Trump Threatens More Tariffs on China, Mexico And Canada | Bloomberg: The China Show 11/26/2024

Donald Trump announced plans to impose new tariffs on China, Mexico, and Canada, citing concerns about fentanyl and illegal immigration. These tariffs, if implemented, could significantly impact global trade and potentially exacerbate inflation. The podcast also discusses the European Union's plans to impose further sanctions on Russia and potential Chinese entities for their alleged support of Russia's war in Ukraine, as well as the challenges facing the Chinese economy, including a potential balance sheet recession.

Trump's Tariffs

• 00:00:21 Donald Trump announced plans to increase tariffs on China by an additional 10%, and impose a 25% tariff on imports from Mexico and Canada, mainly due to concerns regarding fentanyl and illegal immigration. The tariffs are expected to be implemented on day one of his new term and could potentially lead to significant economic repercussions globally. The 10% tariff on China is in addition to existing tariffs and could rise to 60% across the board.

China's Economy

• 00:08:52 Concerns about China's economic growth are rising due to struggles in the housing sector, which has traditionally been a significant driver of growth. The Chinese economy's challenges could have a wider impact on the global economy, particularly on commodity markets like steel and iron ore, as it is a major player in the global economy. Experts are monitoring what policy makers will do to support economic growth and address the risks of a possible balance sheet recession.

EU Sanctions on Russia

• 00:06:36 The European Union is considering further sanctions on Russia for its ongoing war in Ukraine, which would target entities involved in manufacturing drones found on Ukrainian battlefields, allegedly with Chinese involvement. The EU is also aiming to limit Moscow's ability to fund the war by restricting access of Russian oil tankers to European ports, and this would represent the 15th round of sanctions since the conflict began. The G7 is expected to issue a strongly-worded statement on support for Ukraine and disapproval of any third-party support for Russia’s war effort.

Impact of Tariffs on Global Economy

• 00:15:00 Economists believe that Trump's tariff plans could be inflationary due to their impact on major trading partners like Mexico, Canada, and China. The potential for supply chain disruptions and the associated increase in costs are major concerns. The tariffs are seen as a negotiation tactic by Trump to achieve other economic and geopolitical goals, but could also negatively affect global growth, including the U.S. economy.

China's Response to Tariffs

• 00:19:01 China is facing difficulties in responding to Trump's tariff threats due to limited leverage over the U.S. There are possibilities of increased agricultural imports, but execution is challenging. China may be asked for geopolitical assistance regarding the war in Ukraine, which could potentially benefit the U.S. by decreasing energy prices. Ultimately, the best outcome could be a win-win scenario where tariffs are minimized and energy costs are reduced, but this is contingent on China's cooperation.

Investment Strategy

• 00:20:21 Investors are expected to be drawn to the ‘Trump trade’ due to the optimism surrounding his policies and potential for positive change. The initial focus might be on areas that previously benefited from his policies, such as financials and tech, but concerns about negative consequences could emerge later. As the ‘bad Trump’ implications become more apparent, investors might shift toward cyclical stocks, manufacturing, and small caps. In a risk-off scenario, investors might consider hedging strategies, like buying put options, but ultimately, the global economy needs the trade war to be contained due to mutually assured destruction.

China Equity Market Outlook

• 00:34:31 Morgan Stanley expects the Chinese equity market to face headwinds in the near future due to potential tariffs and other nontariff restrictions, and that the market might dip further before recovering. Despite this, there are potential opportunities for investors in specific sectors such as consumer services, consumer discretionary, pharmaceuticals, and media and entertainment. The government is anticipated to step up with fiscal easing to support economic growth later in 2025, but it will not be enough to stabilize the market immediately.

China's Balance Sheet Recession

• 00:55:58 Nomura Research's Richard Koo believes that China is facing a balance sheet recession due to a prolonged period of debt accumulation, with few effective measures taken to address the issue. The recession could take many years to resolve, potentially lasting as long as Japan's 20-year struggle. Koo believes that a large fiscal stimulus is needed to address the problem, but the Chinese government is hesitant due to the sheer magnitude of the required expenditure. China needs to borrow and spend, as the private sector is not in a position to increase borrowing.