us-china trade war: US-China escalation likely post-election, not pre-election: Alastair Newton


Trump needs a scapegoat for the mistakes in handling Covid-19, hence the China bashing, says Co-founder and Director of Alavan Business Advisory.

Let me first ask you about what is happening with the US markets. It seems like once again US-China tension is resurfacing. Does it mean we have reversed all the gains at least on the trade front that we had made and we have to look at this whole trade situation from the fresh angle of the Wuhan virus if I could put it like that?
I would be very careful about assuming that the gains we saw last December-January between the US and China are simply going to be thrown out of the window by Donald Trump. As I argued repeatedly before the Phase I of the trade deal was struck, it was almost inevitable that we got a deal of some sort simply because without a deal it would have inflicted significant damage on the US economy as well as Chinese economy in the US election year. That logic still applies. In fact I would say it applies even more strongly today. Trump’s election campaign, as it was originally formulated, was based largely on a strong economy.

He is clearly not going to have a strong economy; he is not going to have the Dow at record levels. He needs to do things to boost the economy, he is determined to try to get Americans back to work as swiftly as possible with that aim in mind rather than doing things which he could cause damage to the economy. But he also needs a scapegoat for the mistakes in handling Covid-19 that the Trump administration has made over many weeks. We got to continue to see this high rhetoric. I think we will see some token measures from the US. But I do not think we are going to see a huge escalation in the form of a trade war between the US and China.

I could be wrong, because Trump is nothing if not unpredictable on occasions. He is fighting desperately hard to win an election for which he is not well placed at the moment, which probably makes him a bit more unpredictable. But overall, I would say let us not get two worked up about what could happen on the trade front between the US and China.

The fact is, China is at the receiving end at this point of time across the world. We are seeing all other nations coming down very hard on China. In India as well, we have changed our FDI rules to ensure that there is no takeover of Indian companies by Chinese firms. We have seen similar action being taken in Australia as well as Italy. Having said that, how do you think is the current situation going to pan out in the backdrop of the US elections? Do you think Trump is going to take it on the front foot and keep the rhetoric on during these times because the elections continue to be something that he will have his eyes on?

Definitely. Not only Trump, and we have seen it even from Joe Biden — the most likely Democratic Party candidate, in fact, one could almost say the inevitable Democratic Party candidate now barring something completely unexpected. We have seen Joe Biden trying to oust Trump on anti-China rhetoric now. This is certainly the case that an anti-China sentiment is bipartisan in Washington and is increasingly shared by the American public at large. So China bashing actually makes a lot of sense in electoral terms. The big difference, though, between the 2020 elections and previous US elections going back even to 1996, 1992 — when we have seen candidates from both parties threatening things against China — is that at this time they actually mean it, and once we get the election out of the way, we are going to see China-US relations change for the better.

In fact, I would argue far from it, irrespective of who actually wins the election.

Let us keep in mind once the election is out of the way, the next President has four years to play with. So that is the time when I would start to worry quite seriously about an escalating tariff war, because you got time to impose trade measures, hopefully get a result from them and then again ensure the economy is back into better shape. Than we will actually have tariffs in place.

The US goes to the polls on the first Tuesday of November, so there is not a lot of time to play with. The US economy is already in a bad shape, with some 30 million unemployed in last five weeks. That is completely unprecedented. Donald Trump cannot afford to do anything which is going to harm the US economy still further this close to an election.

Let me also get your views on the kind of comments that came in from Warren Buffett over the weekend, following which we saw a massive drop in the airline stocks. All the airlines shares were the biggest losers in S&P500. It clearly goes on to show that the airline industry is likely to face more challenges in the long term. How are you looking at this global trend playing out for the services sector, most importantly the airline industry?

We have got to do take what Warren Buffett has done very seriously. Most commentators I have been following in recent weeks have started to think long and hard about the future of the tourism sector, future of business travel. It is clear that airlines are not going to go back to the status in the foreseeable future, perhaps forever. Because let us keep in mind that the airline industry was already beginning to suffer because increased concern over climate change and emissions from aircraft and travel and so on and so forth. I do think we are going to see some substantial changes in both the airline and tourism sectors and all the bits and pieces that go with the tourism sector, which basically means the entire hospitality industry.

One of the things I do not think markets have really taken on board yet is the history of epidemics and pandemics in general. Let us go all the way back to the 1980s’ Spanish Flu epidemic and all the way up today with the Ebola epidemic in Eastern Congo states. There is a very high probability indeed that we will have a second wave of Covid-19 before we get to the point where we have a viable virus. Let us keep in mind that it is not just other viable vaccine; let us keep in mind that it is not just a question of having a vaccine, it is also a question of getting it out to a very large proportion of the world. That is going to take time and money.

Frankly if we have 50% of the world vaccinated by the end of 2021, still 19 months from now, I think that would be a major achievement for the world. There is no sign of it actually getting for sure at this stage, which is going to impact travel, tourism and business travel massively.


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