When you talk with chief executive officers about what's happening with Trump and China you find them divided into two camps: one, the camp that says the Chinese are impossible to deal with, they steal with impunity and know that you will have to accept their own ridiculous terms or else, and a second camp which says the Chinese are impossible to deal with, they steal with impunity and know that you will have to accept their ridiculous terms but at least President Trump is trying to do something about it.
I find the uniformity of disillusion and derision of China to be astounding. There is a firm belief that something has to be done, something, and at least Trump has a plan, however flawed, it's a plan.
Now what I find to be most incredible is you always hear talking heads, especially the politicians but also out of work execs who talk a lot, that if we would just work with our trading partners we could cordon of China and make them change.
I always mention this view to execs and they tend to chuckle. They say that the Europeans, for the most part, want the same business as America does and they are willing to accept even more onerous terms in order to get items like BMWs (BMWYY) and Mercedes (DDAIF) to have bigger sales than Ford (F) and GM (GM) .
There is no real united front against China possible because we are so at odds and have always been at odds with the Europeans about the Chinese market. And to be sure the Europeans just don't have enough top-level intellectual property that the Chinese want to steal. LVMH (LVMUY) is an amazing company, but Louis Vuitton and Fendi do not power air craft carriers or take share from Apple (AAPL) .
Now every exec I speak to has taken an economic class. She knows that there will be less commerce done because of our stance. She knows that the president is doing it in a way that she wouldn't. But who would?
She doesn't want gross domestic product around the world to fall and that will happen if Trump is successful and the Chinese don't change because of some 200 year plan to wreck their own economy to save it.
But here's how many figure things turn out.
The president wants to get all tariffs to 25%. He believes that $100 billion will come to the U.S. Treasury when the 25% tariffs are put in place. He thinks that his base will love that because it will give the appearance that the Chinese are going to solve the escalating debt problem.
Once they get to 25% he can say that they will be paying $1 trillion in tariffs over the next decade and that's a gigantic win. With that win, they believe, he can run against the Democrats on a platform that he tamed the Chinese.
Given how strong our economy is -- 3.2% -- and how powerful our employment engine is -- these execs, some who hate Trump and some who love him -- say he's right to try this now because of how fed up they are with China anyway.
In other words, this isn't all done idly. The Chinese may have a decades long view, but the president's view is that the Communist Party may not be any more invulnerable in China than it was in the old Soviet Union. No matter, once they get to 25% he will then be willing to walk them back down but that the money coming in might be more compelling a story line than more profits for companies, especially after the big tax break they got.
What's really amazing is the bottom line of my discussions. I always hear, after they knock down the "allies stand together" rap is, "you have any better ideas about how to stop them from not playing fair? I don't."
Sure, earnings per share go lower short-term. But our companies' CEOs are willing to take it because they've had it. I have talked to these execs for a long time. I come back with one vital conclusion: the Chinese have overplayed their hand, and execs here are willing to see their own earnings cut for a greater good even if they hate Trump. Yeah, it's that bad with the Chinese, it really is that bad.