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What Trump's trade war is really about

Aug 25 2018 10:30
Carin Smith

Cape Town - China wants to be the number one technology country in the world by 2025.

That - and not steel - is the real reason behind the US trade wars, in the view of Joanne Baynham, head of global investment strategy at MitonOptimal SA.

"China will not give up on this goal. That is why I think the trade wars will still continue for a while," she said at an international retirement seminar hosted by Sovereign Trust in Cape Town on Friday.

She said China was a rapidly rising knowledge power and the valuation of Chinese companies like Tencent and Alibaba were examples of how fast China is moving up in the tech space.

The US even announced plans to shorten the length of visas granted to Chinese citizens studying specific tech fields.

According to Baynham, there is an increasing trend of students from China completing their tech studies in the US and opting to return to China instead of staying on to work in Silicon Valley. This is due to what they see as China increasingly outpacing the US in the tech field.

"I think that if the trade war rhetoric gets worse, the Chinese will start loosening the monetary tightening they have been doing and open the flood gate again with massive fixed capital spending," said Baynham.

Conundrum for SA

For her the big conundrum for South Africa is the expectation that slowing economic growth in China will impact the country along with other emerging markets (EMs).

Yet, despite media headlines creating a picture of doom and gloom, the global economy is still growing quite strongly, she said.

Small business confidence in the US is at an all-time high, the US economy is booming at the moment, jobs are created, and many Americans just love President Donald Trump.

She pointed out that there are concerns, however, that the US economic growth comes from fiscal spending and massive tax cuts, which will have to end at some point.

Yet, Baynham’s view is that worries about the US heading for a recession is probably a bit extreme. Higher economic growth does not always lead to recession, she explained.

As for Europe, she said its economic growth is slowing more than that of the US. The global trade wars also have a big impact on Europe.

Global trade is falling already and the world economy will be worse off if the trade wars get worse.

For her the situation SA finds itself in as an EM is not the same as that of Turkey. SA’s debt is quite long-term and does not have to be paid off "tomorrow", she explained.

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donald trump  |  sa economy  |  tech  |  world economy  |  trade war
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