David Woo: What Trump Started is Worse Than a Trade War

Summary

Odd Lots Podcast Summary: David Wu – "What Trump Started is Worse Than a Trade War"

Release Date: April 24, 2025

In this compelling episode of Bloomberg's "Odd Lots," hosts Joe Weisenthal and Tracy Alloway delve deep into the escalating tensions between the United States and China, exploring whether the ongoing conflict has surpassed the boundaries of a traditional trade war. Featuring insights from David Wu, CEO of David Wu Unbo and former head of global rates, currency, emerging markets, fixed income, and economics research at Bank of America, the discussion navigates the complexities and potential ramifications of the current geopolitical climate.

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1. Introduction

The episode kicks off with Joe Weisenthal noting a surge in the markets following a statement by Treasury Secretary Scott Besant, who expressed skepticism about the sustainability of de-escalation with China. This revelation sets the stage for an in-depth conversation about the state of U.S.-China relations and the broader implications for the global economy.

Joe Weisenthal (01:28): "The market is actually up today. We just got a headline. Apparently Treasury Secretary Scott Besant at a JP Morgan event in Washington said Besant sees de-escalation with China, situation unsustainable. That sent markets surging."

2. Background of the U.S.-China Trade Relations

Tracy Alloway and Joe Weisenthal outline the deteriorating relationship between the world's two largest economies, emphasizing the lack of substantial trade agreements despite attempts to mend fences. They highlight the economic interdependence that exists, with the U.S. relying heavily on Chinese finished and intermediate goods.

Tracy Alloway (01:57): "The two biggest economies in the world are going completely head to head."

3. David Wu's Analysis: Beyond a Trade War

David Wu presents a provocative argument that the ongoing conflict surpasses a mere trade war, categorizing it as an outright war aimed at undermining China's economic position to preserve U.S. hegemony.

David Wu (05:00): "I think this is very combative. I think this is much more than just a trade war. I think this is war, actually."

Wu traces the origins of the heightened tensions back to policies implemented under President Biden, pointing out that efforts to limit China's access to advanced technologies inadvertently set the stage for the current escalation.

David Wu (05:16): "Under Biden, the most important thing in terms of vis a vis China was not so much the trade war, but rather they put in punishing sanctions in terms of the ability of China to be able to access advanced semiconductors..."

He further critiques the administration's handling of sanctions, noting that technological advancements like DeepSeq have rendered previous measures ineffective by demonstrating the ease with which AI can be replicated.

David Wu (08:00): "The deep seq news... is proof that AI can be easily copied. All of a sudden, overnight, all the sanctions that happened under Biden, it was for nothing."

4. Implications for the Market and Economy

Wu discusses the immediate and long-term impacts of the trade tensions on both economies. He observes that while the market has initially responded with optimism, the underlying economic rupture between the U.S. and China poses significant risks.

David Wu (04:10): "There's a lot of pain being priced in immediately today, maybe accepted from the persistence of this trade war."

He elaborates on how tariffs, especially the staggering 145% on Chinese imports, are designed not just to balance trade but to cripple China's economic capabilities, thereby maintaining U.S. dominance.

David Wu (08:54): "We're sitting here and thinking that Trump is in the driver's seat. I think at this point, Trump is no longer in a driver's seat... They want to close the back doors to China."

5. Policy and Leadership Challenges

The conversation shifts to the internal dynamics of the Trump administration, particularly the influence of "China hawks" who advocate for more aggressive measures against China. Wu expresses concern over the administration's strategic missteps and the potential for irreversible damage to U.S.-China relations.

David Wu (13:05): "If you look at the first day of Trump's inauguration... it was a 20% tariff on Canada and Mexico over fentanyl. It was not until the next day he announced the 20% for China."

Wu also critiques the administration's assumptions that the trade war would not be inflationary, a miscalculation that has significant implications for economic stability.

David Wu (15:49): "The presumption that the tariff was not going to be inflationary was... completely wrong."

He warns that the current strategies may lead to a "war of attrition," where both nations endure prolonged economic pain without a clear pathway to resolution.

David Wu (22:47): "We've already gone beyond a game of chicken. We're now in a war of attrition."

6. Conclusion

As the episode draws to a close, Wu remains pessimistic about the near-term outlook, predicting a "shit show" in the U.S. economy with potential recessionary pressures looming. He underscores the challenges in finding a detente, given the entrenched positions and the lack of trust between the two nations.

David Wu (42:23): "I think it's going to look like a shit show. I really believe it's going to be a recession."

Joe Weisenthal encapsulates the gravity of the situation, highlighting the lack of viable solutions and the compounded difficulties in navigating the trade war's complexities.

Joe Weisenthal (47:26): "It's funny you said that. I was literally about to say the same exact sentence that the off ramp is hard to see."

Tracy Alloway concludes by emphasizing the profound impact of the trade tensions on both domestic and international fronts, leaving listeners with a stark portrayal of the potential economic turmoil ahead.

Tracy Alloway (46:28): "Our headline for this is gonna be... David Wu on the coming shit show in America."

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Key Takeaways:

• Escalation Beyond Trade War: David Wu argues that the U.S.-China conflict has evolved into a more severe economic war aimed at diminishing China's global standing.

• Policy Miscalculations: The administration's misjudgments regarding the inflationary impacts of tariffs and the oversimplified belief in their ability to swiftly regain technological supremacy.

• Market Vulnerabilities: Initial market optimism masks underlying economic fractures that could lead to significant downturns.

• Leadership and Strategy: Internal conflicts within the Trump administration, influenced by hawkish advisors, hinder effective policy formulation and execution.

• Future Outlook: A bleak short-term prognosis with potential recessionary outcomes and a protracted "war of attrition" as both nations grapple with sustained economic pressures.

This episode offers a sobering analysis of the current U.S.-China dynamics, providing listeners with a nuanced understanding of the intricate interplay between policy decisions, economic strategies, and their far-reaching consequences.

Transcript

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[Joe Weisenthal]

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

[Tracy Alloway]

And I'm Tracy Alloway.

[Joe Weisenthal]

Tracy, it is April 22nd. It is 12:09 and 52 seconds as of the time that I am talking right now.

[Tracy Alloway]

Soon we'll have to do fractions of a second.

[Joe Weisenthal]

Yeah, I the market is actually up today. We're recording this on Tuesday. We just got a headline. Apparently Treasury Secretary Scott Besant at a JP Morgan event in Washington said Besant sees de escalation with China, situation unsustainable. That sent markets surging. You know, everyone's looking for a little shred of hope, right. A little shred of optimism that, like things could settle down and we get.

[Tracy Alloway]

Clarity, you know, that the two biggest economies in the world are going to go completely head to head.

[Joe Weisenthal]

Right. Like, because if, I mean, this is really the story, right. Even with the walk back on April 9, the week after Liberation Day, even if, and we're not getting any deals yet, at least so far, we haven't gotten a deal with India, we haven't gotten a deal with Japan, let alone the eu. But even if we got all those deals sometime in the next three months, and typically trade deals take like years to work out, there's still the fact of an economic rupture between the world's two biggest economies.

[Tracy Alloway]

Right. I think that's certainly a possibility. The one other thing I would say is, so you're right, stocks are up this morning because Besant has been saying, you know, some mildly potentially positive things on this issue, but there is still this huge question of who would make the first move.

[Joe Weisenthal]

Yeah.

[Tracy Alloway]

In this particular standoff. And I think it is a standoff. And I think, you know, both respective policymaking groups here, the Trump administration and the CCP under Xi Jinping. I think they both care about who is seen to be making the biggest concession here. So I think everyone can reason, reasonably, say that we would want some sort of, I was about to say peace deal between China and the US Peace deal isn't right, some sort of reconciliation, but the path to getting there seems like very confused and uncertain to me.

[Joe Weisenthal]

Yeah, there's a lot. I mean, look, people call it a trade war, so I don't see why we can't have a peace deal. Trade peace deal, a detente of some sort. And look, we both know the stakes, right? Because the US Relies substantially on China, both for finished goods of all kinds of things that US Consumers enjoy, but also intermediate goods that are used for actual manufacturing. And we also know that at least in the short term, there is not some quick substitute for the sheer amount of demand that comes from the US consumer. And so we've seen all the tiktoks of factories in China trying to figure out ways to go direct to the US Consumer, at least in the short term. Both economies have a lot to lose, it would seem. And so there's all this question of, like, who blanks first. Anyway, there's a potent. And you just see it in the market pricing. There's a lot of pain being priced in immediately today, maybe accepted from the persistence of this trade war.

[Tracy Alloway]

Right.

[Joe Weisenthal]

Well, I'm very excited. One of my favorite guests, I've talked to him, we've talked to him on the podcast before. I've talked to him on the tv. Always energetic and always has just sort of interesting thoughts. A fun guy to talk to. Also very serious. We're gonna be speaking with David Wu. He is the CEO of David Wu Unbo and prior to that, he was the head of global rates, currency, emerging markets, fixed income and economics research at bank of America. I always want to get David's takes on things. So, David, thank you so much for coming back on Odd Lots.

[David Wu]

Thanks for having me. It's a pleasure.

[Joe Weisenthal]

Is this a type of war that we're seeing right now that, you know, whether you trade war? You know, it seems like the obvious thing, but like, how aggressive, how provocative, how combative are Trump's actions against China?

[David Wu]

I think it's very combative. I think this is much more than just a trade war. I think this is war, actually. And then I think, you know, from that point of view, it's not that surprising the way it's gone because in a way, the whole Thing has been heating up under Biden. I mean, I will tell you.

[Joe Weisenthal]

Yeah.

[David Wu]

And I think in a way, you know, it's actually very interesting in a way, Trump is picking up where Biden left off.

[Joe Weisenthal]

Who picked up where Trump left off. Right.

[David Wu]

Okay, let me. Let me just take it back for a moment. What I. Let me try to explain better what I meant by that sentence. Right. Under Biden. If you remember when Biden became president, okay, Harvard University Belfer center published a big report in which they did a massive ranking of the technology leaderships across the major tech races. Okay? It was a report sponsored by Eric Schmidt, the former CEO of Google, who was a big patriot. And in this report, they come to the conclusion the US And China were in basically debt heat in first or second place in all the leading technologies in the world. And soon after that, Eric Schmidt went on a PR war political campaign across the beltway, essentially lobbering every congressman, every senators who listened to him, that this is time to basically stop the access of China from advanced technology so that the US Has a chance to essentially regain the leadership. Okay? So therefore, under Biden, the most important thing in terms of vis a vis China was not so much the trade war, but rather they put in punishing sanctions in terms of the ability of China to be able to access advanced semiconductors and in manufacturing equipment for advanced semiconductors. All that was meant to basically give the US two to three year, basically head start in AI, semiconductors, in automation, in robotics, and so on and so forth. Guess what? Less than a month after Trump became president, we had the deep seat news. The deep seat news basically was a massive piece of news. I mean, it was a game changer. Let me tell you this. I mean, the deep seq news for me is no proof of China's technological prowess, but it is proof that AI can be easily copied. All of a sudden, overnight, all the sanctions that happened under Biden, it was for nothing. To the extent that if these sanctions were designed to protect the monopoly of the big US Tech companies, all of a sudden that meant nothing, because anything that could be copied is worth nothing commercially. And this is the reason why, by the way, the day the D.C. news came out, I shorted basically NASDAQ. And it was a great trade, by the way, But I think that's what it gets down. So all the China hawks, I mean, Trump has brought a lot of China hawks into his administration. I have to tell you that for the China hawks, if they thought that they had been more time with China, I think after the Deep Sea News came out. Literally, there was this new sense of urgency. We need to basically stop China. Now. The only way they can do that is to bankrupt China economically. Because honestly, at this point, let's be honest, when you're talking about the 145% tariff, you're not engaging in the trade war. You're engaging in basically economic murder. I mean, that's it. I don't see how China is going to be able to export anything to the US with a tariff 145%. So I think from that point of view, this to me was, I think that the so called trade war that we call as such really was always intended as an economic blow that will be so great to China that China will no longer be in a position to threaten US Hegemony. So again, this is why I said this is more than a trade war. This is much more than a trade war. This is meant to protect U.S. hegemony.

[Tracy Alloway]

Right. Sort of existential in that sense. Let me press you on one thing you said. So you know, you mentioned the importance of deep seq and you kind of suggested that some of the severity of the action taken on China was because of the deep sea threat. But I mean, we know that Trump from his campaign was going to take a really hard line stance against China. So how can you connect deep seek with some of the policies that we've seen coming out of the administration? Can you make that direct link?

[David Wu]

Tracy, I think that's an excellent question, but let's think about this for a moment. Okay. I've always said, you know, listen, I'm probably the only person you know, like has been on your show, we read the back to back 100 page, you know, essentially phase one agreement that was signed between Trump and the Chinese back in 2020.

[Joe Weisenthal]

I bet Dan Wong is read it too. But anyway, you're the other one. Keep going, keep going.

[David Wu]

Yeah, and let me tell you this, it was probably, I mean I have a PhD in international trade from Columbia University. And let me tell you this, that trade agreement in my humble opinion was one of the best trade agreements signed between two countries in the last 50 years. And the reason was because it was a win win, basically deal. And people tend to think, oh, whoa, whatever. I mean people didn't read the whole thing. I mean it's pretty amazing what that whole thing actually. Now in my humble opinion, the difference between Trump and Biden is that whereas Biden saw the US China rivalry as largely a zero sum game, that is if China wins, we lose. If we win, then China will lose. I think Trump, in his whole entire career, sees things through the lenses of deals. And Trump always understands that basically to do a deal, there has to be enough for everybody around the table. So from that point of view, in my humble opinion, if you look back on the first day of Trump's inauguration, what do you do on this? I still remember. I don't know if you guys covered the story. I still remember he did a press conference in the Oval Office late at night on the inauguration Day, and this is when he announced a 20% tariff on Canada and Mexico over the fentanyl. Okay. And he was asked during that press conference, why not China? You promised to hit China hard, so why did you decide to hit Canada and Mexico but not China? He actually, his response was, oh, because we hit China pretty hard my first time. We're going to give them a pass this time. It was not until the next day he announced the 20% for China. And then three weeks later, of course, we all know now, basically the tariff was extended for Mexico and Canada and China was hit by 20%. Okay, and then the list goes on and on. In my humble opinion. Again, we're sitting here and thinking that Trump is in the driver's seat. I think at this point, Trump is no longer in a driver's seat to the extent I think the China hawks are actually in the driver's seat. I think the China hawks are maneuvering him in a position that he's increasingly struggling to back away from. So it gets more extreme. And that is a different story. This is why, to me, this is not just about Pete Navarro versus basically Scott Besson. This is about the China hawks represented by Vance, by basically Rubio, by Waltz, and all of them actually. So from that point of view, again, this is what we're talking about. I think Trump really wanted. I think Trump was so eager to do a TikTok deal on the first day that he spoke with basically Xi Jinping. Things were going to go very differently. But I think it was a series of mistakes that have now allowed the China hawks to take over. And I think Trump now in a way is a little bit powerless. And I think we can talk about the process and the sequencing, but I think this is where I'm at right now, which is not entirely up to Trump anymore.

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[Joe Weisenthal]

I just want to say I appreciate the out of consensus perspective because I would describe the consensus perspective is the only active force that happens are what's happening in Trump's brain. And so first of all, you're disagreeing with that and I respect that. Second of all, you know, from my perspective, Trump strikes. I know he likes to do deals and he loves talking about doing deals, et cetera. When he pulled that chart out on Liberation Day April 2 and basically slammed every country in the world, this did not come across to me as someone who likes positive sum deals. This strikes me as someone who finds any trade gap is per se bad that if you're running a trade surplus with the United States, you must be cheating, you must be doing something.

[Tracy Alloway]

Yeah.

[Joe Weisenthal]

So relative and so like give me the counter argument here. Also, you know this idea, you know people have been using the good czar, bad Boyer's characterization. Oh it's the Navarros of the world. It's the Vance's. Trump is being blah blah blah. And I tend to not find those things. But just convince me that Trump is not a zero sum thinker when it.

[David Wu]

Comes to I'll convince you. By the way, I want to say this. There's a big difference between China versus everybody else.

[Joe Weisenthal]

Okay.

[David Wu]

I think Trump understands that everybody else, he thought that the US Is so big he just pushed them around. I think China is a very different story. Just think about this for a moment. The day that he unleashed whatever, I mean, whatever the tariff schedule on a.

[Joe Weisenthal]

Liberation day, April 2nd.

[David Wu]

Yeah, China was only hit with a 25% tariff.

[Joe Weisenthal]

Yeah, that's true.

[David Wu]

Which is actually right in the middle of the range, by the way. It's not like he did China with 30%. I mean, listen, I mean, Thailand was 29%, Switzerland 35%. You can basically look across. I mean, China was actually the low end, by the way. If you think about that for a moment, I think that was a sign that Trump did not. I mean, because again, I think Trump understands, depending on who you're dealing with here, if you're dealing with a little guy, you're going to basically literally knock the other guy dead. And I think Trump feels like this is the reason why. I mean, I think Mexico is a great example because Mexico, unlike any other country, has literally been bending forward backward to meet Trump. Forget about half the way, like 99% of the way. I thought Trump should have granted a deal to basically Sheinbaum literally three weeks into his presidency.

[Joe Weisenthal]

He loves Sheinbaum and he didn't.

[David Wu]

And the reason is because apparently he saw Mexico as being a push around. Okay, was China, I think is a different story. So I think, you know, we cannot basically apply the same logic to what Trump is saying. But you know what's interesting though, what is interesting is the fact that as of today, right now, as we speak, if I look at, you know, like, you know, yesterday I was, I mean, I've been, you know, as you know, I've got a YouTube channel now, you know, and, and I was trying to, basically I'm trying to upgrade my lighting. So I wanted to buy this very expensive light. This is a very high end light. The haptic manufacturing.

[Tracy Alloway]

You need one of those, one of those circle lights. Like a ring light, like a proper, proper influence.

[David Wu]

More than a ring light. I'm talking about, this is a professional, basically spotlight, right? So this is a very high end, in case you don't know. Like literally 90% of the high end spotlights now are manufactured in China. Okay. I mean, that's just, that's just a fact, right? So they don't just make low end stuff. This is really high end stuff. And you know, as you know, I live in Israel now and I mean, there's no inventory of this light in all of Israel. I literally like got in touch with every store, the importer, not. So I decided to call up B and H in New York. Of course they have it in stock, even though it's from China. And guess what it cost literally half the price of what I would have paid if I bought the light in Israel. Unfortunately, they don't have it in Israel anyway. So I was asking the B and H guys, well, you know, listen, what about the tariff? He said, well, you know, listen, we're not raising prices until we've actually depleted our stock. But the point I'm trying to basically tell you is Americans have not even begun to feel the even iota of the tariff. I mean, the stock market obviously has gone down a bit, that kind of thing, but it's like nothing. I mean, I think people don't realize what this really means because right now what's happening is that the inventory in the system and then there's no doubt inventory got built up in Q1 because a lot of companies anticipated the tariff increase. That is providing a bit of a buffer. Wait until we get into June when prices either will go up or that there will be no stock to the extent that just whatever you want to basically buy is simply not available. I don't even know how Hollywood can basically do with their lighting without Chinese lights right now at this point because there's very low degree of substitutability. But the point here is that I think, in a way, I think the pain is like, absolutely. And I think this is where Trump is very misinformed, by the way. I truly believe Trump is surrounded by some really terrible advisors who at least didn't tell him the full story. Because when it comes to the trade war, I can just tell you, I mean, I think that every step of the way, I think they misfire. For one thing, I think the presumption that tariff was not going to be inflationary was. I don't know what they got that from. And I'll tell you where they got that from, by the way. And that was perhaps the biggest, biggest, basically, you know, essentially the assumption they were making when they basically unleashed this trade war. Because Trump figured that while first time trade war didn't have any impact on prices, so he expected this time the same to happen as well. And that unfortunately, I don't care where Peter Navarro got his PhD is worth nothing, his degree is not worth a piece of paper is written on. But let me tell you why. The reason why the inflationary effect associated with Trump's trade war one was so limited was because Chinese companies were able to set up shop very quickly somewhere else in the Philippines, Indonesia, and wherever they went, they were able to circumvent the U.S. tariff by continue to export to the U.S. at whatever price they were selling previously the U.S. so in a way, if there was very little price impact was because Chinese companies were able to circumvent the tariff. This time the entire tariff is designed to leave Chinese companies with no place to hide. As, you know, like, the only reason why like Trump hasn't take out the whatever, even the fifth in basically, I mean, you know, hasn't basically did not apply additional reciprocal tariff on Mexico was because Mexico had already agreed to adopt the same US Tariff on Chinese imports. So this time, this is why Southeast Asia got hit really hard this time in the reciprocal tariff. It's because precisely Navarro and others, they understand, they want to close the back doors to China. So this time there is no cushion in the system. You're going to see 100% pastoral in terms of prices. In fact, the Chinese government apparently has decided that the more pastoral, the more the better. The reason being that we all know only a couple of weeks ago, I think the Chinese in Beijing, Chinese officials met with Costco, with Walmart and warned them against applying pressure on Chinese suppliers to basically to take the hit on tariff. The reason is because I think from the Chinese perspective, they think that once the price effect associated with the tariff is unleashed onto the US economy, onto the US Consumers, it's going to get so bad that Trump will have no choice but to basically stand down. And I think this is the reason why in a way I said that we're right now in round two of this trade war. I think the round one basically ended last week. We're now round two. Round two. You could argue that China enjoys the advantage insofar that time is on their side. And I think things are going to get very ugly.

[Tracy Alloway]

I have many questions, but just to start with, okay, why should I care whether it's Trump or his policy advisors being, you know, uber hawkish on China? Why does that matter when the policy result seems to be, you know, pretty much the same? And then secondly, you talked about the pain potentially coming this summer. We've seen a lot of people in markets start to talk about the idea that maybe there isn't a Trump put right, like maybe he doesn't care about stock prices this time around. So what exactly is going to be the catalyst for some sort of detente?

[David Wu]

Yeah, Tracy, I think it's a very good point. You see, again, this is whether it's Trump or somebody else around him. I think it makes a very big difference in so far in this respect. Let me basically take it back for a second. If you would allow me, because I think this is connected to a lot of other things that are on the table right now. For example, I thought was a huge mistake that Trump started his presidency by making stopping the war in Ukraine a top priority. Okay. He thought that he was going to be able to stop in 24 hours. Forget about 24 hours. Let's just say he was indeed being sarcastic. But let me tell you this. At the beginning of his presidency, Polly Market was giving a 70% chance that he was going to stop the war basically by 100 days into his presidency. And now it's right now, currently less than 3% chance. Now, this is why Trump went on this trauma offensive with Putin, that he appeased Putin. He literally was. I'm not going to use any more exaggerated adjectives at this point, but let's put it this way. Trump didn't understand that there was no way in hell that Putin was going to agree to a ceasefire without having taken control of the rest of Donetsk, where they've been stuck in basically very, very drawn out battles for the last six months. But it doesn't really matter. The point here is that I think three months into his presidency, Trump has got nothing to show for vis a vis Ukraine, even though he has ruptured transatlantic relations. He has sold Ukraine down the river and he's got nothing to show for. And Putin is not buying it. Guess what? At this point, in my humble opinion, Trump has one of two choices. He could either pivot by getting much tougher with Putin, okay, so you see an increase in geopolitical risk and bullish gold, or that he has to go even tougher on China. Because at this point, you know what, you cannot be seen as being weak on both Russia and China. Forget about Iran. I mean, it's pretty amazing what basically Steve Wykoff is now proposing. By the way, capping Iranian Richmond at 3.67% was the key component of the Obama nuclear agreement with Iran that Trump walked away from. So Trump is like going super dovish Russia basically in Iran. Guess what? If he wants to continue that dovish approach, then he will have to throw some red meat to the China hawks within his administration, which means getting tougher on China. In my view, there is very little. I mean, I, you know, I think I feel sorry for Scott Besson. I guess God's a very nice guy. No, Scott, Scott is not a China hawk. I wouldn't say Scott is a China hawk. He's certainly, you know, he, he doesn't hate China in that sense, but there are A lot of people within the administration who think that this is the time to destroy the Chinese economy once for all. Right? Because the point here is it's not just about the fact that, oh, wow, Chinese export to the US is roughly around 5% of Chinese GDP, if you look at both direct and indirect 40% of Chinese industrial production. But more importantly is the fact that the Chinese economy is already on its knees. 40% of GDP's investment. If we can somehow decimate China's export, then we can basically bankrupt their business model, and then the whole economy goes into recession. Who knows what happens? And then they won't be able to play catch up with us. So what I'm telling you is that, in fact, actually it's interesting because the only way Trump can actually keep going with this trade war, by getting the support from the general public, from Congress, and say, you know what? This is about China. Nobody right now will say, oh, wow, let's be nicer to the Chinese, because right now, anybody who stands up to the Chinese, they're seen as traitors right away. And that, to me, is the most interesting part of the story, which is that I think the China hawks in many ways have prevailed, and from right now is having to essentially see the ground to them, because in a way, he's got nothing to show for right now. And then he wants to keep the trade war going. The only way he can do that is by saying, this is about China.

[Tracy Alloway]

Right. So just on the second part of the question, then, what is the catalyst for a detente? And is it, you know, some sort of policy win for the Trump administration that maybe allows him to back down a little bit on behalf of the China hawks? I guess.

[David Wu]

I think, you know, listen, I mean, Politico actually write a very interesting story actually on Friday, Saturday. Okay. Which I think makes sense. I mean, I don't believe everything they say, but in this particular case, I think it sort of makes sense, which is that forget about, like, Trump and Xi are not talking. Like, even the back channel is not working. And one reason is interesting because Trump wants to basically manage the entire process on his own. He wants to talk to Xi Jinping directly. This is why he doesn't want to send people to China, talk to the Chinese. He wants to get on the phone with Xi Jinping, and Xi Jinping right now is not returning the call or radically doesn't want to talk. Okay. And I can perfectly understand why, by the way, but interesting things, I think. Trump. Listen, Trump is very suspicious of everybody around him, including Rubio by the way, let's just think about this. You ask yourself, Steve Witkoff, why is Steve Wykoff like the hardest working man in the Trump administration? This is a man who has already met with Putin three times. He's the guy who basically met with the Iranians twice. He is the guy who basically negotiated the ceasefire in Gaza. This guy seems to be the unofficial Secretary of State. In my humble opinion. The reason why Steve Wykoff is everywhere is not because it's not a reflection of his diplomatic savvy, but because Trump trusts him. Because guess what? I think he's no more than Trump's messenger. And so from that point of view, because Trump doesn't trust anybody. Trump, the fact that Steve Wipkoff is so prominent means that Trump is running US Foreign policy all by himself. And I think this is going to be especially so in terms of discussion negotiation with the Chinese.

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[Joe Weisenthal]

Licensed by NYDFS yeah, Steve Woodkoff. He's a real estate guy from New York, so he does seem to like he doesn't have a real diplomatic background. He's a real estate guy in New York who's now the special envoy to the Middle east. And so I'm not surprised that maybe Trump sees him as the best one special envoy.

[David Wu]

Period. He's the presidential. He's not just a special envoy for the middle. He's, he's. His title now is a special envoy.

[Joe Weisenthal]

But it does seem like Trump himself, as you say, like he wants to shake Xi's hand. I mean, he did. He went to Singapore, right, In the first administration, Kim Jong Un, Right. And, like, this was like, what he lives for, right? This is what really gets him excited. The opportunity to be on stage and shake hands with these guys and be part of it and come up with negotiation. That strikes me as actually a sort of very useful read into how Trump thinks about international relations.

[David Wu]

Yeah, I mean, TikTok is a great example. Right. I mean, the fact is that one day before inauguration, everybody thought TikTok was finished. I mean, Congress already voted, Supreme Court had already gone along, and then it was it. And then guess what? Trump managed to revive it because over a phone call with Xi Jinping, that was it. So from that point of view, again, I think Trump has made a lot of mistakes, I think, but it doesn't take away from the fact that he is a deal maker. He wants to do deals. Okay. And I think from that point of view, he still thinks that he can pull off a deal with the Chinese. The biggest challenge I think he has right now is the how to basically repair the total loss of trust. Okay. On the Chinese side vis a vis Trump. Right. Because I have no doubt, like, you know, I mean, I think Xi Jinping was like, well, you know, he got the invitation to go to the inauguration, he didn't go, but he thought that was a real nice gesture. And then he spoke with Trump over the phone. And then, you know, and then even after basically, you know, China was hit by the 25, 20% tariff on fentanyl, he was probably so thinking that this is going to be okay, but it's like, but it's getting getting worse every single day. You know what's very interesting? So I'm conducting a daily survey, believe it or not. Okay. I mean, for the last three years, I mean, I have a joint venture, you know, with rewe, which is a Toronto based online survey technology company. They're actually a listed company in Canada and they're one of the leading, you know, online survey technology companies in the world. So it's part of my, you know, research process. So we have joined forces to conduct proprietary surveys for my clients. And one of the surveys is what I call Cold War 2 survey. So I'm conducting surveys of Chinese people and Americans every single day to gauge how they feel about each Other, in terms of US China relations, it is fascinating, I can tell you, even until a week ago, the Chinese people, when you ask them, is the US an enemy or an ally, Most Chinese people said ally as opposed to enemy, believe it or not. More people say ally, enemy. Okay? And that tells me that even though things were like, you know, getting worse and worse and worse, the Chinese media was very careful not to basically stoke, you know, nationalistic fervor in China. They were still trying to basically, you know, find a way out of this. But the last week, I mean, there was this huge spike in terms of percentage of my respondents in China who said the US is an enemy and adversary. Now, basically, 46% of Chinese said America is an adversary or an enemy, versus only 40% of Americans who consider China as such. And so that is very, very interesting. So from that point of view, I think this is the biggest problem, which is that I think China sort of feels like they gave Trump three months, and then things got worse and worse and worse. Maybe they have no idea if it's Trump or advisor, the China hawks, and so on and so forth. All I know is that they can no longer engage. Okay? Basically. So therefore, they are preparing the population in China for a long standoff. This is why people are wrong to call this thing a game of chicken, because in the game. I'm a professor of economics here in Israel, and I teach game theory. In game theory. Yeah. I mean, everybody who's taking the course in game theory, they think about game of chicken. Game of chicken. By the way, it's completely irrelevant at this point, because in a game of chicken, as you know, one side will capitulate before the collision so that nothing happens. Okay? Nothing happens. So somebody stops before something bad happens. I would argue we've already gone beyond a game of chicken. We're now in a war of attrition. A war of attrition is another game in game theory, except war of attrition. Basically, the game continues even though it continues to inflict pain on both sides. But both sides sort of hang on until one side finally capitulates because the pain becomes unbearable. A little bit like World War I, if you like. And I think the Chinese are now preparing for this war of attrition. And this is why I think Trump is still thinking he's going to get the Chinese, he's going to get basically Xi Jinping on the phone, he's going to do this and that. I am doubtful. I mean, even Scott Besson, as I said before, because Scott is not really he's not a political type. He doesn't understand the hatred there is for China in Washington. And I think from that point of view, Trump is going to be. It's going to be difficult for Trump, but anybody can do it. It's still Trump, but I'm just saying it's going to be very difficult.

[Joe Weisenthal]

Tracy, in our episode with Martin Wolf, I brought up the fact that for the first time, I actually think it's really important to read those surveys of international perspectives on China or on the US And David, giving a great example of why for any leader globally, not just China, the domestic attitudes probably really matter. If any leader wants to maintain domestic legitimacy.

[Tracy Alloway]

Sure. Although one thing I would say in China is there is a rather authoritarian government that probably makes a difference in that dynamic. But, David, I want to ask you a question. So you're a smart guy, Reasonably smart guy. That's one of the biggest compliments I've ever given on odd lots, by the way.

[Joe Weisenthal]

I'm thrilled.

[Tracy Alloway]

But do you worry at all that when it comes to. But I should say you're obviously a very keen watcher of the White House and everything that's going on there and trying to disaggregate, you know, what's driving certain policymakers. But do you worry that there's a degree of overthinking at play here or, you know, sane washing, perhaps, of Trump and the administration that you're trying to, like, put a framework on what's happening that maybe isn't the case. Like, maybe it is just, just quite chaotic and people are unsure of what they're doing, unsure of what the ultimate goals are.

[David Wu]

I do agree with that. I do think that, in a way, I was hoping for more. I mean, to the extent that, for example, Doge is a good example. So Elon Musk was like, you know what he had three months after the election to prepare for Doge. I mean, he supposedly had hundreds of legal advisors, all sorts of people. They figured out everything. And guess what? It's gone from $2 trillion to $1 trillion and then whatever. Ten days ago, he declared Trump's cabinet, he's going to find $150 billion of cuts for the 2026 budget. I mean, I track the daily U.S. treasury statement, which tracks every single whatever in aggregate, but in very detailed form, every dollar that goes out of the treasury account that the US Federal government keeps with the Federal Reserve, where all this money goes in and out. And let me tell you this, I cannot see any evidence of any spending cut so far. Okay, so what I'm telling you is this. And that's Elon Musk, which scares me because I've always thought, well, Elon Musk is supposed to be a very smart guy. This guy. I mean, you don't become the richest man in the world just by talking big. Well, maybe he does. Maybe American capitalism is all about talking big, whatever it is. But this is a good example of basically, literally, like, talking out of. I don't know. I don't want to use any things I'm going to basically regret. But that's why this trade war thing is very important, as I said before, because Trump thought. Trump and his political advisors decided that because trade war in its first term was not inflationary, therefore it's not going to be inflationary this time. Therefore, there's no reason for the Fed not to cut interest rates. Okay? And that is completely like. So you see what I'm saying, how that is important? Because now it's like, oh, wow, you know, like what Trump, now you want to fire, basically, Powell. Why didn't you think about that three weeks ago or a month ago or even two months ago when you're planning this whole tariff business? Okay, Because I saw, you know, if you could get Elon Musk to cut spending, and that will be deflationary, which could potentially offset any inflationary effect associated with the tariff, and then you could get the Fed, your side if there's fiscal tightening. But right now, we haven't got any fiscal tightening because Elon Musk hasn't been able to deliver other than talking big about spending cuts. And the tariff is going to be definitely inflationary this time. There is no way. It doesn't matter whether it's Powell or anybody else. It was the chairman of the Federal Reserve. No chairman of Federal Reserve will be cutting interest rates right now under the circumstances. So from that point of view, for Trump to be basically throwing a tantrum right now, pound tables said, well, Powell's not doing his job. That, to me, again, just shows that this administration is off to a terrible start to the extent that the assumptions that they're making for where they get to now were completely wrong. And unfortunately, I'm sorry to say this, I think Scott is a great guy, but Scott did not have the same kind of relationship that Steve Mnuchin had with Trump in his first term. If you remember, Steve Mnuchin was Trump's actually the campaign chairperson. So from that point of view, there was much more trust. And I think, therefore, Mnuchin was a much more careful person. And then whereas I think Scott Besnance is more of an academic philosopher, hedge fund guy who thinks big in terms of the theory, but I think in terms of the day to day stuff, I don't know how much influence he has over Trump as a result. I kind of feel like, I think there are a lot of mistakes have been made. And what worries me more than anything else is that maybe these mistakes cannot be undone.

[Joe Weisenthal]

Okay, what happens when the crunch arrives? As you said, Americans outside of investors haven't actually felt any of this impact at all. And as you say, like, how does Hollywood even continue with something as simple as losing access to affordable advanced lightings? And that's just a fairly small sliver of the US Economy. What does this summer look like to you in the United States given this war of attrition dynamic that's going on?

[David Wu]

I think it's going to look like a shit show. I really believe it's going to be a shit show. I think we're going to be going to a recession. I think Trump's approval rating is going to collapse. Okay, And I think the point here is this. I mean, again, obviously there's only one question of any interest to anybody right now, which is, okay, fine, so when will Trump and Xi Jinping get on the phone? That's the only question, right? I mean, I think we can say right now that things will probably bottom once the two men have gotten on the phone, where for that matter, Trump announces he's going to be on his way to Beijing. To me, things are not bad enough for him to get to that point. So from that point of view, this is why, I think, at least in the near term, I think stocks are still going lower. I think from that point of view, because precisely the Chinese believe that time is on their side. And Trump, the problem is when you have a 145% tariff on China, how do you even back down from that? Let's just say, you say, okay, fine, let's go from 145 to 125% or even to 100%. You know what, it makes no difference at 145% to 100%. That doesn't mean that China is going to be able to export any more to the US So from that point of view, so let's think about that for Joe for a second in a negotiation. I thought from the very beginning, that's why I thought TikTok was a very good beginning. I thought the only way Trump can do deals with China is by doing A bunch of small deals, they eventually add up to a big one. But right now, with tariff at 145%, the only kind of deal you can do will be a very big deal. I think we can all agree right now to do a big deal is going to be very difficult. For one thing, it takes a lot of time, and moreover, it takes a lot of political capital that Trump doesn't have. But again, you have to remember, with Elon Musk trying to cut spending, the only thing that the House and the Senate can agree on is to increase defense spending. The only difference is the House wants to increase defense spending only by $100 billion next year. The Senate wants to increase about $150 billion next year. Everything else is going to be going down. That's it. So when the politicians believe that China is our existential threat, that these people are evil, we need to basically stop them before they stop us. Then you know what? It will be very, very difficult for Trump to make that big deal that I think is necessary right now to stop this whole thing. And this is why I cannot see me just, if I put my hat as a game theorist on right now, I'm struggling to see a way out right now, but maybe, you know, I'm sure you'll find better, you know, more smart. I guess now you do know, like, you know, what is the way out here?

[Joe Weisenthal]

David Wu, that was a blast. Really appreciate your perspective. And maybe in six months or a year or when Trump and Xi Jinping get on the phone, we'll have you back. Thank you so much for coming back on Odd lots.

[David Wu]

Thanks for having me.

[Joe Weisenthal]

I always feel like I have to catch my breath a little bit. After talking with David, I knew that it's always like, it's always that energy.

[Tracy Alloway]

You did say that in the intro, didn't you? Energetic.

[Joe Weisenthal]

He's an energetic fellow, that's for sure.

[Tracy Alloway]

Yes, for sure. And one thing I will say, I really do appreciate some of his insights into the Trump administration, because in Trump 1, you know, a lot of people got that call wrong, and a lot of people thought that we would see inflation from trade war number one, and we didn't really get that. And so it is very interesting to me to hear someone who was pretty supportive of that administration, the first Trump administration, sound quite negative on the second administration. And I guess our headline for this is gonna be, you know, David Wu on the coming shit show in America.

[Joe Weisenthal]

Look, whether it's the czar, whether it's the Boyers, the conclusion is this is a Very bad situation. Right. And as he said, they've literally gotten zero accomplishments so far. The war in Ukraine is still going. There's not even a TikTok deal. And then I really do think, you know, again, like, you know, it's useful, this idea. It's not a game of chicken and a game. The damage is being done today as we speak, with hardening of opinions on both sides and the domestic polity. And every leader, even an authoritarian one, has to maintain domestic legitimacy to varying degrees or another. So this idea that this is not a situation where someone could blink, there's already been this sort of damage and it drags on further every single day. And I think part of what we're seeing in the market is no one can see what that obvious off ramp is.

[Tracy Alloway]

Off ramp.

[Joe Weisenthal]

Given those dynamics.

[Tracy Alloway]

Yeah, it's funny you said that. I was literally about to say the same exact sentence that the off ramp is hard to see. You know, one thing I realized we mentioned Witkoff going from like, being a real estate guy to special envoy. One thing I appreciate about the Trump administration is the ability for personal progress in terms of careers. Like, you can kind of become, you know, they're very into personal development and experimenting with new roles, which is interesting to see.

[Joe Weisenthal]

That's nice.

[Tracy Alloway]

Yeah. I wanted to end on a nice note.

[David Wu]

Yes.

[Tracy Alloway]

Okay. Shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal. You can follow me at the Stalwart. Check out David Woo. His stuff. Avid Woo. Unbound. He's certainly unbound. Follow our producers, Carmen Rodriguez at CarmenArman, Dashiell Bennett at Dashbot, and Cale Brooks at Kalebrooks. For more Odd Lots content, go to bloomberg.com oddlots where we have all of our episodes and a daily newsletter that you should subscribe to. And you can chat about all of these topics. We even have a China Room in our Discord. Discord, gg Oddlauts.

[Tracy Alloway]

And if you enjoy Odd Lots, if you like it when we talk about the off ramp from the trade war or lack thereof, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[KPMG Representative]

KPMG makes the difference by creating value like developing strategic insights that help drive M and a success or embedding AI solutions into your business to sustain competitive advantage. KPMG make the Difference. Learn more at www.kpmg.us. insights.

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