Trade Fighter ™️

Street Fighter - Trade War Edition

In order to make sense of today’s “Trade War”, you can study all the historical precedents you like, but at the end of the day it’s just a clown show. At least we are having fun.

Personally, it reminds me more of the classic video game “Street Fighter”. For those who missed out on the finer things in life, this game is a “worldwide martial arts tournament” spanning various countries. Incidentally, Street Fighter was made in Japan and launched in August 1987 … just before the October 1987 crash <insert ominous music>.

The point of Street Fighter, and frankly any self-respecting game, is that in order to progress to the next level, you need to beat the current opponent. Only then do you reach the “Boss Level”.

To make it even more exciting, each fighter has a “Special Move”, the most famous being main characters Ruy and Ken’s “Hadouken” attack <Seriously, did you people never play Street Fighter?!>

Back to our Trade War…

What we are unwillingly living through now is a variation of Street Fighter that I will call: Trade Fighter ™️.

ROUND 1: USA vs JAPAN (Easy Mode)

The Japan trade deal was supposed to be a walk in the park. Japan has covertly debased their currency by 30% since 2020 and runs a $63bn trade surplus vs the US.

All that Bessent had to do was ask the Japanese to stop manipulating their currency, get them to buy a few American cars and deal done …Unfortunately, none bothered to check that the Japanese drive on the other side of the road which would require the US manufacturers to shift their assembly lines.

But Japan is now playing hardball, and even threatened to use its “Special Move”:

• Japan holds >$1 trillion in US Treasuries, making them the largest holders of US Treasuries in the world. “Weaponizing” their UST holdings would bring havoc to the US Financial System (yes, they denied they would do it, which is what you would say if you intend to do it).

But fear not. Japan currently faces a shortage in … RICE and actually wants to buy rice from the US, I kid you not (source). The US exporting rice to Japan so that Japan can keep making sushi rolls is so “meme”…

*USA Special Move: “Hadouken-Yen”.

*Japan Special Move: “Sell US Treasuries”.

ROUND 2: USA vs EU (Normal Mode)

In 2024, the EU exported €532bn of Goods to the US and imported €334bn, running a €200bn surplus with the US. However, at the same time, the EU had a >€100bn deficit vs the US in Services. After all, there is no EU alternative to the Mag7 so Europoors are stuck with Microsoft, Facebook and Netflix.

The other thing that the EU doesn’t have is Natural Gas. Cutting off Russian Gas leaves room for US exports of LNG to the EU. The chart below shows the volume of gas imported by the EU (in bn of cubic meters). Russia’s share of EU imports dropped from >40% in 2021 to c.11% in 2024, creating a gap for the US to fill (source)

One of the things that the EU has plenty of is great food. But for some reason, Howard Lutnick went on TV to complain that “the EU won't take chicken from America ... they hate our beef because our beef is beautiful and theirs is weak." (video link)

My guy, “chlorinated-chicken-in-a-can” is literally the last thing a European would want to buy from the US! Howard, I’d rather if you stick to SPACs and get us a good deal on CEPO and CEPT. Thanks in advance! 🌳🥹🙏

The EU is also threating to use their “Special Move” against the US:

• Their new “Anti-Coercion Instrument” (ACI). Among other things, the ACI could be used to make it more difficult for US tech companies to access the European public procurement market, which is worth >$2 trillion per year. The EU may also impose “tariffs on digital goods”, which won’t be great for the Mag7.

*USA Special Move: “Hadouken-Chicken”

*EU Special Move: “Anti-Coercion Instrument”

BOSS LEVEL: USA vs China (Hard Mode)

China is the Boss level. After all, the largest trade deficit of the US is with China at $300bn.

To complicate things even further, what China wants the most from the USA is the one thing that the USA won’t sell to China: AI Chips!

*USA Special Move: Fentanyl Tariffs

*China Special Move: Rare Earth Export Bans

UNO REVERSE BOSS LEVEL

Then comes May 12th, and the US and China have agreed to roll back tariffs to 10% (+20% for Fentanyl) for the next 90 days.

Hold on!!!

I thought the USA would have to deal with Japan first, then Europe and then China since China is the “Boss Level”!?

So what’s going on here? Is this an “Uno Reverse” card again?

Maybe the Chinese realized that if they delayed getting a deal done, the other countries would strike deals with the USA that would alienate China. So China decided to skip the queue. This is bullish for Chinese Markets (long BABA / ASHR / EH calls).

Where does that leave Japan? Now they are the ones playing hardball, and frankly, they are the most obvious Currency Manipulator in the room! Just a month ago, we bought Options on the Yen (“Fighting Stupidity with Smart Trades”), made 3x, took profits, gave arigato and kept a runner (still long the June $72 calls on the Yen Future). Now I’m getting itchy for Round 2 on the “Long Yen” trade. I’m getting mentally prepared for it…

Cash Management

When playing “Trade Fighter”, one must remember to have enough “coins” to play. The most annoying thing with coin-up arcades is to finally reach the “Boss level”, then after a major fight the “Boss” is left with one bar of energy, you get killed, but you run out of coins to continue and that horrible <insert coin> screen pops up.

Same with “Trade Fighter” and Investing in general: imagine not being cashed up in all this stupidity and you run out of money to buy the dips.

And then <Insert Coin> pops up, but it’s the <Margin Clerk>.

Wall of Worry and What Comes Next

It seems that in the Wall of Worry, we have climbed over “Trade War” for now and we are slowly moving back to worrying about the “ballooning US Deficit” and the impact that the “Big Beautiful Bill” will have on it.

At least we will still have something to worry about until July…when we will switch from playing Trade Fighter™️ to Deficit Fighter™️…

…unless the Japanese keep playing “Trade Fighter” and blow up the Bond Market before we get there! That would be the funniest outcome.

It’s all a joke anyway.

Good luck out there!

🌳🙏

Disclaimer:

This isn’t financial advice. This is the equivalent of Monty Python for finance but worse: This is the trading blog of a shrub.

Don’t be Stupid. Seriously. How many times do I have to repeat this ….