Author: Grandpa Crooked Hill
Finance as a Means of Social Mobilization
The new Cold War has no Iron Curtain, only tangled interdependence.
The Cold War between the US and USSR from 1945 onwards is often described as a full nuclear crisis with localized hot wars, with both sides poised for steel-on-steel collision on the Eastern European plains.
However, bypassing the bloody carnage of WWII, starting from the "Great Depression" of 1929, the Soviet Union had been absorbing American technology and capital. Even after WWII, London established a vast Eurodollar market, whose primary service targets also included the Soviet bloc.
From this perspective, viewing the Cold War as a "trade war" makes sense. The Soviet Union established the Council for Mutual Economic Assistance (CMEA) system, inherently weaker than the US and West's General Agreement on Tariffs and Trade (GATT, precursor to WTO), IMF, and World Bank, because the latter included full-fledged competition under a financial system.
When your enemy also cannot do without the dollar, the outcome of this contest was decided long ago.
Trade in the Old Cold War, Finance in the New Cold War
Economic crises are capitalism's periodic clearing mechanisms, and each crisis's survivors led to the increasing complexity of the American financial system, incorporating overreactions from past crises.
The Panic of 1907 not only led to the Federal Reserve; by 1913, the US GDP and industrial output had surpassed Britain's. The Great Depression starting in 1929, though rooted in the stock market's abnormal boom, actually stemmed from the US's inability or unwillingness to maintain a US-centric global trade system.
In fact, the Soviet Union's ability to attract American productive capacity post-Depression relates to how ideology was weaker than survival realities at the time. Life always trumps politics—for the Soviet Union as for the United States.
It can be simply understood that the pre-WWII world system's core was the trade system, the cross-border flow of physical goods. Our familiar supply chains, SWIFT, and the dollar were not important then; tariff regimes were the key to whether trade could occur.
With this inertia of thought, the post-WWII Soviet Union chose the CMEA system. Trade settlements between countries used "transferable rubles (TR)", essentially a form of accounting credit, highly regulated and lacking sufficient flexibility.
However, the US at this time did not choose financial laissez-faire or disordered freedom. To a considerable extent, the post-war Western trade system was still regulated. The heavy industry within the CMEA could ensure the most basic survival needs, and Soviet oil exports were always a hard currency in the devastated reconstruction of Europe.
The real turning point was the neoliberalism that emerged from the 1970s onward. The US and UK took the lead in dismantling their own production lines, outsourcing them to private hands or Asians, with the sole condition of accepting US technology controls, financial order, and the dollar system. To the Soviet Union at the time, this was undoubtedly suicide—would America rely on Disney and foreigners to defend itself?
Image source: @zuoyeweb3
In the end, the US, mired in the Vietnam quagmire and the oil crisis, defeated the Soviet steel torrent with Disney.
It's hard to say the Soviet Union did anything wrong. The hollowing out of American industry still wounds the Rust Belt today. Angry rednecks chose Trump; the "Iron Lady" Margaret Thatcher chose to crush the miners of Orgreave with an iron heel, leaving a collective trauma in Britain that remains unhealed.
It's just that the legacy of the Soviet bloc was excessively rich. Beyond the continuous flow of markets and labor to Europe and America, intangible gains included Google co-founder Sergey Brin and Ethereum leader Vitalik Buterin. They are Disney's prisoners of war, not the AK-47s produced by oil trade.
Therefore, you cannot think the WTO defeated the CMEA, nor simply believe Star Wars bankrupted the Soviet Union. Finance's social mobilization and penetration power have long been underestimated. The U-2 could not cross the Soviet MiG Alley, but the dollar could, and so could Viktor Tsoi.
By utilizing and creating the Soviet need for dollars, the Soviet Union ultimately bought the rope to hang itself.
If the Soviet Union was an external financial war, then US-Japan friction was about setting new domestic rules.
At that time, Japan was precisely in a crucial period of state-backed DRAM development.
Whether it was the 1985 Plaza Accord or the subsequent legislative, judicial, and executive hybrid restrictions on Japan's semiconductor industry, America always led with trade, ultimately settling the matter in finance—US Treasury bonds.
Especially using the excuse that Japanese companies like Mitsubishi and Hitachi "stole" American semiconductor IP, the Section 301 investigation came into being. In 1987, Reagan even sanctioned Japan's semiconductor industry and began transferring semiconductor technology to allies like Taiwan and South Korea.
Then as now, it's just that ChangXin replaced Toshiba, and Kimi K3 encountered A.
Compared to the Soviet Union's trade demand for dollars, Japan's demand for US Treasuries also surged after the Plaza Accord, as part of the bilateral "macroeconomic" cooperation, with currency liberalization a direct product of that campaign.
Image source: @zuoyeweb3
From the Soviet oil trade for dollars to Japan's semiconductors for US Treasuries, America's financial tactics have always been one step ahead.
China is no exception. It scrambled into the WTO in 2001, living a life of 800 million shirts for Boeing airplanes. Then, in 2018, it encountered the "Trade War"—the familiar tariff stick and Section 301 investigation.
But this time, the policy toolboxes of both sides show a complex mix. Compared to the Soviet Union, China holds a massive amount of dollars, and its trade portfolio is not singular but mutual, with goods and services tightly intertwined.
Compared to Japan, China's holdings of US Treasuries have peaked, making it America's largest creditor. But the US cannot force China to abandon its semiconductor industry. Fujian Jinhua was crushed, but ChangXin, YMTC, and SMIC thrive.
From 2018 to Trump's 2026 visit to China, the US used all the means of its previous trade-financial wars. Then, like the Russia-Ukraine war, the initial blitz of '1h22m' became the prelude to a long, grueling stalemate. Both sides fell into a painful period of confrontation, and thus the Tech-Financial War made its entrance.
Technologization of Finance, Politicization of the Stock Market
From the warp and weft of history, the three trade wars have an inherent relationship of inheritance: US-Soviet was a parallel system, US-Japan was a subordinate relationship, and US-China is an inter-embedded relationship.
America is like a big boss. Each challenger tries its best, but the Soviet Union couldn't even reach the economic closeness of Japan and the US, dying as an outsider. China is currently the furthest along, reaching the financial sphere. This financialization goes beyond the established frameworks of the dollar and US Treasuries, challenging US pricing power for the first time.
With weak US industry and strong finance, America will further leverage financial instruments. With strong Chinese industry and weak finance, after surviving the traditional trade war, China needs to convert industrial strength into financial advantage. From restricting individuals from buying US stocks to introducing trust taxes, efforts are focused on pooling capital to strengthen its own financial markets, thereby nourishing its industrial system.
Image source: @zuoyeweb3
From this perspective, whether it's Lee Jae-myung's call to increase leverage in March or the start of leverage restrictions in July, South Korea's most beautiful summer is not only brief but also extremely artificially volatile.
Meanwhile, US stocks in AI, semiconductors, and robotics are experiencing unprecedented prosperity. Amid rumors of DeepSeek R1/Kimi K3/DUV lithography machines, and under Trump's daily calls for interest rate cuts, they have remained resilient through the revolving door of Trump—Biden—Trump, Powell—Kevin Warsh.
This resilience is national will, a collective belief transcending political parties. In other words, the US stock market is becoming a new sovereign-level asset.
This is not conjecture. King Charles II's default on goldsmith bankers in 1672 ultimately led to the establishment of the Bank of England in 1694, and national debt truly became a "sovereign-level asset." The petrodollar after the collapse of the Bretton Woods system, and now AI-powered US stocks, are merely the practical products of successive crises.
Therefore, the 2018 US-China trade war was, in fact, America's historical muscle memory, hoping to use trade war tactics to exclude China from the global trade system while, referencing the Plaza Accord with Japan, hoping to use financial means to crush China's semiconductor industry.
After the US-China trade war ceasefire, Trump will further pivot to a tech war. This tech war, to a considerable extent, manifests in financial forms, with the most direct financial form being the US stock market.
Image source: @zuoyeweb3
The current confrontation of stock targets between China and the US, with ChangXin Technology and Moonshot AI as symbols: ChangXin Tech caused declines in Korean semiconductors and US stocks; Moonshot AI prompted complex American attitudes towards open source; not to mention the US FCC has already started banning robots, targeting Chinese robotics companies like Unitree Robotics.
This tech war does not mean that US and Western tech industries cannot lead China in scale or performance. To a similar degree, China's corresponding targets have completed larger-scale R&D and production based on the US's 0-to-1 foundation, and even their sales are directed towards European and American markets, still essentially part of the Western system.
ChangXin, Hesai, DJI, and even BYD all wish to enter the US market, all wish to use dollars—this motivation stems from decades of inertia.
But the world is increasingly split into two systemic blocs. If each side achieves natural monopoly in its respective domain, it can severely damage the other. However, this damage is targeted at stock markets, not traditional trade shares.
But note: the US stock market becoming a new sovereign-level asset, and the A-share market becoming a new constrained asset, does not mean the two markets will rise forever. It's akin to how US Treasury yields being the globally recognized risk-free rate and US debt being a major problem for the US government are two sides of the same coin.
The real revelation is that over the past 30 years, consumer monopoly giants like Apple and Google, built globally on efficiency, will give way to companies that can earn monopolistic profits within their respective systems and in localized regions. These will become the new competitive targets.
This is more important than whether AI is a bubble or if the semiconductor summer has ended. Everyone must make their own choice.
Conclusion
The craziest financial crises conceal the largest Alpha returns in human history.
From the bankrupt bankers of 1672 to the establishment of the Bank of England cost a generation's youth. Whether it's the discussion of banning robots or the elusive rumors about DUV, the primary service target is not market demand but national will itself.
In a sense, Peter Thiel and others see this shift—Silicon Valley + military, like Anduril. Crypto VCs also see new opportunities—US + manufacturing, like Paradigm investing in small-scale laser cutting shop SendCutSend.
Fortunately, TradeXYZ still has Pre-IPO Perps pricing ChangXin in advance. At least, the business of arbitrage remains the most expensive entry and exit channel before the two great powers.
The greater the storm, the more valuable the fish. A toast to this great era of contention!
