US & China 'Need Each Other,' Says Caroline Freund

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00:00The news today, the one-year truce, where does that bring us in the context of the relationship

00:05between the U.S. and China from a trading perspective before President Trump took office

00:11for the second time? Is it back to what it was then, or is there still tension from his policies

00:17early on? Look, we have the world's top producer and the world's top consumer meeting, and they

00:26both have market power in their own way, and they need each other. And that's what we saw. It was

00:31effectively a game of chicken. Trump started it, and she stayed in the battle, and both just put

00:38on the brakes. I think we're close to pre-Liberation Day tariffs, not necessarily close to where Trump

00:45came in. There are a few tweaks, because we still have some of the fentanyl tariffs.

00:50U.S. firms are still facing this licensing regime on magnets. So there's still some things that are

00:58in place, but we're pretty close to the pre-Liberation Day tariffs. Caroline, what is

01:04more significant, what they did talk about or what they didn't talk about, meaning Taiwan,

01:08TikTok, NVIDIA's high-tech chips, those Blackwell chips, China buying oil perhaps from Russia?

01:14Like, there's some really important issues out there that felt like they were missing.

01:20Yeah, and I think we're going to see that going forward. There's going to be ambiguity on all of

01:26those difficult issues. But I also think there's market discipline on the worst-case scenario of an

01:35escalating trade war. So they both realized how much they need each other. The U.S. market is just

01:42impossible to replace. We account for 15% of total global imports. There just is no one else who's

01:51going to take that. China accounts for the same, 15% of global exports of goods. We can't completely

02:00replace China. So the countries have settled the deals that are in the areas that really matter for

02:08them right now for their economies. But we're going to see a lot of ambiguity on those much more

02:15complex issues.

02:17So were we played? Were citizens of both countries played? Were investors played? Did we kind of start

02:24at point A and go through the whole alphabet and then come back to point A?

02:28Yes. I think Trump has tried the kind of bullying technique, and it's worked with everyone else.

02:38Early on, it looked like EU would also retaliate. But they're just too dependent on the U.S. for

02:43security. And that's very important right now. So they didn't. China is equivalent to the U.S.

02:51and China said, no, we're not going to be bullied. We also have things you absolutely need.

02:58And now there's kind of a truce. And I think we'll see this muddling along with market discipline on

03:05both sides. It'll hurt the U.S. too much to really do a lot more on China. It'll hurt China too much to

03:12do a lot more on the U.S. But in this period, in this period of truce, the most important thing is

03:19that we work with our allies to develop secure supply chains. So we are not dependent on China

03:25for rare earths in the way we are now. So those allies, including Australia, Canada, where else?

03:34Yeah, exactly. So the agreement with Australia is fantastic. And we should be looking for more

03:43agreements like that. Latin America has a lot of rare earths that could be explored that we,

03:50you know, we're part of the Western Hemisphere. But we have a complicated relationship with some

03:54Latin American countries currently. Yeah, that's absolutely right. And so the strategy,

04:02we can't take on everyone at once. And China really is the biggest competitor,

04:10the biggest strategic threat to the U.S. And we should be working to have agreements with countries

04:19where we can both pull them out of the China sphere and where they have things we might need.

04:29You couldn't possibly be thinking about the U.S. shooting on Venezuelan ships, could you?

04:32Thinking about that, I'm thinking about, yeah, yeah, I'm absolutely thinking about that.

04:37It's funny, not funny, right? But I'm also thinking about Argentina.

04:40Yeah, yeah, exactly. It's complicated in a different way.

04:42Well, Caroline, and you know, I do think about the U.S.'s position in the world at large. Like,

04:47we still have trade agreements to be worked out with what used to be a big friend of ours called

04:52Canada. And yet that is still up in the air. What is, how does the rest of the world feel about

04:58the United States right now against China? Because I do feel like there is this thinking about

05:03China domination. And so people trying to do alliances to combat that. So is the U.S., as we

05:11see it, do that deal with Australia and maybe reaching out, realizing it can't do things alone.

05:17Are things changing a little bit in terms of the U.S. perception by the rest of the world?

05:21You know, I hope so. And I think if Trump leans into these agreements where countries haven't

05:31retaliated and goes forward in a respectful way, we could see that and we could see a lot

05:36more cooperation. But the problem is that so far, the U.S. has proven to be a kind of unreliable

05:44trade partner. Deals are made and then we back off from them and then new threats come up. And

05:51that's really problematic. So I think there's a lot of distrust, a lot of dislike with the U.S.

05:59and that's going to be a hurdle to overcome. At the same time, other countries need the U.S. market.

06:05Again, we're the world's top consumer and they need the defense from the U.S.

06:10So they will play, but it will work a lot better if we work on cooperative agreements

06:18than purely in this kind of bullying mentality.

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