“Artificial intelligence is the future, but we must ensure it is a future that we want.”
– Tim Cook
April 9, 2025 — In the late 1970s, the United States opened its doors to China. It was a grand bargain rooted in pragmatism: the West wanted cheap labor, and China wanted access to global markets.
The bet? That economic integration would naturally lead to shared prosperity — and maybe even political liberalization.
For a time, it worked. Factories boomed. American consumers got their $4 toasters. China lifted hundreds of millions out of poverty. Wall Street cheered as Beijing’s coastal cities turned into glittering hubs of production and profit.
But beneath that golden surface, cracks were forming. America offshored its industrial base. Fat cats on Wall Street got cheap labor. Today’s “Panicans” got cheap stuff by the container load. Rural towns got fentanyl.
China’s President Xi capitalized and declared to the people, “Getting rich is glorious.” The Communist Party held tight control over its markets — even as it tapped big into Western capital.
Fast forward to 2018. President Donald Trump, channeling decades of pent-up frustration from hollowed-out towns and shuttered plants, declared economic war — not with tanks, but with tariffs. His message was simple: “We’ve been taken advantage of.”
Across the Pacific, President Xi Jinping was navigating a different kind of populism — one built on historical memory and national pride. His “China Dream” wasn’t about appeasing foreign investors. It was about returning China to its rightful place as a global leader — on its own terms.
Thus began the great decoupling.
We’re seeing the setup today, as President Trump raises tariffs on China to 125%, but gives other countries who haven’t announced retaliatory tariffs a reprieve (and as markets get a much-needed oversold bounce, including an unheard-of 10% rally in the Nasdaq this afternoon).
Trump isn’t just resetting the world order, he’s doing so in a way that pits everyone against China, the poster child for getting rich off of globalization while other nations struggle.
Stephen Roach, former Morgan Stanley Asia Chair and one of the few Western economists fluent in both the language and nuance of Chinese policymaking, calls this moment a “clash of saving-impoverished populisms.”
Neither country is in a position of financial strength. America’s household savings rate is near historic lows. We’ve written more than enough about the rising national debt than any child would aspire to in a vision of his future self. The end of the Empire of Debt appears to be nigh. Trump’s trying to negotiate to its peaceful resolution, says he.
At the same time, China is fighting its own debt demons, from real estate busts to youth unemployment, not to mention a declining population, one of the first signs of a long-term decline ahead for a nation.
Rhetoric on both sides? Still chest-thumping. Still full-speed ahead.
And the stakes? Much bigger than iPhone tariffs and electric vehicle parts.
At the center of it all, we’re now watching a high-stakes sprint for control of the 21st century’s most transformative technology: artificial intelligence. AI.
In the U.S., private capital has fueled a surge of innovation. Silicon Valley leads in AI models, chips, and data infrastructure.
But China is catching up fast — armed with centralized planning, enormous data sets, and a population largely comfortable with tech-driven surveillance. And if you listen to the breathless Thomas Friedman in The New York Times, they’re already lightyears ahead.
Trump sees the tariffs as a way to cut China off from the Western capital spigot.
In simplistic terms, the future is not just about who builds the best version of ChatGPT or TikTok.
It’s far more than that. The trade war is about who sets the rules, who owns the supply chains, who trains the engineers, who owns your data, and who controls the values coded into machines that will shape everything from health care to war.
If the 20th century was defined by oil, the 21st will be defined by algorithms.
And yet, both the U.S. and China are fighting this war with one eye on each other, and the other on their domestic audiences.
Trump’s America is about economic revival through repatriation: bring the jobs back, punish the cheaters, strengthen the base. Xi’s China is about stability through strength: contain volatility, project confidence, tighten control.
What gets lost in the middle is cooperation, coordination, and any shared framework for managing the fallout from a fracturing global economy.
Roach says he isn’t a “panda hugger,” per se. We can only take him at his word. We’ve trusted his analysis of the U.S. markets in the past during several of our lengthier research projects.
But Stephen’s issuing a warning based on data — and decades of watching both countries slip further into inward-looking economic nationalism.
Neither side wins if they both continue down this path. And neither side can afford to lose.
All “trade wars are political wars,” Roach warns. “Politicians want you to think otherwise, attempting to rationalize trade aggression through economic arguments.”
On the surface, these arguments are seductive, promising spoils to the winners of trade conflicts through a zero-sum resolution of deeply ingrained economic grievances, But in the end, trade wars are a race to the bottom, with no winners. That is the lesson of the 1930s, and a worrisome portent of what may lie ahead.
So, who writes the rules of AI? Who leads the next era of global trade? Who shapes the narrative of power in a multipolar world?
Unfortunately, the answer might not come from a handshake. At this early stage, it may come from who survives the long-term cost of their populist ambitions.
Stay tuned. The world economy is watching.
Addison Wiggin
Grey Swan
P.S. “We should have delisted Chinese stocks when the Communist Party of China refused to allow Western audits. Can you imagine how much fraud is hiding under those Chinese-reported numbers? The Chinese listed entities in the U.S. are fantasy football shares.”
Kyle Bass is the founder of Hayman Capital and one of the few investors who made a fortune betting against the U.S. housing market before it collapsed in 2008. He’s Grey Swan adjacent, a friend of the network we rely on for our insights.
Today, Bass is laser-focused on transparency in global markets — especially where Western capital meets closed systems. His views on China may be sharp, but they come from a place of fiduciary caution, not ideology. His views will definitely play a significant role in understanding who’s going to blink first among the people’s presidents, Xi or Trump.
As always, send your views to: addison@greyswanfraternity.com
P.P.S.: If you’re a paid-up member of the Grey Swan Investment Fraternity, please join us for a live Zoom call tomorrow, Thursday, April 10, at 11 a.m. Eastern Time.
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 on 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.
If you have any suggestions on new trades or macro ideas we’re missing, please share them here: addison@greyswanfraternity.com
