If one were to exclusively believe media outlets with respect to the general state of Sino-American relations, it wouldn’t be the least bit difficult to arrive at the conclusion that we are in an economic war zone situation. However, it is worth noting that sometimes, there are two parallel economic universes: the political dimension on the one hand and… well, the real world on the other.
And when it comes precisely to the proverbial real world, to actual businesses that buy and sell from one another rather than politicians interested in getting (re-)elected, the situation is not always as gloomy as that portrayed by the media. On the contrary, success stories abound and these success stories, as reasons to reach political consensus, end up frequently being ignored.
In fact, there are 737 billion reasons to reach a political consensus, to refer to the 2018 China-US trade volume according to the Office of the United States Trade Representative. Yes, it is indeed true that $558 billion of those are represented by Chinese exports to the United States and only $179 billion by exports of the US to China. However:
- Is anyone holding a gun to the heads of those behind the various companies which import from China? No, not at all, the companies in question do business with Chinese counterparts because it is in their economic best interest and as such, they are hardly enthusiastic about barriers to trade such as tariffs being put in place. These barriers will inevitably affect their bottom line and the effects will end up being passed on to consumers to at least a certain degree. In the end, even when it comes to the (in)famous $558 billion Chinese export number, there will be many losers on the US side of the Sino-American trade equation
- Things are even more obvious when it comes to the $179 billions exported by US entities to China. Why should these companies be punished? Indeed, entire sectors are flourishing thanks to Sino-American business relationships. For example, as strange as it may seem, the US actually has a trade surplus with China when it comes to the service sector
In the end, the Sino-American equation is far more complex than headlines would have us believe. In the real world, there are pressures on both sides to reach some kind of an agreement, especially on the US side. This is because, as mentioned in a previous article, Xi Jinping has the luxury of politically affording to play the long game, as opposed to Donald Trump, who will be up for re-election in 2020 and needs to answer to the various entities that are on the losing end of the Sino-American trade debacle sooner rather than later.
For example, how many average voters are negatively affected in one way or another, either because they are directly involved (by working for or doing business with a company that depends on robust Sino-American relationships) or because they will be indirectly affected by aspects such as quasi-inevitable price increases? Moving on to the murkier areas of US politics, what about the various political donors who are anything but happy with the trade barrier narrative? For example, large service sector companies which risk taking a paradigm-altering hit if the current trade war status quo persists for a long period of time.
Here at ChinaFund.com, we want to make it clear that as contrarian as our view may seem given today’s politico-mediatic climate, we firmly believe that there is more hot air than substance to this entire trade war story. Realistically speaking, there are many real world forces at play that are pushing both parties toward a mutually beneficial agreement that allows both parties to “save face” in one way or another. To put it differently, behind more or less bellicose political rhetoric lie real businesses, with real problems and real capital on the line which are anything but thrilled.
Therefore, there is immense “behind the scenes” pressure on Donald Trump to reach some kind of an agreement with China, despite the strength the US president is trying to project. In the end, as has happened on other occasions as well (North Korea, for example), Donald Trump will most likely end up showing flexibility in a way which allows him to proverbially save face politically. And Xi Jinping is unlikely to stand in the way of providing a political solution to Donald Trump which enables him to land on his feet because, again, there is a lot at stake on both sides.
As such, the wise move at this point is, in our opinion, contrarian in nature. For example, we strongly believe there will be a more than noteworthy uptick in Sino-American joint ventures, especially once it becomes clear that a solution is at least underway when it comes to trade. Yes, China will be a hot campaign topic in 2020, just like it will most likely be in every US election from now on. But, as this article hopefully makes clear, there is too much money on the line for uncertainty to persist indefinitely.
A reasonable conclusion would therefore revolve around the fact that as someone who is interested in gaining exposure to Chinese assets or tapping into trends we consider potentially lucrative such as Sino-American joint ventures, you cannot afford to limit your perspective to a political headline-driven one. Filtering out signal from noise is a must in order to properly navigate the frequently murky but immensely profitable Sino-American geopolitical waters. ChinaFund.com, as a company with a strong business presence in many jurisdictions and most notably China, can help you do just that. To help us understand your China-oriented goals and put applicable solutions on the table, simply reach out to us by visiting the Consulting or Contact section of our website.