56 – How far will Trump’s China trade war go? with Daniel LaCalle

President Donald Trump and Chinese President Xi Jinping will meet this Saturday

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Episode Description

The US and China have been locked in a trade war for almost one year now. What might the end look like? In this episode, Daniel LaCalle, chief economist and investment officer at Tressis Gestión, breaks down the latest on the trade war, the key differences between the two economies, and what he sees as the end result.

This conversation was recorded on June 3, 2019.

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The US-China Trade War

What’s happening?

As the United States and China approach the anniversary of the trade war, the leaders of each nation are set to meet this weekend at the G20 summit in Osaka, Japan. Many hope the two nations will strike a deal to table further escalation and begin talks.

On June 2, 2019, China released a white paper (a government report) denouncing the US protectionist measures and blaming the trade war on Trump’s administration. You can read the full report here.

Important figures:

Total US tariffs applied exclusively to Chinese goods: $250 billion
Total Chinese tariffs applies exclusively to US goods: $110 billion

According to China Briefing.

Key Quotes

“Right now, rhetoric is winning over logic. But there is a point at which both sides will sit down.” ~ Daniel LaCalle

“The mainstream, particularly of economists, are talking to China as if China does not have any problem. But it is not true…
We need to bring China to the logic of getting rid of capital controls, getting rid of the protectionist measures…and we need also to show there is an advantage in getting less levels of growth, but more robust levels of growth.” ~ Daniel LaCalle on solutions to the US-China trade war

What could be the end result?

There are a few potential ends to the trade war. LaCalle believes it will end with a “negotiated deal,” but that it will likely get nastier before it gets better. Ultimately, he says that because of China’s position as the biggest supplier, it will need to give up more than the US.

Key Quotes

“I believe there will be a negotiated agreement because, if you think about it in the long-term, China and the United States need to get along.” ~ Daniel LaCalle

“We need to look at it as what it really is: This is a negotiation between the biggest supplier and the biggest customer.” ~ Daniel LaCalle on the negotiations between China and the United States

Huawei Ban

What happened?

On May 15, 2019, President Donald Trump announced a ban on Huawei, the world’s largest telecom supplier and second largest phone manufacturer. Check out this timeline of the US-Huawei fight for more context. This issue dates back to at least January 2018.

The administration justified the ban arguing the company is too close with the Chinese government and that it could spy on US companies and individuals. You can read the full text of Trump’s executive order here.

Key Quotes

“This episode is not the first episode. It is a response to previous episodes from China.” ~ Daniel LaCalle on the Huawei Ban

US companies banned in China

China has banned numerous US companies from operating within its borders. Facebook, Twitter, Instagram, Snapchat, Google, Youtube, NYT, WSJ, Netflix, Hulu, Prime Video, Spotify, Dropbox, and WordPress.com to name a few. See the whole list here.

Key Quotes

“The solution to someone else’s protectionism is not to impose the same level of protectionism.” ~ Daniel LaCalle

“I don’t think the solution is to ban Chinese companies in the United States or to ban US companies in China. I think the solution is to have a much more robust and much stronger and transparent legal and intellectual property rights system.” ~ Daniel LaCalle on the solution to the Huawei ban

Proximity to the Chinese Government

Huawei is essentially owned by the Chinese governments; however, the company has disputed those claims. You can read more about that here. The fact remains that Huawei is significantly closer to the Chinese government than US companies are to the US government.

Key Quotes

“The problem here is US companies are not the US government…That is not the case in China.” ~Daniel LaCalle

“It is not simple when the connection between government and the companies is so intense.” ~ Daniel LaCalle

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Bills with Luke Scorziell does not provide investment, tax, or legal advice or recommendations. This material is solely intended for educational purposes based on publicly available information and may change at any time. Additionally, this article’s content is a summary of the Interviewee’s comments and, while rephrased by the Author, are not from the Author himself.

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About Luke Scorziell

Mr. Scorziell created The Edge of Ideas when he was 15 years old. After a few years of blogging he found a passion for podcasting and now regularly has guests on his show, Bills with Luke Scorziell. He currently writes for USC Annenberg Media and produces a weekly segment on Annenberg Radio News called “Politicking.” You can find more of his work here. Find out more about Luke and his unique journey. Feel free to send Luke a message below.