Will the United States Decouple From China?

US China trade tensions continue to rise as President Donald Trump vows a 100% increase of tariffs on China. That's in response to Beijing's unprecedented new rare earth controls. All of this is happening amidst President Trump's efforts to bring manufacturing back to America. So yet again, we have to ask ourselves, is there a real possibility of economic decoupling between the United States and China? Joining me now to discuss is Lewis Navalier, chairman and founder of Navalier and Associates, and Rod D. Martin, founder and CEO of Martin Capital. Gentlemen, welcome. Lewis, are we seeing the US decoupling from China? And is that even possible right now? >> No, it's not possible. Uh, China actually needs us. They waved um their duties on a lot of US products because they desperately need them. and uh we need their rare earth, their magnets. So, I'm sure cooler heads will prevail. >> Rod, what is your view on this situation? >> Well, that's correct. I mean, there's no question China needs to negotiate with us because they need our export market. They need to be able to have a cordial working relationship with the United States. In my view, they are negotiating. they are taking a page out of Donald Trump's negotiation playbook and and you know hitting us with an extreme demand right at the end as we're trying to get a deal put together and I think that deal will be put together and I think the president made it pretty clear when he did impose a 100% tariff but he delayed it until November 1. So that tells you there's maneuvering going on and I think we're close to a deal. >> And and Lewis, what do you think is next here? I mean, in terms of maneuvering. >> Well, I mean, uh, Attorney Secretary Scott Bessett is having a meeting on this uh, pretty darn quick. And then, uh, hopefully uh, President Trump and she will meet at the um, APIC conference in South Korea. Uh, one of the things that complicates these negotiations is President Xi can't travel very far. You know, he's worried about losing control of his own country. So, he can make, you know, day trips to Vietnam or South Korea, but he doesn't have time to go all the way across the country to see us and visit us. And, um, you know, under Trump 1.0, I know he was up the street from me, bought a 747 SPN and they took over an entire hotel and erected barriers and uh they were doing trying to do business deals, but he can't travel now because he's afraid he's going to lose power. That's why he fired a general, another top official recently. >> Rod, maybe you can expand on that. What What is the state of uh Chinese regime leader Xiinping's power and of the the Chinese Communist Party more broadly and the state of their country? I think that's exactly right. I I think she is greatly constrained right now by what's going on within his own regime and we're seeing that with this rolling purge in the military. You know, whether that is she purging people or she's people being purged really makes no difference. There's tremendous instability there inside the most important arm of the Communist Party and that indicates that she is in some measure of trouble. So yeah, I agree. He's he's constrained in his movements. He's constrained in what he's able to do. And some of what we just saw in this rare earth's threat is probably responsive to that that turmoil underneath the surface. and Lewis, you know, at the same time, we have the United States, uh, you know, at least the Trump administration, um, the people under Trump are fully aligned during his un, uh, you know, with his MAGA agenda. He's had four years between, um, 2020 and 2024 to ensure that he selects people who are strong behind him. Um, in in some senses, the US is is is is quite strong right now. So, how do you look at um the state of the US versus the state of China and and and who has the upper hand here? >> Well, it's very simple. Uh China is um in a demographic decline. Uh they have had deflation since May of 20 uh uh 22. Their interest rates are lower than Japan and uh they may have to devalue their currency next. they're in deep trouble. Uh on the other hand, um all this onshoring is causing dramatic GDP growth and um they'll probably have 5% GDP growth next year. Uh it's not inflationary. It's mostly the construction of all the the data centers and on semis, pharma, automotive, maybe eventually furniture. We'll see. You know, it depends where they put the tariffs on. But uh yeah, we have we're in the midst of an economic boom. It's uneven. We're not, it's not a perfect economy, but uh it's uh we're a lot better shape than China and demographically we're superior because we're younger. We're still very profound family in the south and mountain west and we do assimilate our immigrants of course, but uh Trump obviously wants them to to be documented. >> Sure. So Rod, you know, we have um China obviously not in the same footing as the US. Now they're announcing this uh rare earth controls u which garnered a 100% uh tariff increase from Trump. Can you explain the seriousness of these rare earth controls that would you know why would they bring such a response from Trump? >> Well the seriousness of course is that a modern economy is very dependent on rare earths. You can't build an F-35. You can't build a semiconductor chip. You can't build anything of consequence anymore without them. And this is an atrophy on the US part that is just inexcusable. We were supplying most of our rare earth's needs in the 70s and then we let that just outsource to China over a number of years in a way that it it's just inexcusable. These are national security issues. You actually have to have domestic production of these things just like you need to have some reasonable amount of pharmaceutical supply chain domestically because you can't afford to have your population cut off from such things. So what Donald Trump is doing is he's trying to jumpstart a rare earths industry here. China only produces about 60% of the world's rare earths in terms of raw supply, but they refine 92% of the refined supply. We have to reshore some of that here. And I think the long-term result of what she is doing is you see China's monopoly broken over the next several years at an actually accelerating rate precisely because of this hostile action. So Lewis, can the United States onshore uh you know rare earths uh at a rate fast enough so that China isn't able to use that leverage over the United States? >> Probably not, but we're trying. Obviously, we took an uh the government took an interest materials. I recommend a stock uh symbols. They have rare earth interest, but there it has it it's not monetized yet. they've made an alliance with somebody to start, you know, refining it, but uh it's um it's it takes a while to do all this stuff. So, uh we have to do business with China u in the meantime and hopefully cooler heads will prevail. Rod, you know, since Trump's tariffs announcement on um April 2nd, we've seen all these flare-ups of trade tensions between the United States and China, where trade tensions between the US and other countries, most other countries have more or less simmered out. Uh definitely not the kind of tension we're seeing between the US and China. So, what hope is there at this point of the United States and China reaching some kind of mutually agreed upon trade deal? Oh, I think we're going to I think they can't really live without us and for the time being, we can't really live without them. Now, Trump sees them as our largest geopolitical adversary by far. Trump sees us as being in something of a friendlier version of the Cold War here. He understands that they routinely threaten to attack Taiwan, that they have other interests that are adverse to ours, and that they're expanding those interests wherever they can. So, he he very much wants to take a page out of Reagan's book and constrain their ability to act in a way that kind of defangs them. And and the truth is that strategy probably works because as Lewis pointed out they are in extreme demographic decline. Uh Ye Fujan who is a senior scientist at the University of Wisconsin Madison has shown that odds are pretty good that they lose 75% of their population by the end of the century which is just unprecedented. and and we may see something similar in South Korea and some other places, but China in particular is faced with a a tremendous structural collapse over time because what you end up with is a smaller and smaller number of young people supporting a a larger and larger proportion of the population that's elderly in a climate where most people's retirement savings has been put into real estate. Well, if you have a shrinking population, real estate values are going to tank. So, they're really in trouble. They need to grab what they can right now. And Donald Trump is trying to constrain that on the military side while working out trade deals that make sense for both countries. >> Lewis, with just 30 seconds, because I want to hear from both of you on this. Um, President Trump is expected to meet Chinese regime leader Xiinping in South Korea in a couple weeks. What do you think could come out of that meeting or is it just a bit too far away to say? I think Trump will tell the world that they're buddies and uh everything's going to be fine. That's what he likes to do. >> And Rod, >> yes, I agree with that. And and I think that for most practical purposes, that's going to be true. Both countries need each other in trade for the time being. That will lessen over time, but not very quickly. >> All right. Lewis Navalier, chairman and founder of Navalier and Associates, and Rod Martin, founder and CEO of Martin Capital. Thank you both so much for your insights. Thank you.