How a Second Trump Administration Could Upend US-China Relations

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, here's something that I've thought about that's been interesting for a few years. The Trump administration obviously sort of took this hawkish line on China, introduced this tariffs on a lot of Chinese exports to the US.

And then when the Biden administration took over, it kind of seems like we basically got continuity on that front. There was no rollback, if anything, maybe some of the screws have been tightened even further.

Tracy Alloway (0:42)

I think that's exactly right. And it's kind of funny, as you mentioned, that it's flown a little bit under the radar. And I'm thinking back to Trump's statement, trade wars are good and easy to win.

And I mean, he got a lot of flak for that, probably rightfully so. But if you think about what's been happening over the past few years, it seems like the US is kind of winning the trade war against China in some respects. I mean, the US economy outperforming much of the rest of the world. I think GDP growth was something like 3% in 2023 China's GDP growth is still higher. I believe it was at 5%, but it's slowing a lot. And if you look at what's going on with the economy right now, it seems like it is really struggling in various ways.

Joe Weisenthal (1:26)

It's interesting that they're winning.

Tracy Alloway (1:29)

Well, winning might be strong, but like-

Joe Weisenthal (1:31)

Well, our economy is clearly doing better.

On the other hand, China clearly has a handful of industrial powerhouses that are creating anxiety for legacy industrial powerhouses in the US and Europe. And we can say that clearly when it comes to EVs versus legacy automakers, we can look at the rising number of conversations like a Boeing is faltering, will Comac and the CN19 eventually take significant market share in the commercial aerospace? We did an episode, I think, near the end of last year that actually despite all of the restrictions on equipment imports into China for semiconductors that the domestic semiconductor industry is making gains. So like in the GDP sense of the word, like clearly China is struggling. But on these sort of like key industrial strategic areas of the economy, there is the word things still seem to be working out.

Tracy Alloway (2:26)

No, absolutely. And I think there is this overall angst in the US with this idea that China is somehow better at doing this kind of targeted industrial policy. We used to talk about the Chinese command economy. They have experience with pouring lots and lots of money into areas that they identify as strategically important. That doesn't mean they do it perfectly every time. I mean, we basically saw that with some of the consumer tech companies where there was a reversal of the government stance. Lots towards them, lots of talk of disorderly capital flowing into that space.

But then what we saw is, you know, they said that they cracked down on the sector. And then they said, what we really want you to invest in is things like solar panels and electric vehicles and semiconductors. And so we saw those areas start to boom. So I think there is a real sense of concern in the US that maybe China, if they're not better at it, they certainly have done it for a longer time on a more consistent basis.

Joe Weisenthal (3:26)

And so it feels like now the debate in the US is like, OK, everyone has sort of accepted that the tariffs that Trump introduced, that the idea that the US in various ways tries to constrain Chinese exports or constrain Chinese industry. It feels like that's become conventional wisdom now or that everyone sort of agrees we do that in Washington. And now the question is how much.

And of course, recently we heard Trump say that were he to be elected president, he would ratchet up the tariffs even more. I think he put the number like 60 percent, which I have to imagine would like totally clobber.

Tracy Alloway (3:57)

He did say 60 percent. But then I saw right before we came on, let's see, we're recording this on February 8th. I think there was an interview from like February 6th where he basically said that the tariffs could be even bigger than 60 percent. So I don't know where he's quite getting those round numbers from, but maybe more than 60 percent.

Joe Weisenthal (4:18)

Right. So as much as Biden has been a continuation, an extension and an expansion of Trump policies, maybe Trump, if he were to win the presidency in November, would be a continuation and expansion even further. Anyway, we should talk about what a Trump victory, which is, of course, certainly possible, what it would mean for the U.S.-China relationship and what it might look like, what the direction all this is heading.