The China Pivot

As other countries keep bickering, China is executing a huge change in strategy

Dear readers,

The Iliad is widely considered the foundation of western scripture and indeed of western culture. The poem describes, in 15,000 lines of verse, an episode in the last weeks of the Trojan War, when Achilles, the greatest warrior on the Greek side, withdraws from fighting after a dispute with King Agamemnon who leads the combined forces of the ancient Greek city-states. The Iliad also reveals how the war got started: Prince Paris of Troy abducted Queen Helena from her husband King Menelaos, Agamemnon’s brother.

Contemporary researchers however believe there was another reason for the war. Troy was among the richest, if not the richest city of its time. The city, located on the northwestern coast of today’s Turkey, dominated the Dardanelles, the entry into the Black Sea from the Aegean Sea. Troy’s position allowed it to control trade in grain, timber, and metals through the Dardanelles; and to impose taxes on it. The Black Sea already in ancient times was enormously resource rich. Troy held the chokepoint for access into the region; but the Mycenaean Greeks from Sparta, Mycenae, and Pylos were a rising maritime power with trade networks across the Mediterranean. They knew if they subjugated Troy, they would have access to resources critical for bronze production and weapons, the key to any war effort and dominance over the Mediterranean Sea.

It is quite likely, therefore, that the Iliad is not only the first scripture of western heritage, but also the first account of a major trade war.

The impact of Donald Trump’s tariffs on China is devastating, especially for smaller and medium-sized enterprises (SMEs). Exports to the U.S. account for up to 20 million jobs in sectors like electronics, apparel, and machinery. Many of those producers run on profit margins of 5%-10%, which makes it impossible for them to absorb the huge increase in tariffs through price cuts. At the same time, for U.S. clients who operate under thin margins themselves (that’s why they’re buying from lower-cost China in the first place), tariffs of 145% make many imports uneconomical.

American customers are cancelling their orders at a large scale under contract clauses like Force Majeure (which allow to renege on obligations due to unforeseen events) or Material Adverse Change clauses (MACs which have a negative impact on a deal’s viability). Even if there were no contract clauses which allowed to renege, legal and bureaucratic complications make it essentially impossible to Chinese SMEs to enforce their contractual rights. Large parts of the Chinese economy are grinding to a halt.

• Manufacturers in industrial clusters like Guangzhou and Shenzhen have halted production. Factories for toys, packaging, and electronics are standing still.

• A Reuters report noted that Chinese exporters in key sectors like electronics, electric vehicles, solar panels, and heavy machinery are facing mass cancellations of orders.

• For merchandize in transit, freight forwarders experience a spike in attempts to reroute shipments. Containers are already piling up in ports and at interchanges.

• Logistics providers report a near-total halt in container bookings from China to the U.S.