With Trump’s ‘shock and awe’ policies, all conventional macro thinking is proving useless. Geo-politics from Trump’s trade and foreign policies amidst technology disruption from AI is only making it that much complicated. Financial markets across the world’s three largest economic zones – the US, EU and China have behaved differently off late with the former falling sharply whilst the other two have railed strongly. To help get somewhat of a grip on what’s happening and where we are likely headed, the Market interviews Joerg Wuttke, a consultant at a global advisory firm. His credentials to comment on the current situation:
“The German lived for more than three decades in China where he presided over the EU Chamber of Commerce. In the fall of 2024, shortly before Trump’s election, he has relocated to Washington, D.C.”
First, his take on what’s happening in China, starting with the recent National People’s Congress:
“It was the National People’s Congress, but it felt like the National Technology Congress. China has gained a massive dose of self-confidence thanks to DeepSeek. That was evident in all the statements. This is a good thing, it lifts the mood. One gets the impression that they have not only narrowed the gap with the U.S. in certain areas of technology but have even caught up. And in a way that should also inspire Europe: You don’t need to put $500 billion on the table to play in the top league, you can get there by other means. There was an optimism that I hadn’t seen in China for quite a long time.”
Beyond this, he reckons there are green shoots of a stimulus albeit no bazooka yet from the Chinese government or the central bank:
“The clearest signal that they want to support the economy more strongly is the announcement that the fiscal deficit shall rise to 4% of GDP, compared to a target of 3% last year. But this is not primarily about stimulating consumption; rather, it is about restoring the finances of local governments.
….They have set aside 300 billion renminbi to boost consumption. But this is primarily for a program that allows people to trade in old household appliances for new ones at a discount. This is certainly helpful, but it only brings forward future consumption rather than creating new demand. It would be far more important for lower-income households to finally have more money in their pockets.
….We see some good news in the secondary real estate market. Purchase transactions are slightly increasing. In new construction, there is little activity, but at least the bottom seems to have been reached. In terms of construction activity, we are currently at about the level of 2010, which is around 40% of the level in 2019, just before the pandemic.”
He then shows why tariffs on Chinese goods are detrimental to the US consumer:
“The U.S. imports $550 billion worth of goods from China, which are now subject to tariffs of roughly 30%. That’s a lot of money that the U.S. is collecting. Trump’s art is to sell his own population the illusion that this money is coming from abroad, as if the Chinese are paying for it. That is, of course, not true at all. It is Americans who are paying these tariffs. They are paying more for everything. Here in my neighborhood, there is a store that sells kitchen and gardening equipment. I asked the owner what percentage of his inventory comes from China. What do you think his answer was? 90%. He is now simply adding 20% to his retail prices. Trump’s tariff policy will significantly drive up inflation in America.”
He then takes a shot what could potentially end the imbroglio:
“The big unanswered question for me is this: Will Chinese companies be allowed to invest in the U.S.? That would mirror the example of Japan in the 1980s: Japanese automakers were forced to manufacture in the U.S. if they wanted to sell their cars here. They did so well that today the local content of Japanese cars in America is higher than that of American brands like GM and Ford. Chinese companies in sectors like automobiles, batteries, or chemicals would love to invest and produce in America. But will the Trump Administration allow it? That remains open. Everything is very tangled. The big talk in Washington right now is about when Trump and Xi will meet for the first time.
….Of course, some people here in Washington are also wondering how Trump will act when he meets Xi Jinping, whom he obviously also admires. Will he simply give Xi everything? After all, one of his first acts in office was to ensure that TikTok was not pulled out of the US. I’m really looking forward to the first meeting between Trump and Xi.”
Incidentally Trump indicated earlier this week that such a meeting will happen soon.
However, Wuttke rubbishes the ‘Reverse-Nixon’ or ‘Reverse-Kissinger’ theory that is being bandied about. (the theory says by cozying up to Putin, Trump is weaning Russia off China, the real adversary much like how Nixon/Kissinger peeled off China from the Soviet Union during the Cold War).
“The Chinese have nothing to worry about. The Russians know exactly how unreliable Trump is and how reliable the Chinese have been in recent years. It is illusory to think that Trump could drive a wedge between Moscow and Beijing.
… Everything Trump does is received with great pleasure in China – except for the tariffs and export restrictions against China. The key question is whether he will weaken America’s alliances in the Asia-Pacific region, such as AUKUS with Australia and the UK, or the Quad with India, Japan, and Australia. An America in self-destructive mode is welcomed in Beijing. They are willing to endure some pain for that. However, I hear that some of Trump’s advisors have made it clear to him that Taiwan is important. TSMC is now investing another $100 billion in America. Naturally, this raises eyebrows in Taipei because the idea of the ‹Silicon Shield› is based on Taiwan being an irreplaceable supplier of top-end semiconductors.”
On the EU: “Trump has to be careful, because the EU can retaliate. Europe is by far the largest customer for liquefied natural gas from the U.S., for example. Trump also repeatedly claims that the U.S. has a trade deficit with Europe. However, if you look at services, Europe actually has a trade deficit with the U.S. When you combine goods and services, the balance is even. But Trump thinks in 1970s terms: He only sees trade in goods like cars and so on. He doesn’t recognize how important Europe is for the American service industry.”
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