(Preview) Bessent and an ‘Unsustainable’ Path; Making Sense of Hourly Madness; The PRC’s Message to the World; A Note on Canada
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Hello and welcome to Sharp China. I'm Andrew Sharp and you are listening to a free preview of today's episode. Hello and welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, how you doing?

I'm good. It's good to be back. How are you? How is everybody? Alive and sorting through the chaos. Am I right? Yes, you are. And I'm a little distracted because Tashi's upside down snoring. There you go. Well, I'm glad Tashi's life is not disturbed one bit by the swirling chaos as the two largest economies in the world. Well, I haven't told him his treats may go up. Shouldn't have said that word. His treats may go up. I checked the ingredients on two of his favorite treats and they have

Made in the USA Sourced from ingredients globally There you go I love that Shouldn't have said that word Is actually serious You know Tashi's ears will perk up In the studio over there So we have a lot to get to And at the same time

there are not that many updates from last week. I'm going to start with a morsel of an update. A headline came through on the Bloomberg ticker about an hour before you and I came on to record. Besant sees de-escalation with China, situation unsustainable, was the Bloomberg update. And then Bloomberg expands on that and says US Treasury Secretary Scott Besant

told a closed-door investor summit Tuesday that the tariff standoff with China is unsustainable and that he expects the situation to de-escalate. Besson added that negotiations haven't started, but that a deal is possible, according to people who attended his session at an event hosted by JPMorgan Chase & Company in Washington, which wasn't open to the public or media.

So what do you make of that report? I fear that this talking point could be rendered obsolete by a truth social post in a matter of hours.

But it's the latest twist we have. We're recording at 2 p.m. on Tuesday, Eastern Time. So I think... So this is World Bank Meetings Week. So you've got big investors, big sort of financial officials, central bank chiefs from around the world are in town this week. And so there are lots of meetings. This apparently was... JP Morgan held a meeting around that, a closed-door session. From the updated story, it also...

Besson says that talks haven't started, but he says de-escalation could come in the, quote, very near future. So what's interesting is the Chinese minister of finance, Lan Fuan, is in town for these meetings as well. There's no indication that they've met, but that certainly would be possible and I think would be seen as positive if there is some sort of conversation with him, even though he's not...

he's not the lead negotiator for the trade, but he's here and he's a relatively senior official. I think what's interesting, a couple of things. One is according to this Bloomberg article, the updated version, Besson told the audience that the goal, the US's goal is not to decouple from China and that the current status quo of 145% tariffs on Chinese goods and the 125 on US goods by China was not sustainable. So, yeah,

This obviously, the Trump administration is under a lot of pressure. The headline in the Washington Journal today was the stock market start in April is the worst since 1932. Great Depression time. So not really something that any president wants to be associated with. I think that if the Chinese have been trying to find people to talk to, but it is not at all clear that they've given any real signals that they're willing to compromise. And in fact, publicly, they've been saying the opposite.

So if this is just the U.S. Treasury Secretary saying these things to mollify or assuage a group of investors because they're worried about the market, you know, that is, I think, going to be seen in Beijing as a pretty significant sign of weakness. And basically our strategy, our strategy in Beijing has been correct to just hold firm, talk about how everyone loses, how the U.S. is making a mistake. And eventually the U.S. sooner rather than later will not be able to take the pain that this is causing and they'll have to come to the table. Right.

Yeah. I mean, excuse me. I have a, I did mention that word. And if, if you heard a bark in the background, I don't know. He's looking for a treat. I love it. Welcome to the show, Tashi. All right, buddy. Tashi, go, go back to bed. Come on. So my question is on the American side,

Um, it's not really a question, but more of a comment. And it's stating the obvious for people who have been incredibly uneasy with this strategy for the last month or so. Strategy is through strategy is generous. Absolutely. But in terms of where we are, uh,

It feels like the real implications of these tariff policies are only beginning to be felt, and it could be much worse a month from now. Right now, it's like the beginning of COVID where everyone is paralyzed and not sure what to do. But I think you're going to start seeing shortages. You're going to start seeing price hikes. But not yet.

Exactly. We haven't gotten there yet. And so the consequences could compound in the weeks to come. Absolutely. I mean, you saw that they already, the Trump administration already gave a big exception to Apple and other sort of phone computer makers. I think it's worth about $100 billion of imports from China. So already you had a pretty significant, like not quite 20% or so of the

imports from China that are exempted. Yesterday, I think the leaders of the CEOs of like Target and Walmart and some other big retailers with the White House obviously plead their case for exemptions. There's a lot of pressure from the business community on the administration. There's a lot of pressure from investors because investors are just running away.

And maybe Congress as well, you know, I mean, because this is going to have election consequences as early as next year. No, no, it's possible. And so I think that, you know, we'll have to see again during this week, it's Tuesday now, if there is any sort of contact between the White House and say the Minister of Finance or one of the other more sort of relatively senior officials who are in town, you

That, I think, would then – certainly markets would be happier if it looked like there was going to be some sort of a walkback from this US-China trade war. But again, I don't think this messaging, the way this leaks, talking to a meeting of big capitalists in DC, certainly, I think, again, from Beijing's perspective, this is like our strategy is working. We just wait them out. They can't handle the pain. Yeah.

Yeah. Well, and, and you also want to be careful, like is Besson just telling those people what they want to hear and is Besson in charge? Um, I mean, there's so many unknowns. All true. Yeah. It's just really difficult to sort of separate the signal from the noise on any of this. Um,

On the PRC side, on Monday, you wrote, I am hearing more discussion that the PRC side is getting nervous about the U.S. pressure and is trying to find people who can help figure out if an off-ramp is possible. Do you have anything more to add on those efforts? Are they basically searching for the right intermediary still? Just still sort of trying to find a way to actually have a discussion in a way that is... And again, I think the Chinese...

I do think the Chinese have set up to be able to wait longer and absorb more pain, but I don't think there should be any question that they want to be where they are right now. They would like this to go away or be mitigated as much as possible too.

So, again, I think there still remains a problem of who can they actually find to talk to who's willing to either be an intermediary with the Trump administration or who in the Trump administration can have these conversations. To your point earlier, who's really in charge? And that's why, you know, President Trump wants to have a conversation with Xi himself.

That's unlikely the Chinese would ever agree to that until they've done a lot of prep work beforehand. Yeah. So anyway, so I think that this week could be interesting given the sort of the lot of central bankers are in town, a lot of finance officials are in town. There are Chinese officials here.

This is also, I think, you know, the White House, assuming that the Secretary of Treasury wasn't going off the reservation, sort of, you know, ad-libbing his own comments, the White House should have or must have known that this would be seen as a signal that they want to talk. So maybe that will clear the way for some sort of conversations this week that would potentially move towards facilitating a broader conversation. It is interesting that in this Bloomberg article, which is, again, recounting what, I guess, attendees thought

told the reporter, the report also says the Treasury chief told attendees that a comprehensive deal between the two countries could happen in two or three years. Okay. So that's a long... I mean, that again, you know,

That sounds a little strange, but then it also kind of goes back to, if you think back to the first Trump administration and how those negotiations worked, there was a lot of attempt at shock and awe and a lot of drama and all this big talk about, you know, forcing the Chinese to agree to all sorts of structural changes that the U.S. wanted.

And basically the Chinese at the end of the day, they just agreed to buy stuff with a handful of sort of changes on the margin. And so, and then the administration, you know, they went through all this pain and drama and then they kicked the hard stuff. They just kicked into phase two that never happened. Right. You know, maybe back in the same boat and we might, you know, and then we had COVID then Trump, you know, we may be back in the same boat.

Yeah, and it certainly behooves the PRC to just kick the can down the road and hope that there's a change in leadership. I mean, there's definitely, well, not definitely, but probably going to be a change in leadership in 2028. And it would behoove the PRC side to extend this out as long as they possibly can. Well, so even the midterms, I mean, the Chinese side, they're very aware of how the midterms work and very aware that...

as you pointed out earlier, you know, the real impact of the tariffs on Chinese goods has not really hit yet. And so if we continue it, what the Besson effectively said was like a trade embargo on both sides, if this really starts to actually come into play,

Then I think you might start seeing some real pain across the U.S. and certainly in some of the Republicans' constituencies that could, again, not bode well for the Republicans next November of 2026. Yeah. So their timeline is definitely not just to 28. It's really 15, what is that, 16 months, 16 and a half months.

Yep. And it's funny because I know that the CCP and the system just isn't wired for Xi to pick up the phone and have a conversation with Trump and try to work things out with Trump.

But I do find myself wondering sometimes whether strategically speaking, if there are aspects of the Trump administration that are intent on isolating China and approaching all of this strategically and really weakening China and dragging this fight out.

I get the sense from Trump that he does want to do a deal. He continues to talk about doing a deal every single day. And I wonder whether just going directly to Trump would be the best way to sort of short circuit all this tension.

But that's not what she would ever do here. And that's probably not the way this would be resolved unless I'm missing something. No, I mean, again, it would be a... Honestly, it would be a masterstroke in some ways because it would completely disarm Trump. But it's just not how she and the system seem to work. Maybe they'll surprise us. Yeah. You know, I mean, early on, I think we had one of these conversations where it was like, if look, if...

we got to write a memo to Jolena Hyatt and be like, just pick up the phone and call the guy. And while you're on it, honestly, make it- That would be my advice, honestly. If I were advising Xi, I know his advisors want to be very meticulous about the preparation, but I just think the best way out of this would be to pick up the phone, flatter Donald Trump, make some concessions, and perhaps

handle it that way. And he'll flatter you back, but that's not how they roll. And so, again, I hesitate to make any predictions because, as you said, whatever you say could be undone on True Social. I have the page open. So far, there's nothing. So we'll see. The market is up, right? Thank you for your vigilance.

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