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There’s a global trade war headed our way, and there may be no stopping it.

The reason is simple: As the recession deepens, countries around the globe are enacting protectionist policies to keep their key industries from collapse. And it’s about to affect everything you own.

From Russia to Latin America, countries around the world are imposing trade tariffs to cut imports and increase local consumer spending to boost industry and stave off recession.

As the The Wall Street Journal reported on Friday…

• Russia has raised import tariffs on dozens of products including cars and harvesters.
• Europe put anti-dumping duties on imports of Chinese screws.
• Egypt announced it will increase tariffs on sugar imports.
• Brazil and Argentina have asked MERCOSUR, the Latin American free-trade area for tariff increases.
• The U.S. has announced tariffs on French cheese and Italian water.
• India is proposing to increase tariffs on foreign steel at the request of its steel industry.

And the situation is only about to get worse!

Time magazine just reported in its January issue that Indonesia is slapping import restrictions on about 500 items.

The decree announcing the measures said they were necessary because "the global economic crisis has resulted in uncertainty and caused unbeneficial impact to the economy of Indonesia."

According to our research, confirmed by The Wall Street Journal, product dumping (unloading goods below cost) is up 40% from a year ago.

As a result, Russia is planning more tariffs. Belgium wants to increase tariffs on US biofuels. And Taiwan is raising $6 billion to aid its industries—all to protect its industries.

As World Bank president Robert Zoellick recently said in Singapore: "If we start to trigger a round of protectionism, as you saw in the 1930s, it could deepen the global crisis."

You need only look back at the famous Smoot-Hawley Act from the Great Depression, which not only increased U.S. tariffs but also deepened the depression, and the world suffered for years.

The chain reaction this time around will be even more devastating—as countries will be forced to rely on their own internal growth in order to prosper.

With Europe already in a recession, Russia on the brink of collapse and many Latin American countries reeling, this is clearly the wrong move at the wrong time as NONE of the these countries has the growth to pull themselves out of the abyss.

Tragically, most investors have no clue how a global trade war will not only rock the world’s financial markets…

…but also make last year’s collapse look like a drop in the bucket.

But once you take action, you’ll make nearly obscene profits in the only free trade zone left on Earth… as many investors suffer the consequences.

Why China Will Reap
Almost Obscene Profits

The answer is easy.

It’s the only—and I repeat—the only country that’s not only growing 7% annually but has three things no other nation on Earth has right now:

1. The internal consumer growth to counter any trade war
2. A cash surplus close to $2 trillion dollars
3. A $586 billion dollar stimulus plan to build their own infrastructure
4. No congressional bickering—or European Union negotiating—China can just write a check anytime it wants to counter any trade war.

Which is why you have seen President Obama water down the “Buy America” plan in the stimulus package as the European Union continues to talk trade war.

Truth is he knows, as we do here at China Strategy that now is not the time to be messing with China. The reason is simple: The world needs China’s growth to work its way out of this mess.

Tragically, the Europeans, Latin Americans and the Russians do not get this. But we do.

Fact is, the inevitable shock wave from a global trade war will drive throngs of investors directly into China where they will profit not only from internal economic growth but also from currency appreciation and domestic spending as well.

And the result will enrich those investors who understand that capital ALWAYS flows to the highest return in good times and bad…

…and are taking this opportunity to scoop up world-class assets at 20%, 30%, even 50% off their past highs in advance of the pending recovery.

Sum Up the Dangers and the Opportunities

Countries around the world are imposing trade sanctions at lightning speed to protect their industries. The result will drive these nations to rely on internal growth rather than global expansion in a time that most nations aren’t growing.

The chain reaction will drive more investors directly toward China…as the combination of 7% growth, $586 billion in infrastructure spending, and almost a $2 trillion dollar surplus will make it the biggest winner in any global trade war.

As more and more countries begin to pass trade sanctions, shrewd investors like you and me are going to make a bundle as investment in China surges and the country uses its newfound capital to build more roads, bridges and infrastructure at record pace.

A recent report by McKinsey Global Institute will tell you the same thing:

“In 20 years, China’s cities will have added 350 million people—more than the entire population of the United States today.”

“By 2025, China will have 221 cities with more than one million inhabitants—compared with 35 in Europe today—and 24 cities with more than five million people.”

“By 2030, 1 billion people will live in China’s cities…170 mass-transit systems could be built…40 billion of square meters of floor space will be built in five million buildings—50,000 of which could be skyscrapers.”

In other words, as China transforms itself from a nation of farmers to a nation of urban dwellers, the equivalent of 10 New York cities will need to be built, and in doing so will richly reward U.S. investors who invest now.

Truth is China will continue to grow…

• Despite the collapse in the U.S.
• Despite the failure of the U.S. banking system
• Despite the demise in the U.S. housing market
• Despite any trade sanctions Europe tries to impose on China.

The reason is simple:

With 7% growth, China’s economy is still growing like a weed. Its standard of living is on the rise. And its people are spending like there’s no tomorrow: buying into a much richer lifestyle, filled with cell phones, big-screen TVs and cars—the same things we Americans take for granted.

When you consider that by the year 2025 China will have 221 cities with more than one million people living in them, you can only imagine the kind of money that is going to be made, as China’s newfound consumer class enters the marketplace and replaces the American consumer as the supreme driver of world growth.

All thanks to the infusion of cash from foreign investors that’s going on behind the scenes now.

Tragically, the financial media is missing this investment story by a country mile. That’s because they’re blinded by the daily ups and downs in the Dow and simply can’t see beyond U.S. borders.

And since by all accounts “China’s growth is dead,” Wall Street’s analysts are not only missing this story…

…but also U.S. investors are missing out on huge profits.

China continues to build more factories, more roads, more bridges and more skyscrapers, as the rest of the world sits in recession.

When you consider the U.S. economy is projected to contract next year while China is on track to grow at 7%, you don’t have to be an Einstein to know that the surge in China stocks will form the foundation for a turnaround in the U.S. stock market as many leading China stocks are traded right here on the NYSE and NASDAQ.

The bottom line is this:

In a world that’s been crippled by the U.S. financial crisis, the Fed bailout, and collapsing consumer and investors confidence, the flood of capital pouring into China will not only put powerful upward pressure under the stock prices of companies that are fueling China’s new growth…

…but also change the face of Wall Street forever.

Here’s where the biggest profits will be made:

Profit From China’s Thirst for Oil:

Two reasons: 1. Rising oil prices, and 2. China’s dependence on foreign oil to fuel its growth.

When you consider that China’s dependence on energy exports is expected to increase significantly over the next 20 years and it is projected that China will need to import at least 60% of its oil and 30% of its natural gas by 2020

China’s New Housing Boom:

As Chinese workers invest their newfound wealth, their first goal is to own their own home.

China’s Love for Cell Phones and All Things Wireless:

Make no mistake about it; China leads the world in telecom growth. By 2010, half of the world’s 1 billion global subscribers will be located in China.

Biggest winners to date include:

Aluminum Corp of China, +285%
New Oriental Education, +126%
Morgan Stanley China Fund, +24%
Sinopec, +58%
SPDR Gold, +58%
Apple, +118%
Las Vegas Sands, +52%
Suntech Power, +18%

Now with China’s second wave set to deliver even greater growth, even these great gains could look like a drop in the bucket.

When it comes to China, the big money is always made when most investors are looking the other way. Frankly, it’s been that way for the past 120 years. It will continue to ring true for the next 20 as well.

With half the world talking trade war, you couldn’t ask for a better time to add top stocks to your holdings—before free-market forces smell a turnaround and bid stocks higher and higher.

My China Strategy service is for investors who understand the great opportunities that lie in China RIGHT NOW and are willing to act on my recommendations

Sincerely,

Robert Hsu
Editor, China Strategy

P.S. Please remember this:

China will continue to grow at 7% in 2009…

Despite the collapse in the U.S.
Despite the failure of the U.S. banking system
Despite the demise in the U.S. housing market
Despite any trade sanctions Europe tries impose on China.