserve currency. Only 12.5% is in yen. And when Japan trades with the world, only 50% is done in dollars while 35% is done in yen. So there has to be a way to find more demand for dollars. Trump’s trade war isn’t going to end tomorrow. So what else can be done to generate organic demand for dollars and buy extension US bonds and this is where we have to talk about the digital dollar. The big shoe just dropped and there are many big implications behind the scenes. Now the US just passed it stable coin legislation and once Trump signs it into law we could see a major framework for USD pack tokens come to light and this is more or less the new digital dollar. So the bill has two parts. The first is to lay out a framework for crypto basically regulation. Now the second part is more interesting. It would ban the US government from issuing a CBDC. So I understand the confusion here right? Why wouldn’t Washington issue their own digital currency? Well, because they are way behind the game versus China and issuing a digital currency needs to be backed by something else, right? Because if you just type a few keystrokes on a keyboard, you can create a trillion digital dollars backed by nothing. And that would ignite an inflation crisis. So, the US is adopting a new approach. Issuers of stable coins will need to back their tokens by liquid assets. And what do you know? It will have to be US dollars or short-term treasury bills. All issuers will have to disclose how much dollar assets they hold as well. And one can immediately understand what this entire stable coin law is all about that bassin at the treasury is just another ploy to funnel demand into the reserve currency and US debt. Now does he really care about digital currencies or crypto? I highly highly doubt it. This is just trying to drum up sales for US bond assets. He’s a salesman. So the tariff war is going to reduce dollar demand. So this will be a counterbalance against it. The hunt for money is getting very real. Yes sir. And also the digital assets are an important source of innovation that will drive the that can drive uh usage of the US dollar around the world as with stable coin legislation. There is speculation that there may be up to $2 trillion of demand over the next few years for US government securities from digital assets. So you heard Bassant up to $2 trillion of demand for US bonds from digital assets is might be available and that’s the real game plan here. Stifon money out of the private sector into government coffers. And you can call this legislation if you want, but it just sounds like a bailout from Wall Street and private investors. So, we shouldn’t be freaking out too much over it. It’s just a hailmary pass of Scott Besson. But let’s cover our last story today, which is a big one. By now, we know China’s EV dominance is undeniable. But just how frightening is it really? Well, we have Bloomberg telling us Chinese automakers will capture 30% of global car sales by 2030. And that’s an enormous share of the pie. And with that comes all the other good stuff. More R&B transactions and greater rollout of Chinese technology across the world. And this entrenches Chinese influence across Asia, the Middle East, Africa, and Latin America. And when the world gets more Chinese EVs, entire ecosystems will be built on it. Especially when companies like BYD, they are bundling their cars with Chinese developed AI solutions. So while Elon Musk is busy fighting Trump, China is playing the big game masterfully. They are busy going out there to globalize the world. While the US is doing the exact opposite today, the Chinese economy is actually more capitalistic than the US. There’s more drive and entrepreneurship even within the auto sector. There are over 130 Chinese car brands today. Now yes, BYD, Wooling, and Jill, they the top contenders. They are the big boys. But there’s a reason why the central government allows over 100 more auto companies to exist. It’s this ultra competition that allows a burst of tech advances. You get better lithium ion batteries. You get better self-charging capabilities. And more importantly, how to do more with less. It’s really essential we look at a Chinese car like a Trojan horse in a good way. When China exports cars around the world, it creates expectations of superior quality at a very affordable price. And unlike the US that subsidizes only a few auto companies, China subsidizes the entire ecosystem, it allows the cream to float to the top and the weak contenders will naturally fall away over time. Now, this chart shows us the utilization rate of car companies in China and the benchmark is 70% to run a profit. The majority of Chinese automakers are well below that mark. Only brands like Xiaomi, Jill, and BYD are above the profit threshold. It’s a big reason why prices in China can come down. The big boys on top are running at full steam ahead just to survive. That’s why Chinese car prices are so affordable. It’s why BYD can give crazy discounts of over 20%, sometimes even over 30%. And this is the spirit of enterprise the US has just forgotten about. They are too focused on subsidizing their giants and big companies instead of focusing on their ecosystem as a whole. Now, giving a Pacific chip company billions in subsidies is very different from building up US supply chains as a whole. Do you help a bunch of giants or build up the entire country as a whole unit? Really something to think about. And there’s a reason why Tesla sales have been dropping since Trump took office. Now, a big part is the trade war and foreign customers just boycotting the bread. But a bigger threat is the explosive rise of Chinese competition. Everything from BYD to Xiaomi are selling like hot cakes. Not just in mainland China, but across the world as well. Chinese automakers are able to bundle a ton of features into one single car. The cost of production is low. And here’s the critical part. They are willing to slash their profits to get market share. US automakers like Tesla or GM simply can’t. And now that tariffs are raising their own cost, we can expect China to win the global auto market is a lose-lose situation for Trump’s economy here. But let me know what you think. Will Japan cave to Bess’s demands? And what is the point of a digital dollar today? Let me know in the comments below. Stay safe. Be sure to smash the like button and subscribe as we navigate through this crazy times.

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Bessent just visited Japan trying to squeeze out a trade deal while the digital USD is about to start, but is that a real threat? Meanwhile China’s BYD just dominated Tesla once again.

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