“Trump isn’t building a wall around the US. He’s building a wall around China—and he’s getting the world to help him do it.”
🎙️ Episode Overview
In this timely and far-reaching episode, Brian McCarthy, founder of Macrolens, joins Lyric Hughes Hale to explore the hard realities of China’s economic system, the accelerating decoupling from the US, and what it all means for global markets. McCarthy, a longtime observer of China's financial architecture and one of the most original macroeconomic thinkers today, explains why China is economically “stuck,” why a North Korea-style retreat is increasingly plausible, and why the US is now building a tariff wall around China.
The conversation weaves through currency dynamics, the collapse of real estate, FX manipulation myths, tech sector power struggles, and the strategic thinking behind recent tariff decisions. This episode is essential listening for investors, policymakers, and anyone trying to make sense of the seismic shift underway in US–China relations.
Topics Discussed
The role of tariffs and how Trump’s new strategy signals a major shift in global economics
The structural flaws of China’s investment-led growth model
The "Impossible Trinity" and why China can’t maintain monetary independence, currency stability, and an open capital account simultaneously
The 2015 RMB devaluation and its implications for global markets
The RMB peg, devaluation risks, and FX forward fragility
China's long-standing capital misallocation and the myth of consumption rebalancing
The risk of China closing itself off from the world (the “North Korea scenario”)
What investors should watch for next—including currency markets, capital flight, and geopolitical flare-ups
How COVID lockdowns may have been a "beta test" for social compliance
🎤 Key Moments
On China's Economic Model
❝ The only way China can sustainably pivot to consumption is to surrender the control of the resource allocation process to entrepreneurs. And it’s never going to happen.
On the Currency Dilemma
❝ They either tighten monetary policy, let the currency go, or close trading. All three are viable. That’s not a market-based currency.
On Moral Hazard and Reform
❝ China’s investment is driven by central planning, not entrepreneurs. There’s a huge disconnect between GDP and real wealth creation.
On Xi Jinping’s Strategic Missteps
❝ Xi Jinping is in a box. If he really wanted to think outside the box, he’d do the last thing Trump expects—capitulate.
On the Supply Chain Shocks
❝ Trump wants carnage to light a fire under the rest of the world to get with his China decoupling strategy.
On De-dollarization Myths
❝ There is no alternative to the U.S. dollar. People conflate trade settlement with reserve status—they’re completely different.
📚 Influences
Jude Wanniski
Influential American journalist and economist, known for his advocacy of supply-side economics
-Notable Work: The Way the World Works (1978)
-Founder of Polyconomics, a supply-side consulting firm influential in U.S. economic policymaking during the Reagan era
-Wanniski's principles—particularly around Say's Law and gold as a monetary benchmark—shaped McCarthy’s economic worldview
Say's Law implies that production is the key to economic growth and prosperity, and that government policy should encourage (but not control) production rather than consumption.💬 Join the Discussion & feel free to share this podcast:
What do you think about Brian McCarthy’s perspective on China’s economy?
Follow Brian McCarthy
📈 MacroLens Substack
🐦 X (Twitter): @BrianGoBoSox
About our Host:
Lyric Hughes Hale
Lyric Hughes Hale serves as Editor-in-Chief of Econvue, which publishes a newsletter, econVue+. She hosts The Hale Report, a podcast series on global economics. She is Director of Research at Hale Strategic
📍Chicago
The World Rebalances
💬 As geopolitical tensions have risen, there is no doubt in my mind that China is the clear target of the US tariffs. The rest is theater.
If you enjoyed this podcast, please don’t forget to subscribe to receive future episodes and posts and panel invitations.
I advise my clients to sell the CNH as well. My answer to your question about the other trades, given the tariffs and China, is to sell European equities/ buy US equities, and buy EMU rate receives in the front end as the ECB will need to cut rates aggressively.
The market is missing the link between Germany and China. Germany made a bet on growing by exporting to China. Germany's growth from exporting to China became the growth driver for the rest of Europe. The recession in Germany in the last few years reflects the failure of that model as China imports slowed and China started exporting to Germany/Europe what Germany used to sell to them, e.g., EVs. Trump tariffs will keep Germany in a recession even with their increased spending on defense. Tariffs will slow China's growth on top of the slowdown driven by the collapse of their property market. This will push China to export even more to Europe and import even less from Germany. In addition, US tariffs will slow Germany/Europe growth, forcing them to produce more cars in the US.
Hi Alan, I agree. EU politicians really want to tell Trump to stuff it, but they simply can't. They will need to put up a wall to the tsunami of inventory liquidation coming from China or EU industry will get wiped out. As in bye bye German auto industry.
I'm short EWG on a relative basis as well. Also, the EURUSD rally will have to snap back like a rubber band at some point. Either US/EU makes a deal or Europe gets hit with a wave of deflation that renders a strong Euro untenable.