Episode 350： US China Trade War Explained
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Summary
Trade war between the United States and China could be the biggest trade war in history. What are the reasons behind this trade war? Why is this happening and what is the purpose behind it? Why does China want to trade with the USA?
Transcript
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30 seconds. One time for the underdog. Ignition sequence start.
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Let me see you put them up. Reach the sky, touch the stars up above.
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Cause it's one time for the underdog. One time for the underdog.
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I'm Patrick Bedeby, host of IITEM, and today we're going to talk about the U.S.-China trade war
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and seven reasons that could possibly be causing this trade war.
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So before we get right into it, let's first talk about the word tariff,
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what it means and why countries put a tariff on other countries to import their products in.
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So first, a tariff is a tax. For instance, you bring your products from China to U.S.,
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I put a 25% tariff on this product. So if you bring $100 billion,
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you're going to have to pay another $25 billion. On top of that $100 billion, that's the tariff.
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This is why you'll notice a lot of times where when people come here from Europe,
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they look at a Camero and they say, oh my gosh, that's such a luxury car.
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It's an exotic car. Look at that. But Americans look at Camero and they're like,
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just a Camero you can buy for $20,000. But Europeans don't pay $20,000. They may pay $40,000 for it.
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Just like when Americans go to Europe and they say, cab drivers driving around a Mercedes.
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Cops have Mercedes. What is this all about? Because what a Camero is in U.S.
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is exactly what a Mercedes is in Germany, right? So part of tariff is to protect the businesses in
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your country so the business flows through your job creators, not somebody else's. But you're
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willing to allow them to come in and compete. So that's a tariff. Now, trade deficit. What is a
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trade deficit? This is where a big part of this war started taking place. Let me explain to you
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what a trade deficit is. Here's U.S. trade deficit. U.S. imports $3.1 trillion in, meaning countries around
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the world want to do business in America. And America allows them to come in, last year $3.1
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trillion. Now, U.S. gives other countries only $2.5 trillion. So 3.1 coming in, but only 2.5 going
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on. Now think about this. U.S. is only 330 million people around the world. The world has another 6.8
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billion. But there's the same amount, business being in U.S. and out, because everybody wants
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to be in America. So that creates a $600 billion deficit. Now, added this $3.1 trillion that
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comes in, $539 is China, which is 17.3%. But out of our $2.5 trillion that goes out, only
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$120 billion is China, which is 4.8%. Meaning, China is giving us less than we are giving them.
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China's making more because we're allowing them to compete in America way more than we
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are doing in America. Somebody may say, well, it's not like they're not allowing you. They
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just don't have a need for you there. And you would like them to come here because of cheap
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labor and all this other stuff. Let me continue. The total deficit, again, $621 billion. But
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out of the $621, $419 is China alone, which is 67% of the deficit. 67% of the deficit. So, President
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Trump is sitting there saying, well, wait a minute. Wait a minute. Why are we giving
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them so much money? And why are we not getting anything for this? Why are we not doing it
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in America? Why are we creating jobs over there? Why are we not keeping this to ourselves? Why
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are we helping their economy? Aren't they trying to compete with us? Aren't they coming up
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from like nobody to now, number seven, number eight, number five, number four, number three,
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number two? They're wanting to compete with America. What is going on over here? No, no,
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no, no, no. Let's find out what we produce well. We export grain, wheat, corn, soybean,
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meat, pork, poultry, mechanical parts like chips, different kinds of things. China exports
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electronic parts, wooden furniture, aluminum car parts, fashion accessories like the handbags,
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seafood. That's what we're looking at. Okay. So that's what we export. How come we're not
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doing more? Why are we giving them so much money? Why are they doing so well? We're helping
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them. Aren't we helping them become closer to us? I don't know why this is taking place.
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So, you know, what are the reasons for this trade war? Why are we doing this? What's the
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purpose behind it? Here's what you got to realize. Anytime you're dealing with politics,
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you're dealing with power. Motivation for business owners is money and freedom and financial freedom
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and control. Leave me alone. But when it comes on to politics, power is key. Then it's economy.
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Then it's politics, which is ideology. China is trying to say our ideology works because we have
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the kinds of people that follow what we tell them. We are leaders. We tell them what to
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do and they do it. America is weak leaders because their people always tell them what
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to do. You know, the voters always tell them what to do. And you always know what America
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is doing. America, matter of fact, everyone knows their bad news because they have freedom
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of speech and they have freedom of press. China, we know everything America is doing. America
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has no clue what we're doing. We are more powerful. And America is trying to say, hey, people
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are better if they have a freedom of speech. Let Americans speak. Let us have freedom of
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press. You know, we believe we have a better empire. There's a bit of an ideology going
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on there with communism and capitalism. They have obviously competition. Everybody's competing.
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You got money. You got market. You got control. Now, all that being said and done, what's
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President Trump's motivation? Some people are saying, why did he all of a sudden start
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picking on China? It's not a new thing. In 2014, when President Trump wasn't President
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Trump, he was Donald Trump, aka Apprentice, you're fired. Here's what he tweeted in May of
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2014. Remember, China is not a friend of the United States. Look at how many likes this tweet
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got. And it was only retweeted 345 times. You know what that means? Nobody was really paying
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attention to what he was saying about politics back then. But this China thing is not a new
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thing with President Trump. He's been thinking about this for a while. So now, what is he
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wanting to do? What's his motivation behind this? What is he doing? Is it the fact that he wants to
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keep manufacturing jobs in the U.S.? Is that what it is? Is it the fact that he wants to
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reduce the U.S.-China trade deficit? Maybe he wants that $4.19 to go lower? Is it the
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fact that he still wants to keep U.S. as the dominant power, doesn't want to give
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anybody else a shot? Maybe it's the fact that he's trying to get U.S. out of debt.
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Because, you know, U.S. owes China $1.13 trillion of debt. And it used to be $1.3 trillion
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in 2013, and it's $1.13 trillion. Maybe this is a way for him to learn to get out of
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this debt because he's used to eliminating debt. They used to owe a billion dollars to
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a bank. And this is maybe his comfort zone. It's like, I'm okay with this. I can handle
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things like this. Maybe it's him bullying the bully. A lot of people are afraid of China.
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A lot of people are saying, well, I'm not going to say anything because we need them. We need
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them. We need them. There's only one country that maybe doesn't need China, that maybe China
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needs more than they need them. And he's like, well, my position, I'm going to get out and say
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something about this. And I'm going to bully the bully. Maybe that's what it is. Or maybe it is
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the vision that China launched back in 2015 to their people called Made in China 2025.
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And here's what Made in China 2025 was. Some may say this is brilliant. Some may say it's
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manipulative. But all I can tell you is this 100% benefits China more than anybody else.
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So part one of the five-point game plan is setting explicit targets. Here's what that means.
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Chinese government is pressuring private companies to adjust their vision to China's 2025 vision.
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So saying, here's what we're doing. We would like you to do anything you do with your company
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to help us reach this vision as a whole. Which some may say, okay, that's cool. That's a visionary.
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Somebody else says, why are you pressuring us? You know, why are you making us do a lot? Maybe
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we want to do something else. But that's what China's doing. Number two, providing subsidies.
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$300 billion investments. This is going to be very low interest rate loans. Whatever they can do
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to help these businesses grow. We're talking $300 billion of China's going to lend, give, invest into private
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companies. Right? Number three, it's foreign investment and acquisitions. Government is
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encouraging companies to invest into semiconductor firms to gain access to their technology. Well,
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what do you mean? Well, we want you to go buy and invest into semiconductor companies in U.S.
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so we find out exactly what they're doing with their technology. And you know how much they put in
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2016? $45 billion into U.S. companies. And they invest in like, oh, this is what they do. Let's do this
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in China. Oh my gosh, this is what they do. Let's do this in China. That's the third one. Point number
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four is mobilizing state-backed companies. What does that mean? State-backed. Meaning companies
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that are owned by the government. This is kind of like, you know, CIA investing into Facebook. I mean,
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imagine if that happened to America. CIA is wanting Facebook to do better because they get all the
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data because that's where all your information is. That's one of their game plans. And last but not least,
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point number five, which is probably the one that's concerning the most people. EU is not happy about this.
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Central America is not happy about this. Brazil is not happy about this. Middle East does not
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happen. A lot of people are not happy about this. Here's what it is. Number five, forced transfer
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agreement. Here's what this means. If you choose to do business in China, they are forcing you to share
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all your trade secrets with them. All. You're Boeing. You want to go into China? You want to do business
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out there? Guess what, Boeing? Share all your trade secrets with us. Then we're going to go design our own
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Boeing. That's what China is doing. And this right here got a lot of people concerned. A lot of people
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are saying, wait a minute, that's not fair. You know, you can come and do business in our country.
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We don't ask you to do all this stuff. You can come do business here. But if I want to go do business
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in China, I have to share with you all my trade secrets. Yes, that's the game plan. Why are they
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doing this? Here's why. U.S. is good at, you know, ideas and innovation. U.S. is good at free market
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competition. They don't mind competition. They want new companies coming out there competing with the rest
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of them. U.S. is good at technology. China, on the other end, they're good at cheap labor. Very
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cheap labor. You hear a lot of these videos and these stories about what it takes and how hard
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kids work and how much money they're making per day. But they're good at cheap labor. And a lot of
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people say, wait a minute, if I can get somebody to work with me for $5 a day, here you go.
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They're good at copying. You hear a lot of times, here's Nike, but you got another one made in,
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you know, China's version that says Nicey or whatever it's called. But it's a similar kind of a whoosh.
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They're very good at copying products, right? But they're also very good at manufacturing. So it's kind of like
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they're good at copying, but they're good at manufacturing. So maybe we need them. Why are
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you doing this? They find out about a product. They unpack the product. Then they make the same
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exact product for a fifth of the price. We're not helping ourselves. What is going on over here,
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right? So U.S. knows this is taking place. And this is why it's leading us to who is this hurting
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the most? A lot of people are concerned. I think this is hurting a lot of people. Well, who's hurting
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the most? Who's taking the biggest hit? So we were saying other foreign relationships,
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some of these tariffs that Trump imposed on other countries, immediately Brazil came
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out, wait a minute, that tariff you put on China is hurting us. Then Trump came out and
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said, okay, this tariff excludes Brazil. Then Brazil took their tariff down. So, you know,
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U.S. put a tariff on to China about certain products. Canada, Mexico came back and said,
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wait a minute, this is hurting us. We are threatening to put an impulse to U.S. on such and such product
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that you import to us. Then Trump's like, okay, this tariff is only China, right? So a part of
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this is also hurting relationships with other countries. Number two, it's hurting the small
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business owner. A lot of these small business owners are relying on buying a product for a
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certain price and selling it for retail to make money. Wait a minute, I'm having to pay more.
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I'm having to spend more. I'm not making the same kind of profits. Number three, farmers in U.S.,
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just between January to March, two months, three months, farmers in U.S. lost $11.8 billion
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in three months. Farmers. By the way, in, I believe it's Illinois, Wisconsin, and Indiana,
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highest rate of bankruptcies in the last decade in those areas. They are taking a big hit. And
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obviously, consumers are also taking a big hit. And, you know, you hear the whole thing,
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wow, you know, it's short-term pain for long-term gain. This is why we're doing this,
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because we're going to have long-term gain. No one really knows this. We are currently in the
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short-term pain process. We're not yet in the long-term gain process. So having said this,
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some of the people say, wait a minute, Pat, you know, what about this fact that, you know,
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what if China realizes that, hey, if you want to play this game with us, don't you owe us $1.13
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trillion? You know, what if China sells their debt? What happens there? Could that affect the U.S.
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economy in a massive way? I mean, let's face it. China's got $1.13 trillion in T-bills, tenure,
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treasury bills, treasury bonds. And the current rate, I believe, is 3.4%. And by the way,
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U.S. also owes Japan, I think it's $1.07 trillion, and U.S. owes Brazil $308 billion,
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and U.K. $284 billion, and Ireland $274 billion. What do we do? What if China sells the debt?
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What if they do? Here's what happens if China sells the debt.
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What happened in 2008? The massive market crash that we faced in 2008 in the U.S., where the market
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tanked nearly 40% in a year. I'll never forget that. I'm in the financial industry. I'm a Series
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7 financial advisor. And we're like, boom, 38%. Clients calling, calling, calling, calling.
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As bad as that was, it's going to be worse if China does this. And you know who affects the most if this
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happens? China. China's going to take the biggest hit. China will be one of the ones that takes the
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biggest hit in this. Why will China take the biggest hit? Because remember, if that happens,
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what are they going to do with this? This is a big part of the economy. $539.5 billion. So now
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you're listening to this and you say, well, Pat, who needs who more? Who needs who more? I mean,
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U.S. relies on the cheap labor. Let's face it. We need them. And China kind of relies on us for our U.S.
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goods. They need us, but who needs more? So here's the part that President,
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Trump is used to. If there's one thing President Trump is used to, he knows negotiation and he
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knows leverage. This is what I mean. He may not be the most, you know, likable guy out there in the
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world. Not a lot of people like this guy. And it's for obvious reasons. He goes after people
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hardcore, but he knows leverage. What do I mean by leverage? He knows these guys need it. I mean,
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one time President Trump owed a billion dollars to the bank and somebody asked him and says,
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aren't you worried that you owe the bank a billion dollars? He says, why should I be worried?
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The bank should be worried. I have their billion dollars. They're the ones that should be worried.
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So he realizes China should be worried. They have our 1.1. We have their 1.13 trillion dollars.
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And in this entire leverage game, China also has to realize their net migration rate,
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which is how many people are moving to China, how many people are moving to China,
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is one of the lowest net migration rates in the world. It's in the negative. While U.S. migration
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rate is the highest in the world. We take more immigrants than any other country in the world.
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It's not even close. We're number one. Even though you hear all this stuff about immigration,
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everybody in the world wants to come to America. Not everybody in the world is wanting to go to China.
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Why is that? You know, this whole thing that you hear, if you go search right now, forget about
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where I'm at. Go search right now, China's unemployment rate. And look how weird it is.
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The last 20 years, 3.4%, 3.5%, 3.8%, 3.2%. How do we know that's accurate? Remember,
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free press in U.S., there's no free press type of stuff going on in China. You don't hear Democrats
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and Republicans going at it. One of the best things for America is the fact that we have Democrats going
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against Republicans and Republicans going against Democrats. There's always this push so you can kind
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of sit there and say, there's the truth. There's the truth. There's the truth. Oh, these guys are
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playing the games. There is none of that. Some people say the unemployment in China is around 14%,
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13.14%. By the way, CNBC did an article saying a third of millionaires in China want to leave for
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three reasons. Number one is education. Number two is polluted cities. And number three is their
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government has way too much control over their people. So what's going to really happen here?
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How long is this really going to last? Because when you're looking at the same, well, Pat,
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I don't really understand what's going to happen. Here's the reality of it. It's really who can hold
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out the longest right now. Really. Who can afford the longest right now? You know, when the mortgage
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crisis took place and a lot of people lost a lot of things, there were also a lot of people that
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became very wealthy afterwards. You know why? It's because who had the most cash and who was the
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most stable? In this situation, whoever's most stable, whoever has most cash, whoever needs the other
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person less is going to win here. And eventually someone's going to come out of it. Because what
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President Trump is starting to realize is he's saying, wait a minute, what if we make those jobs
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come to America? What if we do manufacturing in America? What if, what if we bring those jobs back?
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Well, what if we make all that money come back here? Well, what if we're making iPhones here?
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And forget about what if we don't make them here? How about we go to another country that doesn't
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offer high tariffs? How about we go to another place that's not offering us as expensive as it is?
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Why don't you go to another Asian country that's out there? But don't go to China.
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Because he realizes this vision that China has, they want power. They want domination.
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They want to be number one. And President Trump is extremely competitive. And he's not okay with
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that happening on his turf. Could it happen 10, 20, 30, 40, 50, 60 years from now? I don't know.
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I can't predict the future. What I can tell you is this trade war that's going on, it's all about
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leverage. And whoever has the most leverage is probably going to end up winning at the end.
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Thanks, everybody, for listening. And by the way, if you haven't already subscribed to
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