James Gorman: «There's a Resetting of This Relationship»
Resolving trade issues between the U.S. and China would take decades, but there's too much self-interest at stake in keeping trade between the world's two largest economies from flowing.
China and the U.S., the two largest economies in the world, are not doing themselves any favors by engaging in a trade war, and stakeholders on both sides understand this, James Gorman, Morgan Stanley chairman and CEO, said on «Bloomberg Daybreak: Asia» on the sidelines of the U.S. bank's annual China Summit in Beijing.
«There's a resetting of this relationship, which makes sense after 30 years of incredible economic growth in China. There are certain things on the trade side that need to be addressed, which aren't being addressed. But as a betting man, do I think this will turn into a full-blown trade war? No, I don't,» Gorman said.
Consumer Sentiment
He added that negative news globally – British Prime Minister Theresa May announcing her resignation, shock election results in Australia, and more – are triggering market reactions. «The market itself, on core fundamentals, is fine. The issue is the market psyche,» Gorman said, citing low unemployment levels, muted inflation, and liquidity in the market.
So far, consumer sentiment in the U.S. has remained strong, along with corporate earnings and profits, but as the trade war drags on, the yield curve has been sliding further into inversion. This happens when long-term rates are lower than short-term rates, and has historically been the key predictor of a recession.
Rare Earth Bargaining Chip?
On May 10, the U.S. raised tariffs on $200 billion of Chinese goods from 10 percent to 25 percent. China responded, saying it would increase duties on $60 billion of U.S. goods by June 1. Tariffs on thousands of U.S. goods will rise to 25 percent, from 10 percent currently.
On Wednesday, the South China Morning Post reported that a Beijing spokesperson said China would not rule out using rare earth exports to the U.S. as a bargaining chip in trade negotiations.
The country is the world's top miner and refiner of rare earths, used widely in the manufacture of consumer electronics, semiconductors, and military equipment, accounting for 90 percent of global production. The U.S. is also the largest importer of China's rare earths. So far, it is one of the few categories of products that have avoided tariffs, despite the Trump administration's threats.
