Any resolution to the US-China trade war will not be worth the paper it is written on, according to Thomas Becket, chief investment officer at Psigma Investment Management, who says the American people have woken up three decades too late to the fact their position as the world’s dominant superpower is now on borrowed time.
Becket said that along with slowing global growth and the re-emergence of value in certain areas of the market, populism is likely to be one of the three dominant themes for investors over the next year.
Source: Psigma/IMF
He added that far from calming down, politics is set to get “even spicier” in 2019 and now poses as big a threat to the global economy and financial markets as at any time since the end of the Cold War
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“That might sound like a sweeping statement,” he continued, “[but] a revolution is still taking place beneath the surface of politics around the world. People think that populism is dead – tell that to the ‘gilet jaunes’ [yellow jackets] in France. That’s obviously not the case and I think we are going to see populism continue to rise in the next few years.”
He added: “I think it is interesting that when Emmanuel Macron was elected to become the president of France a couple of years ago, people said this was a victory for globalisation once again over populism and nationalism and that was wrong.
“I think the French are now realising the mistake they think they have made by electing Macron. I think that populism will continue to rise for the next few years.”
Becket (pictured) said that even putting Brexit to one side, Europe has proved itself to be the world’s problem economic and political area, with a growing divide across the continent posing a threat to investors in the years ahead.
However, he said the biggest source of unpredictability and concern is undoubtedly the relationship between China and the US.
Last year the US imposed tariffs of 10 per cent on more than £200bn of Chinese imports, to which China responded with tariffs on more than £100bn worth of goods from the US. US president Donald Trump had threatened to raise these tariffs to 25 per cent, but suspended this increase for 90 days at the start of the year in the hope that he could reach an agreement with Chinese premier Xi Jinping.
However, while there are hopes a deal will be brokered to end the trade war, Becket believes the primary aims of each country are incompatible with one another, making it unlikely, if not impossible, for a compromise to be reached.
“There were comments the other night from Wilbur Ross [US secretary of commerce] who appeared on CNBC – like many other people do, to talk huge amounts of nonsense – and he was talking quite positively about the potential for a resolution to the US and China’s trade spat,” Becket continued.
“I think any resolution you see is not worth the paper it is written on in all honesty. I don’t see how you solve in 90 days, the length of the truce they’ve got in place, a problem that is going to be a 90-year problem.”
Becket said that while the spat has been referred to as a trade war, it is in fact motivated not by the US’s trade deficit with China, but by intellectual property theft.
China trade surplus with US
Source: Psigma/China Customs Bureau
In this regard, the tariffs are being backed up by big business “who are pissed off to the back teeth from having their stuff nicked”, and the US citizenship, with the only thing that Americans can agree on in their entirety is that China is “mugging it off”.
Becket added that while this may sound unpalatable for the many people who don’t like him, Trump’s instincts on this issue are correct.
“This isn’t about trade,” he repeated, “this is about the fact the US has finally woken up, three decades too late, to the fact that China is going to surpass it as the world’s leader from an economic, financial, political and, ultimately, military perspective.
“That is now scaring the US politicians and the US citizenship much more than they thought it ever could do a couple of years ago. So, China has stolen a march on it and this is about the US trying to throw sand into the gears of the Chinese economic engine to try and stop that eventual victory that the Chinese are going to win.
“And actually this is the reason why I don’t think you get to a situation where the Chinese and the Americans come to anything sustainable in the form of a trade treaty in the next few years.”
However, this poses one final problem. The US government is currently spending far more than it brings in through taxes, widening its debt pile – and Becket pointed out that over the past few decades, the biggest buyer of US debt has been China.
“If the Chinese aren’t going to buy this debt, we need to ask who will be?” he finished.