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

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1:23Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Allaway. Tracy, it is April 22nd. It is 12.09 and 52 seconds as of the time that I am talking right now. Soon we'll have to do fractions of a second. Yeah, I know. The market is actually up today. We're recording this on Tuesday. We just got a headline. Apparently, Treasury Secretary Scott Besant at a J.P. 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 clarity, you know?

2:05That the two biggest economies in the world are going to go completely head to head. Right. Like, because if I mean, this is really the story, right? Even with the walk back on April 9th, the week after Liberation Day, even if we're not getting any deals yet, at least so far, we haven't gotten a deal with India. We haven't gotten the deal with Japan, let alone the EU. But, you know, 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. Right.

2:36I 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 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 reasonably say that we would want some sort of I was about to say peace deal.

3:18Between China and the U.S., peace deal isn't right. Some sort of reconciliation. But the path to getting there seems like very confused and uncertain to me. 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, a detente of some sort. And look, we both know the stakes, right? Because the U.S. relies substantially on China, both for finished goods of all kinds of things that U.S. 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 U.S.

3:56consumer. And so we've seen all the TikToks of factories in China, you know, trying to figure out ways to go direct to the U.S. 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, you know, who blanks first? Anyway, there's a potential, you know, 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. Right. Well, I'm very excited. One of my favorite guests, I've talked to him. We've talked to him on the podcast before.

4:31I'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 going to be speaking with David Wu. He is the CEO of David Wu Unbound. 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 AdBots. Thanks for having me. It's a pleasure. Is this a type of war that we're seeing right now? You know, trade war, you know, it seems like the obvious thing.

5:06But like how aggressive, how provocative, how combative are Trump's actions against China? I think it's very combative. I think this is much more than just a trade war. I think this is war, actually. And 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. And I think in a way, you know, it's actually very interesting. In a way, Trump is picking up where Biden left off. Who picked up where Trump left off, right? Okay, let me just take it back for a minute. Let me explain better what I meant by that sentence, right?

5:44Under 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 that U.S. and China were in basically dead heat in first or second place in all the leading technologies in the world. And soon after that, Eric Schmidt went on a PR or political campaign across, you know, the beltway, essentially lobbying every congressman, every senator who listened to him that this is time to basically stop the access.

6:30of China from advanced technology so that the U.S. has a chance to essentially regain the leadership. 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 manufacturing equipment for advanced semiconductors. All that was meant to basically give the U.S. two to three year, basically like head start, OK, in A.I., 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 seek news.

7:13The deep seek news basically was a massive piece of news. I mean, it was a game changer. Let me tell you this. I mean, deep seek 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 okay to the extent that if these sanctions were designed to protect the monopoly of the big u.s tech companies okay all of a sudden yeah that meant nothing because anything that could be copied is worth nothing commercially and this is the reason why by the way i you know the day the deep sea news came out i shorted basically nasdaq and it's you know 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 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 i mean let's be honest when you're talking about the 145 tariff yeah you're not engaging the trade war you're engaging in basically economic murder i mean that's it i mean i don't to see how China is going to be able to export anything to the U.S.

8:44with a tariff 145%. So I think from that point of view, this to me was, I think 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 U.S. 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. 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 seek and you kind of suggested that some of the severity of the action taken on China was because of the deep seek threat.

9:28But 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 DeepSeek with some of the policies that we've seen coming out of the administration? Can you make that direct link? Crazy. I think that's an excellent question. But let's think about this for a moment. OK, I've always said, you know, listen, I'm probably the only person, you know, like has been on your show, who's read the back to back 100 page, you know, essentially face one agreement that was signed between Trump and the Chinese back in 2020. I bet Dan Wong is ready to.

10:02But anyway, you're the other one. Keep going. Keep going. 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, 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 the 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 meant. Now, in my humble opinion, the difference between Trump and Biden is that whereas Biden saw the U.S.-China rivalry as largely a zero-sum game, that is, if China wins, we lose.

10:42If 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? 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, you know, on the inauguration day. And that was when he announced a 20 % tariff on Canada and Mexico over the fentanyl.

11:20Okay. And he was asked during that press conference, why not China? You promised to eat China hard. So why did you decide to hit Canada and Mexico, but not China? 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, like, you know, basically the tariff was extended for Mexico and Canada and China was hit by 20%. Okay. And then the list goes on and off. In my humble opinion, you know, again, we we're sitting here and thinking that Trump is in the driver's seat.

12:00I don't I think at this point, Trump is no longer the 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 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 higien bing 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.

12:54And I think, you know, we could 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.

13:17Your best restaurant location gets five-star reviews. How do you make every location like your best location? Your best paper mill has been operating at peak productivity. How do you make every mill like your best mill? Your best data center has optimized every drop of water. How do you make every data center like your best data center? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one, Easy Cater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

14:03In addition to all that variety, Easy Cater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. So first of all, 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 or 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, etc.

14:52When he pulled that chart out on Liberation Day, April 2nd, 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 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 boyers characterization. Oh, it's the it's the Navarros of the world. It's the Vance's. Trump is blah, blah, blah. And I tend to not find those things.

15:28But just convince me that Trump is not a zero sum thinker when it comes to. I'll convince you. By the way, I want to say this. There's a big difference between China versus everybody else. Okay. I think Trump understands that everybody else, he thought that the U.S. is so big, he could just push them around. I think China is a very different story. Just think about this for a moment. The day that he unleashed whatever on, I mean, whatever the tariff schedule on Liberation Day. April 2nd, yeah. China was only hit with a 25 % tariff. Yeah, that's true. Which is actually right in the middle of the range, by the way.

16:03It's not like he did China with 30%. I I mean, listen, I mean, Thailand was 29 percent, Switzerland, 35 percent. 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. You know, I mean, because again, you know, 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 like literally knock the other guy dead. And I think Trump feels like this is the reason why. I mean, you know, I think Mexico is a great example because Mexico, unlike any other country, has literally been bending forward, backward to meet Trump.

16:44Like, forget about half the way, like 99 percent of the way. I thought Trump should have granted a deal to basically shine bomb literally like three weeks into his presidency. He loves shine bomb. And he didn't. And the reason is because apparently he saw Mexico as being a push around. OK, what's 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 didn't, you know, as you know, I've got a YouTube channel now, you know, and I was trying to basically, I'm trying to upgrade my lighting.

17:26So I wanted to buy this very expensive light. This is a sort of very high end light. The half manufacturing in China. So you need one of those circle lights, like a ring light, like a proper influencer. This is much more than a ring light. I'm talking about this is a professional, basically a 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. I mean, that's just a fact, right? So they don't just make the low end stuff. This is really high end stuff. And as you know, I live in Israel now. And I mean, there's no inventory of this light in all of Israel.

17:57I literally got in touch with every store, the importer, nothing. So I decided to call up B &H in New York. Of course, they have it in stock, even though it's from China. And guess what? It costs 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 &H guys, what about the tariff? He said, well, you know, listen, we're not raising prices until we've actually depleted our stock. Hmm. But the point I'm trying to basically tell you is like Americans have not even begun to feel the even iota of the tariff.

18:36I 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's 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 you know the 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 i think you know in a way i think you know the pain is like absolutely And I think this is where Trump is very misinformed, by the way.

19:25I truly believe Trump is surrounded by some really terrible advisers 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, you know, they misfired. 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 what 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.

20:07And that, unfortunately, I don't care where Pete Navarro got his PhD, it's worth nothing. His degree is not worth a piece of papers written on. But let me tell you one. 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 continuing to export to the U.S. at whatever price they were selling previously to 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 the fists in basically i mean you know hasn't basically did not apply additional reciprocal tariff on Mexico is because Mexico had already agreed to adopt the same U.S.

21:12tariff on Chinese imports. So this time, this is why Southeast Asia got hit really hard this time, you know, in the reciprocal tariff. It's because precisely Navarro and others, they understand they need to, 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 % pass through in terms of prices. In fact, the Chinese government apparently has decided that the more pass-through, the better. The reason being that, you know, 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.

21:54The reason is because I think from the Chinese perspective, they think that once the price effect associated with the tariff is unleashed onto the U.S. economy, onto the U.S. 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 at round two. Round two, you know, you could argue that China enjoys the advantage insofar that time is on their side. And I think, you know, I think things are going to get very obvious.

22:29I have many questions, but just to start with, OK, 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? 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? Yeah, Tracy, I think it's a very good point.

23:08You see, again, whether it's Trump or somebody else around him, I think it makes a very big difference. And 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 it 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, you know, let me tell you this. At the beginning of his presidency, Polymarket was giving a 70 % chance that he was going to stop the war basically by 100 days into his presidency.

23:52And now it's right now currently less than 3 % chance. Now, this is why Trump went on this, you know, trauma offensive with Putin, that he appeased Putin. It literally was, you know, I'm not going to use any more exaggerated adjective 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 thrown 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.

24:35Even 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 Wyckoff is now proposing, by the way.

25:17Capping 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 on Russia, basically, and 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 this administration, which means getting tougher on China. In my view, there is very little. I mean, you know, I feel sorry for Scott Besson. Scott'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 doesn't hate China in that sense.

25:58But 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 U.S. is roughly around 5 % of Chinese GDP. If you look at both direct and indirect, you know, 40 % of Chinese industrial production. But more importantly, it's the fact that the Chinese economy is already on its knees. You know, 40 % of GDP's investment. If we can somehow decimate China's export, then we can basically bankrupt their business model. And then, you know, the whole economy goes into recession and who knows what happens.

26:35And 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, you know, 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.

27:08And Trump right now is having to essentially see the ground to that 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. 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? I think, you know, listen, I mean, Politico actually write a very interesting story, actually, on Friday, Saturday, okay, which I think makes sense.