China 'not blinking at all,' U.S. may fold first, says strategist

Summary

In a recent discussion, the impact of U.S. tariffs on China and the global economy was analyzed by a strategist who argued that while the U.S. may find its economic growth hindered by the tariffs, China is well-positioned to weather the storm. With American consumers potentially delaying purchases due to increased prices, U.S. GDP might see slower growth. Meanwhile, China's exposure to this economic friction appears minimal, with only a small percentage of its GDP tied to American demand. As the U.S.-China trade tensions continue, the question remains of which nation will concede first, with some believing the U.S. may fold before China, given China's much stronger economic position compared to years past.

Highlights

• The U.S. strategy with tariffs might hit its economy harder than other countries. 😬
• China's minimal GDP reliance on U.S. exports positions it well in the trade war. 🏆
• Speculation rises on whether a U.S.-China trade deal might become more plausible if the U.S. economy weakens. 💼
• The fall might be crucial for seeing significant impacts on the U.S. economy and increased pressure on the Fed. 🍂
• Currency behavior amidst tariffs isn't following traditional expectations, leading to uncertainty. 💱

Key Takeaways

• China remains firm in the trade standoff, showing no signs of backing down. 🇨🇳
• U.S. tariffs may hurt its economy more than they affect China. 📉
• American consumers might delay spending, affecting U.S. GDP. 🛍️
• China's economic exposure to U.S. demand is relatively low. 📊
• There is speculation about potential U.S.-China trade deal developments. 🤝

Overview

Recently, discussions have intensified around the U.S.-China trade war, especially focusing on the resilience of both economies. While the U.S. has imposed tariffs hoping to leverage its position, some strategists believe that this might be a double-edged sword, potentially impacting the U.S. more than China. In an environment where consumers might hold back on spending due to looming price hikes, the U.S. GDP could experience a downturn.

China, on the other hand, seems better equipped to handle these tariffs. With only a small fraction of its GDP hinged on American demand, China's economy appears to be in a stronger and more resilient position than it was years ago. This leads to the strategic game of who might relent first, with some thinking the U.S may be the one to see the softer end of negotiations.

Moreover, there's a growing anticipation of how these tensions will culminate. The upcoming fall could be crucial as impacts are expected to be more palpable on the U.S. economy, possibly prompting the Federal Reserve to take action. Interestingly, the usual economic rules concerning currency response to tariffs aren't playing out as expected, adding another layer of complexity to the situation.

Chapters

• 00:00 - 00:30: Market Reactions to Tariffs The chapter titled "Market Reactions to Tariffs" discusses the impact of recent U.S.-China tariff headlines on market behavior. Since early April, there has been significant risk aversion observed in the markets, leading to a substantial sell-off, particularly in American equities. The text indicates a focus on assessing the impact of these tariffs, reflecting a cautious approach to market reactions.
• 00:30 - 01:00: Global Impact of U.S. Tariffs The chapter examines the global implications of US tariffs, arguing that countries like China are better positioned to withstand these tariffs compared to the US itself. The chapter suggests that US GDP will likely experience a slowdown due to these tariffs, possibly impacting consumer behavior. For example, it is anticipated that the cost of products such as the iPhone may rise, causing US consumers to defer their purchases, thus affecting consumption levels.
• 01:00 - 01:30: Effect on U.S. and China Economies This chapter discusses the effects of tariffs on the U.S. and Chinese economies. It suggests that U.S. GDP growth will be significantly affected by tariffs, more so than other countries. In contrast, China's economy is less exposed to U.S. demand, with only 2.8% of its nominal GDP tied to exports to the U.S., according to the OECD trade in value-added data. Therefore, the chapter argues that China is well-positioned to withstand these economic pressures. The chapter ends on an optimistic note regarding China's economic valuation and prospects.
• 01:30 - 02:00: Investor Sentiments Towards Chinese Equities This chapter discusses the current investor sentiments regarding Chinese and US equities. It highlights a strategic shift where investors are moving towards Chinese equities while reducing their holdings in US equities from slightly overweight to neutral. The chapter anticipates a challenging period for the US economy, potentially in the fall, affecting not just the economy, but also companies, workers, and consumers. This situation may intensify the pressure on the Federal Reserve to cut rates.
• 02:00 - 02:30: Predictions: U.S. Economic Challenges and Trade Deal Possibilities The chapter discusses the possibility and challenges of a trade deal between the US and China. The conversation highlights the recent softening stance over a potential trade agreement, and emphasizes the strategic aspect of negotiation, noting that China has significantly strengthened its position over the past eight years. The discussion concludes with the implication that it might be the US that has to make concessions in the ongoing negotiations.
• 02:30 - 03:00: China's Firm Stance in Trade Negotiations The chapter discusses China's position in trade negotiations, focusing on the implications of currency fluctuations, particularly the weakening of the dollar. The dialogue suggests that China's firm stance could lead to a softening or easing of global economic tensions. An analysis of the dollar's performance is presented, discussing its current weakness and potential rebound, which depends on the unfolding of tariff policies.
• 03:00 - 03:30: U.S. and China: Future Trade Dynamics The chapter discusses the current state of trade dynamics between the U.S. and China, noting that while traditionally their trade relationship should be strengthening, recent events suggest otherwise as established norms appear to be disregarded.

China 'not blinking at all,' U.S. may fold first, says strategist Transcription

• 00:00 - 00:30 Let me ask you, are you trying to see through all these Trump China tariff related headlines or did you make some major moves? What did you buy? What did you sell since April 2nd? Well, we since early April certainly we saw lots of uh risk aversion in the markets and that saw a big sell off uh particularly in American equities. uh one of our approach right now is to really weigh the impact of the tariffs
• 00:30 - 01:00 of the US against the rest of the world. And uh what it means is that we believe that China and many other countries in the world are better able to weather the upcoming tariffs against them rather than US itself. For one, tariffs against the other countries will slow down US GDP. Economic growth is going to slow. I mean I often get the antidote that if the next iPhone is going to be a lot more expensive because of the tariff the average consumer in the US will just simply delay purchase and they are consumption today the lack of
• 01:00 - 01:30 consumption today will mean revenue is going to slow down. So US GDP growth overall economic growth is going to be much more uh impacted by the tariff than the other countries. Now the OECD trade in value added shows that China's exposure in terms of its exports to overall final demand of American is only 2.8% of China's nominal GDP. So I believe that going forward China will be very much able to weather this and because of that and also because of the valuation that we are in seeing in China we continue to maintain an optimistic
• 01:30 - 02:00 stance in Chinese equities while at the same time we have paired back a little bit on the US equities from a previous slightly overweight to neutral. When is this going to bite the hardest? We had a guest earlier this morning telling us that it's probably going to be the fall in the US when uh you know it all culminates in a lot of pain on not just the economy but on companies on on on workers on consumers as well and that is when a couple of things could happen probably more pressure on the Fed more than ever to cut rates. Uh and two more
• 02:00 - 02:30 likelihood of a US China trade deal. What do you think? Oh yes certainly. Um we have seen some softening already over the weekend about the the uh the potential of a battle trade deal between US and China. Um it's really a situation of who blinks first and in this case in this game the theoretic approach right now I'm not seeing China blinking at all. I mean China today 8 years later is very different from where they were. China has got a lot more at the table that they can play as well. So perhaps we are going to see Trump or the US
• 02:30 - 03:00 blinking first and uh that could really bring things uh to be on the softer end for the rest of the world. Things would not be so uptight I think going forward. How how much weaker is dollar going to get do you think? Sorry. How much weaker is dollar going to get? Well um I believe in the the near term the technically the dollar has gotten quite weak. There may be a little bit of a rebound. Um but it really depends going forward how the uh the tariff is going to be. Technically uh if if a country that's going is going to tariff on other countries your your your own currency
• 03:00 - 03:30 should strengthen. But this is not exactly what we are seeing right now. Yeah. So, seems like the rule book has been thrown out the