Greenland Tariffs Are Off — Is There a Deal? | Prof G Markets

Good to see you, Ed, and happy 2026.

It's huge. And just for everyone to get historical perspective, we've seen four consecutive years of population decline. The birth level: 7.93 million births in 2025. That is the lowest level since 1949, the founding of the People's Republic of China. And most of that is driven by the fact that people are effectively having fewer children. Now we can dig into the minutiae as to why, but what the fundamental takeaway from this is that this is an inevitable change that is going to be extremely difficult for the Chinese government to counteract. We actually have seen a great degree of policy response to the declining birth rate and declining population issue from the Chinese government. For instance, they're making it way more flexible to marry. In the past, you had to go to the place where you were born to register your marriages. Now, you can flexibly marry. They pay $500 a year for your child until the age of three. They just waived, in the autumn of 2025, free preschool education nationwide for all Chinese. And I think that they will continue to act on this with more policy levers to try to boost birth rates. They're even putting back on condoms a 13% tax to try to get people to avoid contraception. So I sense that there's a level of policy desperation because, Ed, and as we've discussed in previous podcasts, this is going to be a huge demographic challenge for China because it has massive growth implications and massive labor market implications. Now, economists debate whether or not having a rapidly aging population is going to be net inflationary or net deflationary, whether it means older people spend less and ergo it's going to be deflationary, or it's actually going to tighten labor markets and make things more inflationary. We're actually going to see this play out in China very rapidly. And China is doing it at a rate that is far exceeding what we saw in Korea and Japan, and at a lower level. And one thing that I will add just to drive this home is that by 2035, 30% of the population, larger than the size of America's population, will be above the age of 60. So you think about what that means for society and for the economy. This is no joke, a huge issue for China.

Well, that actually did, I think, respond rather prudently to massive population surges in China that we saw from the '60s onwards. After the Cultural Revolution, we did see an upswing in population. They brought it in in '71. They got rid of it by 2015. So effectively by 2016, you could have more than one child. And now it's pretty much fair game how many children you can have. I don't think it really is the one-child policy that has created this big demographic challenge. I think it is far more structural, far more societal, and far more cultural in the sense that people are deciding they don't want to have kids, they don't want to marry. We've seen marriage rates, excluding last year when there was a bit of a surge in the first half of 2025, largely been on a downward trend because millennials like you and me are deciding, 'I don't want to get married. What's the point?' We're getting highly educated women who are opting out of the marriage market, saying, 'I can take care of myself financially.' And think about the knock-on impact of the one-child policy creating highly educated women who decide, 'I can focus on my career. I don't need a man in my life.' All of that has created a dynamic in which everyday young Chinese people of childbearing age have decided to opt out of the marriage market and opt out of the fertility market. That, I think, is the number one factor. It's the fact that young people are deciding they don't want to get married and they don't want to have children, even although the government is doing everything it can to try to encourage more births.

Ed, candidly, it's not the biggest issue. The biggest issue is going to be trade with the US and with the rest of the world, which is why what comes out of Davos is going to be interesting. What comes out of the April meeting potentially between Trump and Xi and China will be very, very important. And what matters more in the short to medium run is China's technological advancements, especially in the realm of AI, and whether or not that can, as the government hopes and aspires to, unlock productivity gains for the economy. Because if AI is able to do this, it can to some extent counteract the aging demographic problem. Because you might have a tighter labor market, but then you have these deflationary pressures from humanoid robots, from technology that effectively will soak up some of the shortfall in the labor market. They could be used in elderly care, for instance, in factories, in manufacturing, in education, in healthcare. So I think that the technology issue is going to be critical. But if we move into the medium to long-term realm, the demographic challenge, when I think about 2035 onwards, is going to be, I think, the top three issue for the Chinese government. Because thus far, they've shown, I think, in the last five years where they've really focused on this issue, that the government doesn't have the adequate policy toolkit to really ramp up fertility. And no other country in the world, I think, has been successful. You look to Korea, where the fertility rate is even lower. You look to Japan, you look to other countries that are actually desperately trying to respond to their aging demographic. No other country, I think, has shown a positive scenario or test case for how to respond. So I think when we zoom out of the short term, we look to the long term, the next decade and more, this is going to be a top three issue for the Chinese government. And here I'm a little bit worried about what it actually means for the labor market, and more importantly, what it actually means for the fiscal burdens of local governments and central governments. Because it is true that historically we've had a very weak pension system, a very weak social security system by Western and East Asian standards. So a lot more of the local and central government balance sheets will need to be dedicated towards creating a more robust social security system for an ever-expanding population of 60-plus-year-olds. And they will have to, I think, continue to increase the retirement age, which compared to the rest of the world is so low. I mean, even before last year, the female retirement age was only 55. So if you think about that, that is as much as 10 or even more years lower than some of the other G7 countries. That, I think, is going to be low-hanging fruit for them to change as well, to try to maintain some degree of robustness in the labor market.

So I sense that after the rare earths fiasco that we saw towards the second half of 2025, that China feels very vindicated in its US strategy. It feels that it can continue to use the rare earths card if Trump doesn't play nice with them, from their perspective, on trade talks. We've seen in response from the Trump team, including Bessent, I think, a far more dovish approach to China on trade talks. So from Beijing's standpoint, they look at the unrest in Venezuela, they look at the unrest in other parts of the world, and now the fiasco over Greenland, and they go, 'Well, this is good. This means that the US is going to be distracted from the China challenge. It's going to be distracted from dealing with its own domestic issues, which, oh by the way, keep growing.' And this actually plays into Xi's strategy, which is to divide and conquer. In my view, he is using the Carney playbook, Carney going to China and using that to effectively create what the communists would call contradictions in the West. So to divide the G7 countries from America and encourage them through a degree of panda diplomacy, you know, for instance, lowering tariffs or agreeing to bilateral trade and investment flows, using that lever to try to get the Canadians, the Europeans, and the Brits to reset their relationship, quote-unquote, with China. The next thing we'll have to watch is Starmer's trip. It should be at the end of January to Beijing, where it seems there are rumors that he also wants to reset the relationship and go back to some degree of the David Cameron golden era relationship. So I think this is the trajectory that China is on. And certainly right now, the more that the US focuses on Greenland and invokes the ire of the Europeans, I think the more likely it is that the Europeans say, 'Hey, China, we're willing to compromise, maybe further when it comes to the EV price minimums. Maybe we'll be more open to Chinese investment in Europe in a way that we weren't, say, even last year or a couple of years ago.' So I sense that China feels that it is vindicated. Whether or not that maintains as a theme through 2026 remains to be seen.