Mr. Trump blames bad trade deals as helping the Chinese profit at the U.S.’s expense.  Undoubtedly we could have better trade deals, if we made them one-page long rather than the monstrosities that Washington normally cooks up.  Nevertheless, I remain convinced that on balance free trade agreements are beneficial, leading to higher standards of living than we would otherwise have had.  I assert that our economic problems are primarily located in Washington DC, not in Beijing or Mexico City.

When Mr. Trump talks about China doing so well relative to the U.S., we can reasonably question whether it is because of poor negotiating by U.S. in trade deals or other actions.  In the U.S., we have an administration that has not supported private sector economic growth; indeed many industries have been in Mr. Obama’s crosshairs (coal, banks, the fossil fuel and power industry generally, among others).  This is contrasted with the Chinese economy, where industry has been welcomed.  As the old adage goes, “capital goes where it is welcomed, and stays where it is well treated.”  The U.S. has not treated capital well, whereas the Chinese have aggressively courted it.

But getting to the headline of this post, China’s economy has also been supported by perhaps the biggest bubble of all time.  China responded to the financial crisis of ’08 by increasing credit and debt in their economy massively, creating bubbles throughout China, with the bubble growth accelerating over the last few years.  But no where so much as in real estate.  In this sad story, one couple has recently divorced in order to avoid the subsequent limitations that the government has put in place to slow the out-of-control housing situation.

Earlier this year, Mr. and Mrs. Cai, a couple from Shanghai, decided to end their marriage. The rationale wasn’t irreconcilable differences; rather, it was a property market bubble. The pair, who operate a clothing shop, wanted to buy an apartment for 3.6 million yuan ($532,583), adding to three places they already own. But the local government had begun, among other bubble-fighting measures, to limit purchases by existing property holders. So in February, the couple divorced.

“Why would we worry about divorce? We’ve been married for so long,” said Cai, the husband, who requested that the couple’s full names not be used to avoid potential legal trouble. “If we don’t buy this apartment, we’ll miss the chance to get rich.”

Bubbles are inevitably fueled by credit growth, and they grow as self-reinforcing asset inflation drives perceived values far above fundamentals.  Once people believe that an investment can’t lose, leverage will grow dramatically as people chase essentially free money.  Is this happening in China?  You tell me.

“The only thing I know is that buying property won’t turn out to be a loss,” said Cai, citing two decades of rising prices as proof. “From several thousand yuan a square meter to more than 100,000 yuan. Did it ever fall? Nope.”