Rise of Strategic Capitalism: Focal Point, Taiwan

“The West as a whole in the early 1990s became obsessed with a ‘peace dividend’ that would be spent over and over again on any number of soft-hearted and sometimes soft-headed causes. Politicians forget that the only real peace dividend is peace.”

— Margaret Thatcher

 

April 7, 2025 — “Trust me, you’ll miss the benefits of the empire when it’s gone.”

That’s one of our favorite historians of empire, Niall Ferguson, with a mic-drop eulogy for the American-led world order — Pax Americana.

Niall is Scottish, so you may want to forgive his sour disposition. The real-world experience of the United Kingdom’s century-long experiment with Empire gives him good reason to see the world thus.

For the United States turn, Niall is lamenting the end — with Thursday, April 2nd’s “Liberation Day” declaration — of the post-WWII system powered by aircraft carriers, cheap capital, and cheaper rhetoric.

If that era’s on its last legs, the fracture point is Taiwan.

A speck on the map.

But it’s home to TSMC — Taiwan Semiconductor Manufacturing Company — the beating heart of the digital economy. It cranks out the world’s most advanced microchips for Apple, Nvidia, AMD, and even the Pentagon.

Chips are the size of a fingernail but are worth more than barrels of oil. And the “picks, shovels and blue jeans” of the nascent AI world economy.

Unfortunately for free traders, the Taiwan chip industry is parked within the missile range of a country that considers Taiwan not a nation, but a wayward province.

One bad weekend in the Taiwan Strait, and we’re not just looking at a military crisis — we’re looking at a global blackout. iPhones, fighter jets, data centers, car factories, hospitals: frozen.

That’s why Washington now calls TSMC a “silicon shield.”

It’s not a poetic flourish — it’s a last-ditch firewall between civilization and the cliff.

Niall Ferguson continues his bender, calling Trump’s response “Project Minecraft.” It is a fantasy where America pickaxes its way back to 1955, armed with tariffs and nostalgia. “Trump stands as much chance of reindustrializing the U.S. as you do of getting your frozen laptop to work by smashing the motherboard with a Minecraft hammer,” Ferguson says.

Yet beneath the meme is a real shift. Call it imperial rollback. A controlled demolition. Tariffs. Trade walls. Tough love for NATO freeloaders. A plan — chaotic, maybe — but a plan to shrink the empire while trying to save the Republic. And let it flourish anew.

Another classically trained writer we respect, Victor Davis Hanson, doesn’t see a fantasy. He sees a reckoning. “Globalization didn’t just move jobs,” he writes. “It moved the soul of the country.”

In his telling, free trade became a euphemism for the long con. Wall Street got rich. Working-class America got fentanyl, Dollar Trees, and lectures about coding bootcamps.

All while running massive trade deficits since 1975.

Hanson’s verdict on tariffs and market chaos? Painful, sure. But just. “This is a 50-year injustice,” he says. Tariffs aren’t the problem — they’re the apology note.

And Taiwan? Taiwan is the leverage point.

Taiwan’s chip foundries hold the keys to the 21st century — the gadgets, the code, the weapons, and the learning machines. TSMC is more than a tech company. It’s an economic deterrent, as critical as nukes were in the Cold War.

Which brings us to Grey Swan regular John Robb.

He lays out the fork in the road: China’s model is command-and-control. Centralized innovation. State-owned companies building toward national goals.

The U.S.? It’s chaos by comparison. Decentralized, stock-driven, and addicted to quarterly earnings. Nvidia builds because Jensen Huang sees gold in the GPU hills — not because Uncle Sam told him to.

Chaos is “our” strength.

Trump’s team of realists see the game for what it is. Nobody (‘cept maybe Trump himself) likes tariffs. They’re another tax. An impediment to free trade. But today, the tariff tweaks aren’t about trade – they’re national firewalls. And the blueprint for a fractional world along ideological lines.

Forget what economic textbooks say. This isn’t about flat-screen TVs or comparative advantage. It’s about who gets to write the firmware for the world. And whether that code is geared for individual flourishing – or state control.

The WTO is an antique. Their version of free trade is in hospice. We’re in a new era now — Strategic Capitalism. Traders and individual investors need to sort out which side they’re on.

Economists say that free trade is helpful. So do the political scientists. To them, free trade is a tool that can prevent wars between countries.

Thomas Friedman, the New York Times columnist who has been a cheerleader for endless globalism, rose to fame with the observation that no two countries with a McDonald’s franchise got into a shooting war.

Of course, Russia’s invasion of Ukraine proved that idea wrong. As friendly as it was nice while it lasted.

The reverse, however, is also true. Ferguson sees a retreat, Hanson sees a just war, and Robb sees divergent systems locked in a winner-takes-all sprint.

Tariffs aren’t the first salvo in a trade war. They represent something much larger in scale: a war of ideas. Taiwan, for better or worse, is the DMZ resting precariously in between.

Chaos over control! Damn the torpedoes! Full speed ahead!

If that sounds dramatic, good. It is. That’s why our most recent research looked in detail at this emerging chip war.

Addison Wiggin
Grey Swan

P.S. If you’re a paid-up member of the Grey Swan Investment Fraternity, please join us for a live Zoom call on Thursday at 11 a.m. April, 10 EST.

This week, we’ll take a deeper dive into our model portfolio and how those positions have fared during the global sell-off. (Quick spoiler alert: 15 of 20 positions are up, including all five of our Aggressive Portfolio positions.)

Fraternity members will get the link and password Thursday morning. Seats are limited. Risk isn’t.

We’re also asking for your best trading ideas. You read that right: we’re throwing the gates wide open and “crowd-sourcing” new trades with you! Bring ‘em on… no ideas are too small.

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