One of the most annoying expressions coming out of the cold war was “only Nixon could go to China”.  As pointed out in National Review “Only a red-baiting, Commie-hating Republican could do something that would have been out of reach for a soft, left-liberal Democrat. Only a bellicose and unscrupulous anti-Communist, whose credibility with fellow conservatives would shield him from any domestic attack, could sup with the devil and become a peacemaker.”

Nixon was wily fellow who knew how to divide and conquer.  His crafty ways led him to take advantage of the Southern White dissatisfaction with the Civil Rights Act and convert  Democrats into lifelong Republicans.

Another foxy move by Nixon was to drive a wedge between the USSR and China.  A split between the USSR and China began to brew as the two countries debated the direction of Communism.  Nikita Khrushchev, premier of USSR from 1958 to 1964, was not as madly anti-West as Stalin and despite the Cuban missile crisis or banging his shoes at the UN, actually believed in co-existence with US.  Mao in China, as repressive and hateful of the West as Stalin, could not stomach the change in policy and a deep rift developed between the two Communist countries.  Nixon, sensing an opportunity, made a trip to China in 1972, wresting China from the USSR.  He be-friended China while continuing hostilities with the USSR.

Republicans have since kept Nixon’s policies intact.  Every Republican president has used the Southern Strategy successfully (Willie Horton, anyone?), been hostile to Russia, while cozying up to China.  Reagan did not bother much with China but was very tough on the USSR.  Bush 41 continued to be hostile to Russia but, a former ambassador to China, was weak kneed when it came to the middle kingdom (witness his pathetic response to Tiananmen Square).  Bush 43 may have seen Putin’s soul, but his policies to Russia were not any kinder or gentler, and after the airplane incident in Hainan, he basically left China alone.  Obama followed the Republican policy on Russia and China blindly, finally pushing Russia into China’s arms.  An economically weak Russia looked south at its much richer neighbor for succor.  This time, Russia embraced the Golden Horde.

Enter Donald Trump.

It would be pointless to repeat the number of ways Trump has eschewed standard Republican operating procedures.  While keeping the Southern Strategy intact, he has clearly broken with the Russia/China orthodoxy.  In fact, he has turned it upside down.  He really seems to want to have good relations with Russia (witness his Secretary of State pick and his love-fest with Putin).  And he seems equally determined to pick a fight with China –whether it be calling China a currency manipulator, China’s inventing global warming, China’s stealing US jobs, or placing 45% tariffs on Chinese exports to the US.  While many suspect that Trump is bluffing, given his long standing antipathy to trade deals, especially with China and Mexico, his call with the Taiwanese President,  and his appointment of Peter Navarro  as head the of new White House National Trade Council, I suspect this is one instance where he actually means what he says.  He is basically undoing Nixon’s strategy and stealing Russia away from China.

Trump intends to be-friend Russia and make China an adversary.

The implications, both political and economic, are enormous.   Since this  is an investing website, I’ll stick to how I think it will affect my investing strategy.   Russian will be the obvious beneficiary and it is very likely Trump will abandon the economic sanctions.  This will help Russian companies, stock market, and Ruble.   Given how corrupt the country is, I am leery of investing in specific companies, but may buy the VanEck Russian Vector ETF, RSX.  Another option would be to consider going long RUB/USD but given the Feds promise to raise rates I will stay away from betting against the USD.

It is hard to say who the bigger loser will be – US or China as the two start a trade war.  It may be a race to the bottom anyway, as both economies and the stock market of both countries will suffer.  US companies that make a lot of profits in China may suddenly find that golden goose gone.  This would include companies such General Motors (GM), Qualcomm (QCOM), Skyworks Solutions (SWKS), Broadcom (AVGO), Micron Technology (MU),  Wynn Resorts (WYNN), NVIDIA, (NVDA) Yum Brands that owns KFC (YUM).  Others that could be seriously hurt are those that have strong supply chain in China such as Walmart (WMT) and Apple (AAPL).  I won’t short those stocks quite yet but will consider some of them once I see more concrete evidence of a trade war.  On the other side of the equation, China will be hurt as well.  However, as with Russia, I plan to focus on ETFs rather than individual companies.  The approach I will use will be either to buy short ETF (such as YANG) or buy puts against long ETF (such as YINN).   A long list of Chinese ETFs can be found at http://etfdb.com/type/region/emerging-asia-pacific/china/.  Of course, another way to play this would be to be long USD/YUAN as the Chinese currency will weaken against the USD.

What will happen to US treasuries is another question.  If the bond bubble has finally burst, and China decides this would be an opportune time to get rid of US debt, yields could go much higher and T-bills much lower.  This would be a negative for TLT and positive for the inverse TBT.  I have already invested in TBT.

For the rest, I am waiting to see how far Trump goes.  Will he really go far enough, all the way to Russia?