Trump Lowers the Temperature on China. What Next?

Summary

WSJ What’s News: “Trump Lowers the Temperature on China. What Next?” – Detailed Summary

Release Date: January 24, 2025
Host: Kate Bullivant, The Wall Street Journal

---

1. Trump's Return to Washington: Government Initiatives and Federal Agencies in Disarray

President Donald Trump's return to the White House has ushered in significant changes, disrupting established governmental operations. Kate Bullivant opens the episode by highlighting the tumultuous first week of Trump's administration:

"President Trump's first week in office has seen major federal initiatives scrapped, throwing much of the government into disarray and bringing even routine functions to a confusion." [00:03]

Key executive actions include:

• Pause in Fund Distribution: Trump's executive order to halt the distribution of funds from the previous administration has caused the Transportation Department to temporarily shut down its road projects computer system.

• Hiring Freeze: A nationwide hiring freeze has led several agencies to retract job offers, exacerbating staffing uncertainties.

• Communications Halt: Orders to stop all external communications from health agencies through February 1 have left FDA employees struggling to issue critical safety alerts. A White House spokeswoman clarified:

  "The communications pause doesn't relate to emergencies or critical health needs, and that food and safety inspections continue, describing the disruptions as temporary inconveniences." [00:22]

These abrupt changes aim to realign federal communications and policies with Trump's directives, including his controversial executive order declaring only two genders. Longtime federal employees have noted that the current chaos surpasses typical transition glitches, underscoring the stark policy shift between administrations.

2. Defense Secretary Nomination: Pete Hegseth's Confirmation in Jeopardy

A significant point of contention within the GOP is the confirmation process of Pete Hegseth as Secretary of Defense. Bullivant details the precarious situation:

"Pete Hegseth's nomination for defense secretary heads to a vote today in the Senate, where Republicans face a razor-thin margin to confirm President Trump's most controversial pick." [00:35]

Highlights include:

• Senate Opposition: Centrist GOP senators, Lisa Murkowski of Alaska and Susan Collins of Maine, opposed the nomination, citing concerns over Hegseth's character and suitability to lead the Pentagon.

• Republican Uncertainty: Some Republicans who previously supported Hegseth haven't committed to backing him for final passage, placing the nomination at risk if Democrats unite against him.

• Implications for the Pentagon: The confirmation outcome remains uncertain, with the possibility of swift repercussions depending on Senate dynamics.

3. OpenAI and Microsoft: Shifting Alliances in the AI Sector

The episode transitions to the tech industry's evolving landscape, focusing on OpenAI's new partnership:

"When OpenAI announced its new Stargate venture with Oracle and Softbank earlier this week, there was for some, a $3 trillion elephant in the room. Its longtime partner, Microsoft, was nowhere to be seen." [01:10]

Key developments include:

• Stargate Venture: OpenAI's collaboration with Oracle and Softbank marks a strategic shift as the company seeks $500 billion in investments for data centers to support AI development.

• Tensions with Microsoft: Tom Dotan, a WSJ reporter featured in the podcast, explains the friction between OpenAI and Microsoft:

  "OpenAI is always wanting more, more, more. ... All of the models that OpenAI has built, products like ChatGPT or GPT4 and Sora, that's all almost entirely built on Microsoft's cloud computing. ... This has caused a lot of tension." [03:35]

• Future Relationship: Despite recent tensions, both companies assert their alliance remains solid. Microsoft CEO Satya Nadella stated:

  "Altman wants to build enormous AI models, while Microsoft wants to focus on integrating those products into software." [04:19]

This evolving partnership underscores the competitive dynamics within the generative AI sector, as companies navigate their strategic priorities and resource allocations.

4. Market News: Bank of Japan Rate Hikes and US Economic Indicators

Bullivant provides a concise overview of significant market movements and upcoming economic reports:

• Bank of Japan: The central bank has resumed rate hikes, elevating the key interest rate to 0.5% in pursuit of stable 2% inflation and wage-backed growth. Stability in US policy under Trump has been a crucial factor, maintaining the yen's relative calmness.

• US Earnings and Home Sales: Anticipation builds around earnings reports from American Express and Verizon, alongside December's existing home sales data. Economists surveyed by the Wall Street Journal predict:

  "The report to show a 1.2% uptick from the previous month when it's released at 10am Eastern." [04:19]

These economic indicators will provide insights into the current financial climate and potential future trends.

5. Trump's China Policy: Opening Gambit and Strategic Implications

A substantial portion of the episode delves into President Trump's nuanced approach to China, aiming to balance engagement with assertiveness. Kate Bullivant sets the stage for this discussion:

"Throughout his re-election campaign, President Trump's rhetoric on China raised the prospect that his first day back in the White House would mark the dawn of a new trade war. But so far, Trump is holding off on imposing tariffs and indicating he's willing to talk business with Beijing." [06:08]

Key Insights from Chun Han Wong:

Chen Han Wong, a Wall Street Journal reporter based in Singapore, provides expert analysis on Trump's strategy:

• Diplomatic Signals: Trump invited Chinese President Xi Jinping to his inauguration, an offer that was declined personally but accepted by Vice President. This unprecedented gesture suggests a willingness to establish diplomatic ties from the outset.

  "We saw him invite Xi Jinping to attend his inauguration, which Xi didn't take up personally, but he sent the next best option, which is his vice president, to attend, which is also unprecedented." [06:38]

• Tariff Strategy: Contrary to earlier threats of imposing up to 60% tariffs on Chinese goods, Trump has adopted a more measured approach, proposing a 10% tariff effective February 1 without immediate enforcement.

  "He did raise the possibility of 10% tariffs on China starting February 1, but he did not deliver them immediately." [06:38]

• TikTok Negotiations: The administration's handling of TikTok showcases this balanced approach. Instead of outright banning the app, Trump appears open to a deal allowing American shareholders 50% ownership, signaling a preference for negotiation over aggression.

  "Trump is interested in dealing, he's interested in talking, he's not trying to set a table on fire." [07:59]

• Potential for Cooperation and Conflict: While Trump seeks to establish a working relationship aimed at mutual benefits, there's an implicit warning of aggressive action if Chinese demands aren't met. This duality keeps Beijing uncertain about the US's next moves.

  "There's also a possibility that he would want to take very drastic action if he doesn't get what he wants." [07:59]

Prospects for US-China Relations:

• Chinese Willingness: China maintains a facade of willingness to cooperatively engage, emphasizing their efforts to avoid confrontation and seeking ways to accommodate Trump's economic objectives. Initiatives include addressing fentanyl issues, purchasing more American agricultural products, and potentially aiding in US-based manufacturing.

  "China wants to be able to say that they've tried their best to avoid any direct confrontation or turmoil." [08:18]

• Global Peace Efforts: Trump has hinted at leveraging China's influence to resolve international conflicts, such as the war in Ukraine and issues in the Middle East, positioning the US-China partnership as pivotal to global stability.

  "China could do a lot more to contribute to a peaceful resolution to the ongoing conflict." [09:10]

Historical Context and Future Dynamics:

• Comparison to First Administration: Wong contrasts the current administration with Trump's first term, noting the initial warmth between Trump and Xi followed by the swift onset of the 2018 trade war. This history informs China's cautious yet open stance toward the renewed Trump administration.

  "While there is possibility for engaging the president, ... if he doesn't think he's getting what he wants, he could ... act on those threats." [10:40]

• Internal Administration Perspectives: Although Trump and his cabinet members, including Secretary of State Marco Rubio, maintain hawkish views on China, there's variation in their approaches. The administration's collective stance remains to be fully seen, especially regarding how different hawkish levels might influence policy.

  "They are all fairly hawkish on China, but there are different degrees as to how hawkish they are." [10:53]

• Chinese Diplomatic Channels: Currently, Chinese officials lack established channels within the second Trump administration, but potential exists for improved communication through figures like Ambassador Perdue, who has prior experience in Beijing.

  "Senator Perdue, who has some experience working in Asia. He has traveled to Beijing before as senator." [11:17]

Overall, Trump's approach to China appears to balance diplomatic engagement with strategic pressure, leaving Beijing in a state of strategic ambiguity while seeking avenues for mutual economic and geopolitical cooperation.

---

Conclusion

The episode of WSJ What’s News provides a comprehensive overview of President Trump's impactful return to Washington, highlighting significant policy shifts, administrative challenges, and nuanced foreign relations strategies, particularly regarding China. Through detailed analysis and expert insights, the podcast elucidates the complexities and potential ramifications of the current political and economic landscape, offering listeners a thorough understanding of the pivotal issues shaping the day.

Transcript

[Kate Bullivant]

Trump's return to Washington upends business as usual across the government. Plus, uncertainty swirls around Pete Hegsler's confirmation vote as two GOP senators oppose the Pentagon pick. And Trump's opening gambit vis a vis China keeps Beijing guessing.

[Chun Han Wong]

The Chinese know that while there is possibility for engaging the president, who is seen as more transactional, that also comes with the flip side, which is if he doesn't think he's going getting what he wants, he could rain fire and act on those threats.

[Kate Bullivant]

It's Friday, January 24th. I'm Kate Bullivant for the Wall Street Journal, filling in for Luke Vargas, and here is the AM edition of what's News, the top headlines and business stories moving your world today. We begin in Washington, where President Trump's first week in office has seen major federal initiatives scrapped, throwing much of the government into disarray and bringing even routine functions to a Confusion has loomed over Trump's executive order to pause distribution of funds allocated by the previous administration, causing the Transportation Department to temporarily shut down a computer system for road projects. A hiring freeze has led some agencies to rescind job offers, and orders to halt all external communications from health agencies through February 1 left food and Drug Administration employees scrambling to clarify that they could still issue critical safety alerts. A spokeswoman for the White House said the communications pause doesn't relate to emergencies or critical health needs, and that food and safety inspections continue, describing the disruptions as temporary inconveniences. According to people familiar with the matter. The pause was meant in part to ensure that new missives aligned with Trump's executive order declaring only two genders. While glitches aren't uncommon during presidential transitions, some longtime federal employees say the chaos seemed more extreme this week, highlighting the widespan differences between the two administrations. Pete Hegseth's nomination for defense secretary heads to a vote today in the Senate, where Republicans face a razor thin margin to confirm President Trump's most controversial pick. That's after two centrist GOP senators said they opposed the nomination yesterday, raising questions about Hegseth's character and his ability to run the Pentagon. In a procedural vote yesterday, Senators Lisa Murkowski of Alaska and Susan Collins of Maine voted against advancing Hegseth's confirmation. Some Republicans who voted in favour yesterday haven't committed to supporting Hegseth on final passage. If Democrats unite against him today, he can't afford more than three no votes from his own party. When OpenAI announced its new Stargate venture with Oracle and Softbank earlier this week there was for some, a $3 trillion elephant in the room. Its longtime partner, M Microsoft, was nowhere to be seen at the White House, where tech leaders outline plans to invest up to $500 billion in data centers to power OpenAI's development. Journal reporter Tom Dotan told our Tech News Briefing podcast that the companies that help drive the generative AI boom have been drifting apart as each focuses on its own evolving needs.

[Tom Dotan]

OpenAI is always wanting more, more, more. They're this fast growing, highly funded AI startup that is trying to create artificial general intelligence which requires huge computing clusters. And Microsoft is a publicly traded company that has to justify billions of dollars that they pour into something. All of the models that OpenAI has built, products like ChatGPT or GPT4 and Sora, that's all almost entirely built on Microsoft's cloud computing. And as OpenAI has grown, Microsoft has had to build more and more data centers for them and that's actually caused a lot of tension. And so these guys were trying to hammer out a new agreement where they figured out what the relationship going forward would be when it comes to basically cloud computing.

[Kate Bullivant]

Both companies say their relationship is still solid. Microsoft CEO Satya Nadella told CNBC this week that Altman wants to build enormous AI models, while Microsoft wants to focus on integrating those products into software. And in market news today, the bank of Japan has resumed rate hikes, lifting its key interest rate to 0.5% as the economy advances toward a target of stable 2% inflation and wage backed growth. More clarity on US policy under President Trump had been a key consideration for central bankers and Japanese markets, and the yen have stayed relatively calm in the wake of his return to office and on deck. Earnings are due from American Express and Verizon this morning, and we'll also get existing home sales for December. Economists polled by the Journal expect the report to show a 1.2% uptick from the previous month when it's released at 10am Eastern. Coming up, Trump has so far kept Beijing guessing on his tariff threats. We'll take a look at how he's approaching China in the first days of its presidency after the break.

[CBOE Advertiser]

Would you wear the same shoes for every occasion or rock the same outfit seven days a week? Of course not. Your style is better with options. Your investments could be too. CBO index options give you access to various contract sizes, global trading hours and potential tax advantages. That's a good look for any portfolio. If you're ready to invest in style, head to betterwithoptions.com There are risks associated with CBO company products. Review the disclosures and [e-mail] USDisclaimers.

[Kate Bullivant]

Throughout his re election campaign, President Trump's rhetoric on China raised the prospect that his first day back in the White House would mark the dawn of a new trade war. But so far, Trump is holding off on imposing tariffs and indicating he's willing to talk business with Beijing to help us understand this approach and how it might shape U. S. China relations. Our Luke Vargas spoke to Journal reporter Chen Han Wong and began by asking him about the signals Trump has been sending.

[Chun Han Wong]

Yeah, so we saw him invite Xi Jinping to attend his inauguration, which Xi didn't take up personally, but he sent the next best option, which is his vice president, to attend, which is also unprecedented. And then on day one, he didn't impose the tariffs that he had sort of suggested that he might do as much as 60% on goods from China. He did raise the possibility of 10% tariffs on China starting February 1, but he did not deliver them immediately. And he didn't bang the table on perceived Chinese threats to American interests as hard as people thought he might.

[Unnamed Analyst]

And I guess the handling of the whole TikTok situation maybe also fits into this as being a bit lighter or more gentle than could otherwise have been.

[Chun Han Wong]

Indeed. So TikTok has been discussed over the past few days. Trump's position now seems to be he's willing to preside over a deal that would give American shareholders 50% ownership in this app rather than to kill it. And his rhetoric was saying that it could be worth a lot of money and Americans should have the right to partake in this. So some people are seeing this as a gambit to let the Chinese know that he's interested in dealing, he's interested in talking, he's not trying to set a table on fire. From day one, he wants to find ways to develop some kind of a working relationship with Beijing. But having said that, there's also a possibility that he would want to take very drastic action if he doesn't get what he wants.

[Unnamed Analyst]

Let's go through both scenarios. So I guess there's sort of the blue sky one in which there's actual space for cooperation. What have officials in Beijing said about that? Do they see a possibility that, you know, they could actually engage in constructive dialogue with the administration? What might that path look like?

[Chun Han Wong]

So, from China's point of view, they always insist that they are very willing to engage and very willing to cooperate. They want to be able to say that they've tried their Best to avoid any direct confrontation or turmoil. And it's the Americans that forced them to do it. So when Trump won the election in November, the Chinese immediately started signaling that they're willing to do more. For example, on fentanyl. There's also talk about buying more American agricultural products. Some Chinese scholars have suggested maybe Chinese money could be channeled towards supporting more US Based manufacturing. Basically trying to find ways that would satisfy what Trump wants to achieve on the economic front as a way to build some sort of mutually beneficial relationship and try to sustain this for as long as possible.

[Unnamed Analyst]

Okay. Economic and possibly also some foreign policy compromise. That Chinese government adviser you spoke to hinting that maybe China could play a role in helping to end the war in Ukraine.

[Chun Han Wong]

Yes. So Trump actually mentioned this briefly in one of his press remarks after taking office. He talked about the fact that in his conversation with Xi Jinping, they did discuss Ukraine, and he suggested that China could do a lot more to contribute to a peaceful resolution to the ongoing conflict. There was also talk about China playing a role in the Middle east, which already has in the last few years. But obviously Trump wants to be able to say that he's willing to partner with China to solve some of the world's biggest issues. And that is also another platform for potential cooperation.

[Unnamed Analyst]

Okay, so some potential avenues there to get along. But let's bring some gray clouds into the forecast here. And I guess we can look at that scenario by remarking that there was kind of a honeymoon period in U. S. China relations at the start of the first Trump administration. And we saw where that went.

[Chun Han Wong]

Yes. So in the first administration, Xi Jinping, if you remember, he went to Mar a Lago, and then Trump went to Beijing later that year in 2017, he got a quote, unquote state visit plus treatment. He was given a tour of the Forbidden City. There was all these very public and very grand gestures on both sides to show that the two leaders had a good rapport. And then 2018, the trade war started and things went downhill quite quickly. So the Chinese understand this. The Chines know that while there is possibility for engaging the president, who is seen as more transactional and willing to put all sorts of things on the table for discussion, that also comes with a flip side, which is if he doesn't think he's getting what he wants, he could, you know, rainfire and act on those threats.

[Unnamed Analyst]

And it's not just Trump. Right. We've only seen, I guess, one real high profile cabinet approval so far. Marco Rubio is secretary of State, but he is one of many folks picked by Trump to have major roles in the administration who are quite hawkish on China.

[Chun Han Wong]

Indeed. So that is one area that remains to be seen how the dynamics between people of different persuasions on China, yes, across the board, they're all fairly hawkish on China, but there are different degrees as to how hawkish they are. And it remains to be seen which of these figures proves to be more influential.

[Unnamed Analyst]

Have Chinese officials said more? Do they have a favored interlocutor, perhaps, on issues with the US no, but.

[Chun Han Wong]

They do have people that they try to engage fairly regularly in the Washington beltway, but none of them would be considered within the Trump circles at the moment. There were some connections from the first presidency, but the Chinese don't seem to have many of these channels through to the second Trump administration so far. That could change. For example, Trump's choice for his ambassador this time is Senator Perdue, who has some experience working in Asia. He has traveled to Beijing before as senator. So there are existing potential channels that can be built upon in the coming weeks and months.

[Unnamed Analyst]

I've been speaking to the Wall Street Journal's Chun Han Wong in Singapore. Chen Han, thank you as always for the update.

[Chun Han Wong]

Thank you very much.

[Kate Bullivant]

And that's it for what's news for this Friday morning. Today's show was produced by Daniel Bark with supervising producer Christina Rocher. And I'm Kate Bullivant for the Wall Street Journal, filling in for Luke Vargas. We will be back tonight with a new show. Until then, have a great weekend, and thanks for listening.