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April 10, 2025 - Epoch Times
01:07:41
Who Will Prevail in US-China Trade War? Christopher Balding Explains the Playing Field
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Today, President Trump announced 125% tariffs on China.
They are in a cold war with the United States.
I think President Trump wants to push a very deep, ongoing decoupling from China.
And I think he wants to promote that decoupling not just with China, but with, let's say, drawing at least a secondary moat around near allies like Mexico, Canada.
There are very few people who understand the Chinese economy and trade with the United States, as well as Christopher Balding.
He was a professor at Peking University's HSBC School of Business until 2018, when he was fired for pushing back against censorship.
Now, he's a senior fellow at the Henry Jackson Society and founder of Newkite Data Labs.
President Trump is looking to close those loopholes.
They wanted to provoke these negotiations and basically say, who are the countries that are going to be with us and who are the countries that are not going to be with us?
This is American Thought Leaders, and I'm Jan Jekielek.
Christopher Balding, such a pleasure to have you on American Thought Leaders.
Thank you for having me, Jan.
Christopher, you are one of the people I go to in terms of understanding the Chinese economy and the U.S.-China trade relationship.
Hot off the press, President Trump has announced a 125% tariff on communist China.
He says they have a lack of respect for the world's markets.
What's your reaction?
That basically is going to bring US-China trade to an absolute halt, except for products that only the United States or China can sell in the world, which is there's very few of those products.
So this is basically going to bring US-China trade to an absolute halt.
Well, let's dig deeper here.
Okay, this is an escalation.
What is the president trying to accomplish?
I think it is becoming increasingly apparent to a lot of people that all of this trade talk is primarily directed at China.
And there are things that need to be changed with US allies, Mexico, Canada, a lot of European countries.
There's issues that President Trump wants to address, but I think it is becoming increasingly clear that all of the actions the president is taking are primarily aimed at preparing the United States and its allies to deal more with China.
So President Trump outlined five areas where he intends to work with these 70-plus countries that have now come to the table to have discussions.
He said trade, trade barriers, tariffs, currency manipulation, non-monetary tariffs.
And it kind of strikes me that these are the five areas that are very relevant to communist China as well.
Not only are they relevant to communist China, they really talk about how trade internationally has changed since the WTO in 2000, and specifically with regards to China.
What I mean by that is people think of the primary barriers to trade being tariffs.
But really what we've seen, and there's a whole wealth of literature in economics that backs this up, is that as countries become wealthier and as they want to implement more rules and as they at times want to become more protectionist, what they do is they implement non-tariff barriers or other things with regards to the currency,
things like that, because it's very hard to quantify and it's very hard to address.
specific non-tariff barriers, whereas tariffs are very obvious to everyone.
They typically get published in government manuals.
And so those are the issues that Trump wants to go after, not just for our trade allies, but specifically for China.
There was some research released not too long ago by Chinese professors, for instance, that were about the first round of Trump tariffs during his first administration.
And they said almost 90% of the change, I believe it was 90%, maybe it was 80%, but it was a very large percentage.
Of the change in trade volumes between the United States and China were due to non-tariff barriers and not specifically tariffs.
So I think President Trump going after those areas covers both how trade has changed internationally since the WTO and specifically with regards to China.
So when I first saw these numbers, I was actually at the White House when the president published these tables.
And one of the things I noticed right away was that these countries that have very high, let's say, transshipment volumes,...from China were the ones that were the hardest hit.
And there were a few I was surprised at, but that was the general pattern.
And it almost seemed to me like the rest of the countries were kind of a camouflage.
But then Professor Henry Gao in Singapore kind of convinced me that actually the whole thing is really about China.
Because every country has these loopholes that communist China exploits and that the U.S. game here is to try to...
Close all those loopholes as part of those discussions.
At least that's where I'm at right now.
How do you view it?
I think that's very accurate.
And I won't say all the countries, but I think of the major trading countries that the United States trades with, that's very accurate.
If you look at the table of US trade, there's probably off the top of my head, 15 to 20 countries for which we trade heavily with.
And then there's a very long list of countries we trade a few billion dollars a year with or a few hundred million dollars.
So you're really talking about, let's say, 15 to 20 countries.
And to use an example of what you're talking about, when President Trump implemented tariffs on China, I believe of 25 percent.
In his first term, what happened was not that the United States started trading less and reshoring all of that work that was originally done in China, but a large amount of it went to places like Mexico and Vietnam.
What also happened at the same time, C, was that trade volumes from China to Mexico and Vietnam increased.
To be completely fair, the academic research and policy research seems to show that most of the increase in exports from Mexico and Vietnam to the United States were in Mexican and Vietnamese produced products by Mexican and Vietnamese firms.
However, there absolutely was an increase in what we call transshipment.
And transshipment is everything from, for instance, a fully completed Chinese product that comes to Mexico or Vietnam overnight, gets relabeled as made in Vietnam or Mexico and shipped on to the United
States, or very small amounts of work done in Mexico or Vietnam, at which point it gets labeled made in Mexico or Vietnam.
It is absolutely certain that President Trump is looking to close those loopholes in this round of tariffs.
And I think what is notable is if you look at it, it's been publicly known, and President Trump has said that Mexico, for instance, needs to work.
So... I think we've both understood for some time that the global trade status quo actually poses a kind of an existential problem for the U.S. certainly,
but I would even argue for the free world at large, certainly for Canada, my home country, and these liberal democracies at large.
I want you to unpack that a little bit, because that's not necessarily obvious to people.
And frankly, I don't think a lot of very well people who understand the whole system very well might not believe that themselves.
Yeah, so I think there's two points to be made when we talk about existential, because that kind of harkens back to what we would consider almost a crisis of faith or something like that.
But I think it is reasonable to phrase it in those terms.
And I think there's two ways, just more globally, leaving aside a focus on China specifically.
One of the things that you have happen is basically every country in the world is trying to run a mercantilist trade policy where they are running major trade surpluses and asking the United States to be the sole trade deficit nation.
And I think that is deeply problematic.
When countries are agreeing to play by the rules and say, hey, some countries I'll have a trade deficit, some countries I'll have a surplus with, and maybe over time I may not always be a trade surplus, but I'll be a trade deficit, I think the system works.
When every country except the United States says we're going to run mercantilist trade surplus policies, Then the system starts to break down.
It's like trying to play a game with a board game where everybody except you is cheating at the game.
It simply is unsustainable.
I think if we turn it to China more specifically, China is an existential threat to that system for multiple reasons.
First of all, for national security reasons, we could talk at length about, for instance, the concerns about hacking, the concerns about Chinese making of electronic products, everything from cars to phones to other products that have all kinds of security problems.
And I think even the economic policies more directly, a lot of the problems with China specifically...have less to do with their direct tariff rates, for instance.
But even European Union studies have found massive amounts of subsidization all throughout the supply chain that is benefiting Chinese manufacturers.
I forget the exact numbers off the top of my head, but I think in today's world...
There are industries where Chinese manufacturing comprises more than 100% of global demand.
And the problem is that basically because they're not playing by those rules, where many other countries are at least playing by quasi, we can have a philosophical debate about how market and quasi-market, but I think it is undeniable that China ignores what the rest of us would say is a market rule,
and there's just massive amounts of subsidization across.
Across their corporate sectors, which allow them to have industries which have in some cases as high, I've seen some industries as high as I believe 110, 120% of global demand.
Forget Chinese demand, that's global demand.
And so it's simply unsustainable.
And this is what is so baffling about the European position, for instance.
A lot of those products aren't competing with U.S. manufacturers directly, although they do harm U.S. corporate interests.
They're competing significantly with Germany, but Germany is taking a much more pro-CCP stance than I think anyone would expect.
I mean, this is a really interesting question, because you're saying that basically most countries run this kind of mercantilist, have this mercantilist-style relationship with the United States, but then China has this mercantilist relationship with all of them on top of that,
and of course, most of all with the United States.
I think that's partially true, and what I mean by that is, to use a rough dividing line, Prior to the first Trump administration, first set of tariffs under Trump won,
most of the Chinese trade surplus came from the United States.
Since 2018, that has changed where China still runs a not insignificant trade surplus.
With the United States, I believe off the top of my head, I want to say that number is a couple hundred billion dollars.
I want to say two to four hundred billion off the top of my head.
In official terms.
I'm using official...
I think it's four hundred billion.
I think I saw that number today.
However, as U.S. trade dispersed to other countries and away from China, the Chinese trade surplus began...
Accumulating aggregate surplus from other countries.
And so what you see in the trade pattern is, and so everybody talks about Chinese trade, but Chinese trade is actually very one-sided.
And what I mean by that is they draw in raw materials from places like Africa and Southeast Asia, and they export finished goods to those countries.
So when they talk about...
It's basically trying to centralize China as the workshop literally of the entire world.
And why is that problematic in itself?
Sure. For many reasons.
The biggest loser, and this is I think one thing that a lot of people don't understand, the biggest loser from Chinese trade policies and Chinese economic growth policies, believe it or not, is not the United States.
The biggest loser from Chinese trade policies and Chinese growth policies are actually countries that compete directly with China across a range of goods.
And I'm going to take a simple example.
India, Vietnam, Southeast Asia, parts of Africa, which historically have been much more direct competitors with China.
Now, that has changed over.
Let's say three to eight years as China has increased the diversity and technical complexity of products that they're exporting.
But the biggest loser from Chinese trade and economic growth policies are those other countries, which simply cannot subsidize companies losing money as much as China can.
Well, and the subsidies also, and you hinted at this earlier, also in many cases have a strong national security dimension.
For example, Huawei.
I remember speaking with a Polish diplomat some years ago about how happy they were happy to have Huawei because it was such a great deal, right?
And I was trying to explain to them that there's a reason that you're getting such a great deal because you might want to think what the Chinese Ministry of Security That's exactly correct.
And I do think the world has become a lot more understanding of those concerns.
And we've absolutely seen certain countries in Europe take those concerns seriously.
And we've absolutely seen countries like Germany completely ignore that and shockingly do things like put up Huawei base stations near U.S. military bases.
What does it mean that U.S.-China trade virtually comes to a standstill?
Now, is that the actual end game or is this a negotiating tactic or what is happening?
You know, it's as one of my favorite economists would say,
I don't make predictions, especially about the future.
It's difficult to say what specifically President Trump is looking for with regards to a China deal.
I think we can say relatively safely or at least with a degree of confidence what he has learned and what their team seems to have learned from the first Trump administration.
And that is, I think it is very clear that the president's administration learned, first of all, taking long time to negotiate trade deals with China and even other countries was a large waste of time,
especially with China, if they have a low degree of expectation that that...
I think the second thing is that they're going to be much more attuned to ensuring any deal they do agree to will actually be adhered to post-agreement.
And I think the third thing that I would say is...
is a high probability because I think that they're probably much more willing to walk away from deals if they're not ready, if they don't feel it's in their best interest.
I remember at the time when they signed the first trade agreement.
Where they agreed, China agreed to buy a bunch of US products and everything like that.
And I think the wide consensus was this is a bad deal.
China's never going to adhere to it.
I think I myself said and wrote something to that effect as well.
And I think it's very clear that China had no intent at any time of living up to that agreement.
And I think the Trump administration this time around is much more focused on if there ever is an agreement, We're going to make sure it's adhered to.
And I think that leads to the ultimate, to circle back to your question, what is the end game?
I think President Trump is basically a lot more willing at this point.
And this is partially speculation.
I can't say what the president is thinking or attribute motivation.
I think it seems much more clear that the president is much more willing to engage in For lack of a better term, a much deeper or hard decoupling between the United States and China.
And I think part of what he is trying to work on with allies or countries that we would like to be allies.
Is we want you to join us in that.
And probably similar to what we would almost call a Cold War model, where during the Cold War, you had the NATO bloc and you had the Soviet bloc were the two main trading blocs.
And then there were a bunch of smaller countries.
And I think the president is, they may not think of it in these terms, but it is deeply problematic to the Trump administration.
That countries like Germany are so closely intertwined with the CCP.
If Germany wants to behave that way, then that's Germany's business, but then they should not necessarily expect the benefits of dealing with the United States as an ally and the security benefits that come with that.
Well, that dovetails perfectly into my next question, which is alongside this 125% tariff on China, the president announced a 90-day reprieve for everybody else, basically, that wants to come to the table.
Perhaps Germany will be among them.
I don't know.
That'll be interesting to see.
But is that really what the game is here?
Is this the president trying to create a bilateral relationship, new bilateral trade relationships that he believes are fair, that somehow cut the Chinese model out of the picture?
I think it would honestly be just pure speculation.
I mean, I can speculate of what I would think, but I think there's a large, you know, we can enter into this, but I think it's fair to say there's a large degree of speculation because the president and the president's team, you know, we could cite any number of issues that the president or his subordinates said that they want to prioritize.
So I think we need to emphasize it's somewhat speculative, but I think we can, I think first of all, one of the things that the president seems to want to focus on is targeting loopholes.
And what I mean by loopholes is, you know, transshipment.
And, you know, there's...
This notable example that's gone around news and the internet about the Trump administration tariffing an island with almost no people and thousands of penguins.
And the objective there is to make sure that these types of places are actively working with us to say, we're going to shut down Chinese transshipment.
We're going to engage in other activities.
To make sure that these loopholes are closed all the way around.
And I think that is one thing that's very clear.
And I think that the two countries that are at the top of that list are China and Vietnam.
So I think those types of issues are one.
I think one of the other things that seems to be increasingly clear is that President Trump is linking these economic issues with other issues that they want to address.
And for countries like, let's say, most of Europe, Japan and South Korea, this has a lot to do with security and military forces and things of that nature.
So I think it's very clear that there's going to, in all likelihood, at the very least be side deals as part of any economic agreements that are signed or handshake agreements between Europe, Japan,
South Korea, and the United States.
Because I think whether it's the Signalgate story or other stories, I think it's very clear that, especially with Europe, there's a lot of frustration about their lack of security posture with regards to Russia.
And I think this bleeds over into the frustration from the Trump administration.
Why are so many countries in Europe actively working with the CCP when the CCP is feeding Russia?
Chinese soldiers have even showed up in Ukraine in the past couple of days.
And so I think there's a lot of frustration with Europe, and I think understandably so.
So I would fully expect that to be a part of it.
And then I do think there are very valid economic issues that are going to be on the table.
And specifically about non-tariff barriers, because as we discussed a little bit earlier, countries hide a lot of trade barriers behind non-tariff barriers as a way to say, well, look, our tariffs are the same as yours.
It's not a problem.
But non-tariff barriers are a lot harder.
Because you can't really estimate uniform values of those things.
You can't really assign a specific price to it.
Give me a few examples of what those might be for the benefit of our viewers.
Sure. And I'll give you a hypothetical and then a very real example of that.
Just as an example, you could say we're not going to buy products that are made on Tuesdays and Thursdays.
And so just as an example, a lot of Europe has Sunday trading laws as an example.
Now, that doesn't really spill over into international trade.
A lot of countries come up with very creative ways that basically bias things in favor of certain producers or sectors or things like that.
And just to give you a very real example, if a European company exports to the United States, they don't have to pay that in their home country.
If a U.S. company exports to Europe, they have to pay a VAT, which is basically like a national sales tax in that European country.
Now, here's the issue.
And let me use...
Basic numbers.
So let's assume that both Europe and the United States have tariffs of 5% on a specific product.
And the VAT in Europe is 20%.
And let's say sales tax in California, to use a round number, is 10%.
The European producer has a 10% cost advantage in that case, because they don't have to pay European VAT.
They have to pay the US tariff and California sales tax.
Whereas the U.S. producer trying to sell to Europe would pay 20% VAT plus 5% tariff rate.
So the European producer has a 10% cost advantage.
So those are the types of things that we would be talking about as a simple example that we can discuss.
And so those are very real issues that I think the Trump administration wants to address.
And so I'm just going through the president's list here.
Trade, trade barriers, tariffs, non-monetary tariffs.
I think we've covered those somewhat.
The fifth one is currency manipulation.
How does that play in?
Sure. So that has to do with basically how countries like Japan, Vietnam, even Vietnam,
Malaysia, China, lots of countries basically artificially depress their currency in order to run these mercantilist trade policies.
And to a degree, to be completely fair, if I am that country, there is actually kind of a valid reason.
And I think there's a couple of reasons, if I am that country, to play devil's advocate for a minute here.
Especially countries like Vietnam, it is very important for them as a smaller, lesser developed country.
It's very important for them to have significant dollar reserves so that they can do everything from fund development to manage their currency to other things like that so that they can pay for imports.
And there's even formulas about how much dollar reserves you should have so that you can have six months of import coverage and then X amount of other reserves and things like that.
So there is absolutely a valid...
Reasons for countries like that to engage in that.
However, there's very little debate, I think, generally speaking.
Some of these countries might argue somewhat, but...
There's very little debate realistically that they are manipulating their currency to artificially depress their currency.
And what ends up happening is that provides a percentage price boost to the value of that currency.
So for instance, if I buy US dollars as I'm Vietnam or China or something like that, my currency might actually be 10% higher.
And so my exports are 10% cheaper because I engage in currency manipulation.
And so if you're China and you're running such an enormous sustained surplus, that argues very clearly that you are engaged in currency manipulation, preventing the value of your currency from rising, and giving your exports an artificial price boost.
I think that's very clear.
And while there are arguments for these countries to engage in that behavior, We clearly see it to a degree where it's above and beyond what we would consider, even for a country like that, normal behavior.
So a big question that a lot of people have is why does this need to be done so acutely?
Why all the shock and awe?
Can't we do something incrementally to decouple from communist China?
So I think there's a couple of reasons that President Trump has taken this specific approach.
If we go back to his first term, we saw that from the time he entered, it was roughly, let's say, two years before he started implementing the tariffs.
And a little while later that he got, I think about a year later or so, that he secured an agreement.
And he got an agreement, and I think it was basically one year, maybe even less, before he was out of office.
And I think basically one of the things that they have entered into this administration saying is that they are going to hit the ground running and really prioritize getting agreements and getting things done in this case.
And I don't think that this is I don't think their approach I think it's a good approach to really prioritize and focus the minds.
And I think that this approach, people wonder, well, why are they doing this tariffing other countries?
Well, one of the reasons is, is if you don't tariff Vietnam, if you don't tariff Europe, they have no incentive to negotiate something with you.
There's nothing hanging over their head.
And so part of this is absolutely to focus the mind and prioritize this and address these issues.
And just as a point of comparison, there's been talk of a new WTO trade agreement basically since the beginning of the century and nothing's happened.
And so these trade agreements can drag on for literally decades.
And President Trump is saying, okay.
I'm going to handle and I'm going to work on getting this done from within the first two months of me being in office.
I think we're at three months now.
That is, I think, his approach to dealing with China and dealing with other countries as he wants to deal with their trade issues and work with them on China.
This is another point.
When I look at this whole situation, I wonder to myself, is this Trump saying, And I think...
like these multilateral organizations, many of them have ever been captured by China, by communist China, or are just kind of very inefficient and ineffective.
I think,
It's hard to get a specific read on President Trump with regards to what would his view of institutions be.
I think it is fair to say, I think even Democratic administrations are frustrated with a lot of international institutions, whether it's the WTO, the UN, the World Health Organization,
and they may not have the degree of frustration or animosity towards them that Republicans do, but I think even U.S. Democrats are deeply frustrated with those organizations.
And I think this gets us back to something we've kind of discussed is this Cold War stance.
A lot of these organizations were created in the shadow of the Cold War where everybody agreed on the rules, okay?
Well, now pretty much every country in the world is a member of the WTO.
And if you cheat, okay, that's how it goes.
There's no real penalty for cheating.
You can do whatever you want.
And so what's the purpose of the organization?
And so I can't speak to what President Trump would want if he wanted to, for instance, reconstruct a WTO-like organization for allied countries.
I don't know if he would or wouldn't.
I do think he very reasonably sees...
organizations like the WTO, the UN, others as deeply problematic.
And he may be more further along in his view than Democrats, but I think even many, many Democrats would agree that these institutions are problematic at this point.
Well, and just one other thing that comes to my mind, right?
There's been a lot of talk I hear about the U.S. becoming more isolationist and fears that this is indeed where the Trump administration is going.
Indeed, there are some isolationists in the coalition that did elect the president.
But to me, this move, I mean, this is what strikes me.
These recent moves suggest to me quite the opposite.
I mean, this is the president kind of inviting basically the world to come to America and strike deals.
That doesn't I think the way that I would put it is one of the fundamentals of an organization or a relationship is that there has to be clear...
Benefits and rewards or costs.
If you break the rules, this is a penalty.
If you contribute, there's a benefit.
There's a reciprocal benefit of some kind.
And I think one of the things that is happening is the Trump administration is looking at, let's say, a country like Germany and saying, wait a minute, you're doing nothing but constantly complaining, you're running a mercantilist trade policy,
and you're dealing with...
Honestly, the biggest security threat around and supporting them, what are we getting out of this relationship?
You expect us to defend you at all costs, but you're not collaborating or cooperating on us on many, many issues we consider fundamental.
I think one of the issues here is that President Trump is understandably, I believe, Attempting to say we need to reconsider who an ally is, for instance, and saying to allies, we will give you benefits.
And if you do not wish to be an ally and you do not wish to contribute, for instance, to common security, that is your business.
But then you do not receive the benefits of that security guarantee.
Or economics, you know, the same applies to economics.
So I think it is absolutely saying we need to look at these arrangements and we need to say who are we going to give those benefits to and who are we going to impose costs on or not cooperating with us.
At this point, I want to cover something that the vice president recently commented on.
He referred to the Chinese peasants, I say that in quotes, being exploited.
This is just not something that is talked about very much, but he kind of hit the nail right on the head.
There's probably about half of the Chinese population, rural and migrant workers, Why don't you give me a picture of how that part of the China model actually works?
Sure, so one of the things China is really an incredibly bifurcated country.
If you go to the big cities like Beijing, Shenzhen, Shanghai, it really is almost like living in a Star Wars type universe.
There's robots, there's pretty much every luxury that you would have in any big city.
And if you were to go an hour outside into the country, it's literally peasants and, you know, in some cases, depending on where you go out into the countryside, 19th century housing and donkey carts and everything.
And really where a lot of this shows up is when he's talking about funding this off of the back of Chinese peasants.
And I should say, I know to an American ear that kind of sounds harsher or like a record scratch, but that's really what they're referred to as in China.
And Chinese have words for that, that, oh, these are the peasants from the countryside and things like that.
And what will happen is that the...
The education level is much, much lower.
The human capital level is much, much lower.
There's an economist at Stanford who has done mountains of work on this issue.
And the differences between the urban and rural dwellers is really quite stark.
And the reason that this matters is the Chinese...
Economy, and especially the Chinese export economy, is still heavily, heavily focused on that low-skill, low-wage labor.
And they will typically have entire factory towns where these peasants, to be honest, live in bunks and things like that.
They live in dorms, and they will stack them four high in a room, things of that nature.
And so this is why, you know, when people talk about, well, what would it take for this?
The answer is very simple.
It's basically increased Chinese consumption.
But that makes increasing Chinese consumption, one of the trade-offs people don't think about is, well, if we increase Chinese consumption, that basically is going to require them to raise the wages and make a lot of Chinese products very economically uncompetitive.
It's going to raise the prices of that quite significantly.
And so I know to an American ear that sounds rather harsh and maybe condescending, but I think that's, you know, an accurate description in how they're referred to in China quite commonly.
Well, and then there's this other dimension, right, where, you know, basically...
Because of this, you know, basically very difficult economic reality, this group of people, again, the rural people and these migrant workers tend to put all their money into savings, right?
Basically for the future.
The Chinese banks then use that money to basically buy, you know, US sovereign debt and so forth.
So there's also that dimension.
So they're working very cheaply.
And at the same time, their savings, the second form of exploitation, I mean, you can't even write this stuff, is used to basically help the Chinese manipulate their currency, as far as I can tell.
So I think a couple of things.
The Chinese savings rate is relatively high, but, and I think this is very important, the normal Chinese consumer...
Saves what, as an economist, we would label preemptive or precautionary savings.
And what I mean by that is, even though China technically has things like unemployment, social security, and public health insurance, those things are absolute bare minimum.
In the countryside, for instance, the social security benefit is probably about $40 a month.
Just so you would understand.
Unemployment insurance is very, very hard to get for multiple reasons.
And health insurance by design in China is actually designed to be very bare bones.
So it's actually...
And so the Chinese consumer...
...heavily saves because they don't have access to those types of public services.
In the United States, we might complain about it, but hospitals are required to treat you if you show up with something, and it might create other issues.
But in China, I remember very distinctly, people would say, well, what does it take to get...
You know, to get treatment.
They said, well, you have to show up with basically a brick of cash to get that.
And so that is what's driving a lot of this precautionary savings.
And so what happens is there's this, you know.
Let's say virtuous slash incestuous circle where you have a state-owned bank that is funding projects that are driven by a city or a provincial or the state-owned government to say, we want XYZ project built.
And so that's what's driving a lot of these projects.
And that's why you have certain industries with more than 100% of global demand in some sectors.
So you're basically saying this money is being used to buttress this as well?
Yes, absolutely.
Well, okay, so today's Epoch Times global, not global edition, I would like it to be the global edition, the U.S. national edition.
I'll read the headline, Why the U.S. Has the Upper Hand Over Beijing in the Tariff Standoff.
You are one of the experts that's cited in here, and I can't help but hearing in the back of my mind, you know, we have the cards, we have the cards.
Why do you believe that the U.S. has the upper hand?
Or another way to put this actually is, what are the cards here?
So I think I hear this argument very frequently.
The U.S. has the upper hand.
China has the upper hand.
And I think at the end of the day, who has the upper hand really comes down to a question of who can just endure pain the longest, more than what the numbers would tell us.
And by that, I simply mean, I think President Trump He wants to push a very deep ongoing decoupling from China, and I think he wants to promote that decoupling not just with China,
but with, let's say, drawing at least a secondary moat around near allies like Mexico, Canada, parts of Europe, Japan, and South Korea.
And so I think that is the long, I think that's the, I would suspect that is the longer goal.
I'm not going to claim to speak for the Trump administration.
In pure financial terms, with the trade deficit, I think of around three, I think we export roughly $150 billion to China.
And I think we import, I want to say about $400 billion a year from China.
So I think, you know, In pure financial terms, that has a bigger impact on China.
But as we also know, in an authoritarian communist regime that is strikingly nationalistic at the moment and has really been building to this point for some years, You could also make a very strong argument that Xi is ready to endure really whatever Trump throws at China directly from the United States or with regards to any deals he may cut with other countries.
So who is more prepared?
I think it's much more almost a mindset rather than hard statistics.
And, you know, you could make an argument that both countries, both leaders are prepared to endure quite a bit with regards to the deals and how they want to restructure.
And I think this is really very important, how they want to change the international order.
Well, right.
So let's talk about this.
I mean, what does it really mean?
You know, again, we're going back to 125% tariffs, trade to China.
With China goes to virtually zero in this format.
What happens now?
Or is this really existential for the US?
As some are claiming, I'm seeing lots of ex-pundits saying things like that.
I think one of the reasons that they set out and levied tariffs on all these countries simultaneously is they wanted to Essentially provoke the conversation.
They wanted to provoke these negotiations and basically say, who are the countries that are going to be with us and who are the countries that are not going to be with us?
And I think at the end of the day, Canada and Mexico will line up behind the United States.
They may not be happy about it.
They may not get everything they want.
I doubt President Trump will get everything that he wants.
But I think they will line up.
I think it's rather clear that South Korea and Japan will also cut deals with the United States.
Europe, I think, to be honest, is much more of a wild card as to what might happen.
Just today, the Prime Minister of Spain is making his third visit to Beijing in two years, and he talks about moving away from the United States and towards China.
I think there's a lot of concern, not just in the United States, but in Europe about Germany.
So I think it's going to be very, very interesting and you're going to get a much clearer picture within the next anywhere from a couple of weeks to three months about how President Trump...
...is going to approach this, both with regards just directly to China and any type of, let's call it, coalition of the willing that might want to work closer with the United States and hedge retaliation from China.
People have asked, you know, why has President Trump gone about it this way?
Well, first of all, it changes the game radically, and I think at this point we can assume this.
But it changes the game radically if President Trump says, I'm slapping tariffs on all these countries because we're going after China and these countries need to get with me or I'm leaving them to China.
That presents many strategic and public relations problems.
I think more than if he just did what he's done.
I think it's very difficult to say, but I think you can see that President Trump seems to be steering us into what I would almost refer to as a Cold War type of stance where there are allied countries where we have very free trade with and then less allied countries that may have higher tariffs and then let's say completely non-allied countries like China where we have very high tariffs with.
Before I ask you about what happens with this hole in imports that kind of huge amount of imports which are coming from China.
All you need to do is look on Amazon.
There's a little plug-in that lets you see a little flag beside any product, right?
And you look on Amazon and you notice that the vast, vast majority of products on Amazon are actually coming from communist China.
So I want to touch on that.
What happens with that hole now that's created?
But before we go there, This cold war, I mean, haven't we already been in a cold war?
I mean, China has been waging.
Its official terminology is a people's war against America.
The propaganda inside China is that whatever miseries exist for the Chinese people, those are all a product of decades of American malfeasance.
This war has been upon us without us knowing, I think.
Oh, absolutely.
I think China has absolutely been of the stature for many years now that they are in a Cold War with the United States.
Now, the United States and other parts of the world have not been in a Cold War with China.
And so I think it is simply dawning.
I think the reality of the situation is simply starting to dawn on people.
Of where we are at rather than continuing to be able to avoid that situation.
So I think one of the strategies here is that President Trump, you know, I don't know if China will invade Taiwan, you know, in a week, in two years, whatever.
But I think one of the aspects absolutely that President Trump is trying to avoid here is that we do not manage our security posture well.
And we turn into Germany 2020-2021 and then wake up and Russia has invaded Ukraine.
That would cause much more devastation if we had to respond to China then and they remained our key suppliers for pharmaceuticals, sensors that go into military planes, things like that.
And I think President Trump is absolutely trying to avoid that type of situation.
To respond to your other question about what happens, Make no mistake about it.
There will be significant adjustment costs.
However, I think the hysteria is somewhat overblown to the degree that if we look back at how America responded to the first round of Trump tariffs in 2018,
Goods left from China and there wasn't a whole lot of bumps in the road.
There simply wasn't a whole lot of bumps in the road because you had lots of countries that were willing to take up that manufacturing capacity.
If you go back to something I said earlier in our discussion, I said the biggest loser From Chinese trade and economic policies is not the United States.
The biggest loser from Chinese trade and economic policies are countries like Vietnam, Mexico, Indonesia, the Philippines, Canada, other places like that.
So yes, there will absolutely be adjustment costs, but China is not the only country in the world that can produce a lot of these goods.
There are lots of other countries that have lots of low-skilled labor.
There are lots of other countries that have rare earth capacity.
There are lots of other countries that can build and make lots of other things.
And yes, there will be adjustment costs, but no, it's not the end of the world at all.
What about this other dimension that you hear about sometimes, which is the amount of U.S. treasuries that the Chinese Communist Party is holding?
Something that's important in these calculations?
No, I think I could be wrong.
But I think I saw just the other day that at this point, they only hold about 2% of total outstanding US Treasury debt.
And so, you know, if they attempted to sell that amount rapidly, I would assume, I don't know this for a fact, but I would assume that the Federal Reserve would essentially have a standing order that if China attempted to sell large amounts rapidly that they would swoop in and buy that immediately if that were the case.
But no, I would not, I do not think that's, you know, a significant concern, primarily because they're simply not big enough at this point that they could really cause significant problems.
Well, what about all this volatility in the markets that we're seeing?
I mean, if you were to listen to people, it's like the sky is falling, the end is nigh.
Is this the case?
No, I don't.
I personally don't think it is for many reasons.
First of all, I think there is, I think, a valid debate about the strength of the U.S. economy.
I think there's a valid debate about the strength of the U.S. economy dating back for probably the past 12 to 18 months.
If you go back and look at, for instance, where job creation is happening, it's not primarily in the private sector.
It's primarily in the public sector.
So there doesn't seem to be strong hiring levels in the private sector.
So I do think there are valid issues.
But I think most fundamentally, the financial markets, stock markets, bond markets, things of that nature, they're very, very sentiment driven.
And so that's why you see whether it's the president tweeting out something and the market drops or rises 1%, 2%, 3%.
And then yesterday, there was a fake report about Whether tariffs might be lifted and the market rebounded strongly.
So it's very, very sentiment driven, which is in a way completely understandable.
But I think if you look at the longer term strength of the economy, even if we have a short recession, that's...
As we would always say, you know, never bet against America.
We remain, even with our economic problems, we clearly are the most innovative economy, the most competitive economy really in the world.
And I don't think that's going to change anytime soon.
You know, it is really interesting about this fake report of the 90-day reprieve of the tariffs yesterday, right, giving the bump to the markets, because today we actually got the actual 90-day reprieve.
And I'm very curious, you know, I should actually, Irene, actually, if you could check how the markets are doing now, I think we have enough time to see if there's been a rebound of any significant amount.
So, I mean, maybe this was a test.
Maybe they thought, hey, listen, this worked.
Why do we do that now?
Maybe this was all part of the strategy.
I saw a number of very, very successful investors saying things like, well played, Mr. President.
It's really hard to tell exactly what's going on, but yes, there definitely is a very significant rebound here since the announcement.
I think there's one other thing that I meant to hit, and that is markets love certainty.
Okay, so when we talk about markets, we need to understand markets love certainty, okay?
They love to be able to predict out what's going to happen because that impacts the asset price, okay?
And President Trump, for multiple reasons, is upsetting the status quo.
Whether it's with regards to China, whether it is with regards to tariffs on other countries, whether it is with regards to saying we're going to have a 90-day reprieve.
Markets love certainty, and right now is anything but a certain time.
Jan, as you and I were preparing to do this, I joked, I said, you know...
We could do this and in 15 minutes it's all obsolete.
And that's how financial markets operate.
And so I understand why financial markets are going to be very volatile during this time.
But I think fundamentally, the U.S. economy, even with our problems, the worst thing you could say about us is that we're easily the best house in a bad neighborhood.
Well, I mean, this is...
One has to wonder what will happen next and what will in fact happen to the Chinese economy, which frankly is quite brittle.
We know for a whole lot of reasons, the housing whole
So I think the Chinese economy is incredibly dependent on its trade surplus.
And I'll be honest, I don't know the percentage of the Chinese trade surplus that comes from the United States on an annualized basis.
I want to say it's probably, off the top of my head, I'm trying to run some quick numbers, about, let's say, 20%, 25% would be my guess, off the top of my head.
Here's what's going to be interesting.
Here's what's going to be interesting.
Let's assume that tomorrow US and China trade collapses so that both sides are basically at zero.
What is going to be interesting, and this is where you can start getting an early idea of success that President Trump may be having in persuading other states to work with him.
China cannot continue to run its economy well without that trade surplus.
So if we assume that all of a sudden China is not getting a significant trade surplus from the United States, they're still going to have large amounts of workers, businesses, etc.
that have product to sell.
They can't sell it to the United States.
So if they can't sell it to the United States, they're now going to be looking to sell all of this capacity, this labor effectively, to other buyers throughout the rest of the world.
If you're looking for an early indicator of success that President Trump might be having, we should be looking at how are other countries responding to Chinese salesmen showing up and saying, buy our products.
Okay? So if the rest of the world can basically absorb the U.S. trade surplus with the U.S. trade deficit with China so that Chinese trade surplus is in aggregate unchanged, that's actually going to strengthen China's hands.
If other countries start pushing back and say, sorry, we need to protect our own industries, you cannot run a massive trade surplus with us simply because the United States cut you off.
That is going to put a lot more pressure on China.
Okay? So that would be an early indicator of how successful President Trump is in persuading other countries to join him.
Well, and I imagine that the discussions with these 70-plus countries that have come to the table already might just have some discussions in the realm of what you just discussed.
Yes, and look, to be honest, this also puts President Trump in a better position, because think about it this way.
When Vietnam or Mexico, as a simple example, calls up, President Trump, as we discussed earlier, is going to have related things, not just tariffs, that he wants to discuss with Mexico and Vietnam.
President Trump can now look at Mexico and Vietnam and say, look, there's a lot of business that we can direct your way that used to be in China that we can direct to you now if you want to work with us on these other issues.
If you do not, we will tariff you and you will lose out by not getting the business that is leaving China.
So if you work with us, we can direct a lot of business your way.
And it's going to be very interesting to see what types of related things President Trump negotiates with countries like Vietnam and Mexico, which were major beneficiaries of the first round of Trump tariffs in 2018.
Well, there's also these cards, to use that terminology, that are pretty powerful, I think, cards that Beijing does hold.
For example, Not a stranglehold, but close on some of these rare earth minerals, which are essential to a lot of the high-end manufacturing needs that America has, chips and so forth.
We have the medical precursors, the medical components, supply chain, highly, highly dependent on China.
I'm told six months and the shelves of pharmacies are bare.
There's these kinds of...
Powerful cards, but I suppose those can only really be played once, because once that hand is played, obviously, that is a declaration of a very, very significant escalation.
I don't know, how do you see that playing in here?
My guess, again, I do not speak for the Trump administration.
I have not talked to anyone in the Trump administration about these issues, is that they are very, very well aware of these sectors.
And there are countries that they could direct that business to or work to set those up in the United States.
As an example, India would be a primary example of that.
India does a lot of work in pharmaceuticals.
Some of the sectors that we mentioned in China, even though they're both pharmaceuticals, they're actually relatively different.
India does not have a lot in those pharmaceutical sectors.
So India would seem to be a natural country to work with to increase that type of business.
And we could go through other ones.
I would be very surprised if the Trump administration is not very well aware of these issues and is going to discuss that with countries that would seem to be natural fits, like the pharmaceutical example of trying to at least diversify, diversifying pharmaceutical supply chains so that we are not highly dependent on one country.
So Christopher, I really enjoy following your XFeed.
I find I get a lot of insight from it.
Where can people find you?
I am at BaldingsWorld on Twitter.
Christopher Balding, any final thoughts as we finish up here?
No specific final thoughts.
I think it is going to be very, very interesting what is happening.
And I think...
Most fundamentally, what President Trump seems to be aiming for is really a reordering of the international order, specifically with regards to China, but also seeming to say, okay,
countries like Germany...
You need to decide where you stand on these issues.
And if you want our guarantees, if you want to consider yourself a US ally, that means doing more than simply saying the US military will defend us against Russia.
That means you need to say...
We're going to partner with you to address threats to illiberal states.
We're going to stand up and protect democracy, and we're not going to partner with the CCP as they try to undermine Europe and liberal democracies.
It's going to be a really fascinating time in the coming days.
Christopher Balding, it's such a pleasure to have had you on.
Thank you so much for having me on.
Thank you all for joining Christopher Balding and me on this episode of American Thought Leaders.
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