White House Holds Off on New Chinese Chip Tariffs, U.S. Economy Growth

The US accused China of engaging in unfair trade practices in the semiconductor sector, but is declining to impose additional tariffs on chip imports until at least mid-2027. The Office of the US Trade Representative on Tuesday released the findings of a nearly yearlong inquiry into China's chip sector that was launched in the final weeks of the former President Joe Biden's administration, with the expectation the matter would be resolved under President Donald Trump. In the intervening months, Trump struck a truce with Chinese President Xi Jinping to end a trade war that rattled global markets. For more on the relationship in regards to US-China in the technology space, we spoke to Tiffany Hsiao, Portfolio Manager at Matthews International Capital Management.

Plus - the US economy expanded in the third quarter at the fastest pace in two years, bolstered by resilient consumer and business spending and calmer trade policies. Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased at a 4.3% annualized pace, a Bureau of Economic Analysis report showed Tuesday. That was higher than all but one forecast in a Bloomberg survey and followed 3.8% growth in the prior period. We heard from Chris Kampitsis, Managing Partner, Barnum Financial Group.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.

Speaker 2 (00:11):
Welcome to the Daybreak Asia podcast. I'm Doug Krisner. The
US is accusing China of engaging in unfair trade practices
in semiconductors. Now. This is the result of a year's
long inquiry. It focused on China's production of those older
model chips widely used in devices like smartphones, automobiles, home appliances, weaponry,

(00:34):
even telecom networks. Now, the USTR found China employed increasingly
aggressive and sweeping non market policies to bolster at semiconductor industry.
And on top of that, the USTR found the China
move to create foreign dependency on its products in a
way that disadvantaged US commerce. Even so, the US Trade

(00:54):
rep is declining to impose additional tariffs on Chinese imports
at least till mid twenty twenty seven, perhaps given the
trade truth between Washington and Beijing. For a closer look
now at US China relations Visa v Technology. I'm joined
by Tiffany Shao, portfolio manager at Matthew's International Capital Management.

(01:16):
Tiffany joins us from San Francisco. Thank you so much
for being here, so as I understand you just got
back from Asia. Can you lay out for me what
you see right now as the tension when it comes
to high tech between the US and China.

Speaker 3 (01:32):
No, typically as you head into your end, people are
ready for vacation. This year, everyone is preparing for an
acceleration in the deployment of artificial intelligence heading into twenty
twenty six. And you know, in the risk management business
and investment management business, we always have to consider worst

(01:52):
case scenarios, and one of those scenarios that we map
out is, you know, a continued, you know, heightened tension
between US in China. And in that scenario, which is
what we actually see companies start to prepare for, is
that there will be a parallel universe built for AI.

(02:13):
So there will be one AI ecosystem within China where
they don't want to rely on foreign sources, and there
will be an ecosystem outside of China led by the
US where we're trying to build up our own capabilities
as well. So it's really interesting to see and it's
keeping both sides very, very busy into the end of
twenty twenty five.

Speaker 2 (02:34):
So as I'm listening, I'm wondering whether China will be
less interested in those advanced chips from Nvidia and become
maybe a little bit more reliant when it comes to
training AI models on chips that are domestically produced in China,
maybe something from the likes of Huawei.

Speaker 3 (02:51):
So the Chinese are very practical. As you may know,
they will still procure semiconductor based on their needs. So
there is from video chips in China and various AA applications,
but there is definitely a bigger emphasis for the domestic
ecosystem to develop and to support the domestic ecosystem, whether

(03:14):
it's the semiconductors itself or building of data centers, ramping
up their power infrastructure, which is incredibly robust. So those
are ongoing activities that we see on the ground.

Speaker 2 (03:25):
That's interesting that you mentioned the power angle to the
AI story, because from what we know, China has really
done very well in ramping up capacity to produce electricity,
maybe more so than the US. And at the end
of the day, because those AI data centers are so
heavily reliant on electricity, I'm wondering whether China is in

(03:47):
a much more advantageous place.

Speaker 3 (03:51):
You're absolutely right. AI is very power hungry and China
is very well equipped to handle the power crisis. They
have been fortifying their power infrastructure for decades now, so
that's also an opportunity for outside of China, for our
companies in Asia that actually are now helping the US

(04:14):
fortify its power infrastructure. So we see opportunities across Asia
that really help both sides of the AI race.

Speaker 2 (04:24):
In the early part of the trade tension story between
the US and China, the US was trying to limit
Chinese access to technology from other countries, whether it was
Japan or South Korea. I'm thinking of also ASML in
the Netherlands. Is this something that China has been able
to kind of work around or compensate for.

Speaker 3 (04:47):
Absolutely, so they have figured out ways to do more
with less, and that means, you know, they are using
lagging edge technology, so typically around two nodes behind the
world leader, which is TSMC and Taiwan, but using more
creative ways of linking together these lagging edge chips. So

(05:10):
that's where we see opportunity. For example and optical communications.
So if your chips are slower, well you link them
up into a bigger chip and through optical communication it
would communicate faster than copper which is what Nvidia predominantly
uses at this.

Speaker 2 (05:26):
Moment, I'm going to change gears and talk a little
bit about robotics. I'm curious to get your take on
what you saw when you were in Asia relative to
the robotics industry.

Speaker 1 (05:38):
Yeah.

Speaker 3 (05:38):
So robotics, what we often joke about is that in
China we call it a red sea industry, meaning it
has already gone through a cycle where now there's over competition,
there are thousands of suppliers and you know, you see
like it was in China earlier. This also just for

(06:01):
personal vacation and when you stay in a hotel room,
you just talk to the room to tell it you
need food, and robot actually shows up and delivers your food.
So they're at that level which is unimaginable here in
the US. So I would say in a lot of
areas within robotics, the US is lagging behind. But there's
an opportunity for the US to catch up. But it

(06:21):
has to go hand in hand with the re establishment
of the manufacturing base, because that's going to be a
more reliable way for US companies to trial and air
and fortify their product line.

Speaker 2 (06:36):
Is there any concern in Asia about certain parts of
the AI trade being over extended. I hesitate to use
the term bubble, but that's been thrown around for the
last several months. Lately, it seems like it's no longer
really relevant because the market is continuing to move higher.
But is there concern here that some of these stock
prices are overextended?

Speaker 3 (06:58):
Absolutely? I think, you know, in every stage of you know,
a large secular growth trend. As people always say, people
underestimate the long term, but overestimate the short term, and
I think in parts of the technology ecosystem you do
see that, right. And you know, I often tell investors

(07:20):
that we've never seen a brand new technology ramp up
at this scale with this speed. So, you know, the US,
just the US cloud service providers alone, in twenty twenty six,
we estimate they will spend about six hundred billion US dollars.
That's about the same size of the entire handset ecosystem,

(07:45):
which took decades to build up and now ships one
point three billion units a year. So you created a
brand new tech industry within two and a half years
that basically is the same size as the largest technology
product that we had known prior to AI. So at
that speed, you're going to create a lot of shortages,
a lot of artificial demand because people are trying to

(08:08):
double book. So I actually think that, you know, if
the whole industry just slows down and we actually do
things properly, that might be a healthier outcome. So from
that standpoint, I think, you know, slower is better, and
we'll eventually get to the type of AI that we
think will be very productive.

Speaker 2 (08:26):
So you have an interesting perspective, vast experience in Asia
and your home base is San Francisco. Can you quickly
compare and contrast what you're seeing in Silicon Valley versus
China as it relates to some of these advanced technologies.

Speaker 3 (08:46):
Yeah, I think, you know, the most interesting part is
an AI that we've been discussing. So the US companies
have a very grandiose goal of creating artificial general intelligence,
whereas in and across most of Asia, they're just trying
to infuse AI and using AI as a way to
boost productivity and solve one problem at a time. So

(09:09):
I often describe it as, you know, the Americans are
trying to build a spacecraft here to Mars, whereas in
Asia we're just trying to build planes to go from
one city to another. So in the very near term,
the result is that you're probably going to see the
Asian AI companies make money first because they're taking a
more pragmatic commercial approach. But over the long run, if

(09:30):
the US can really get to AGI, I think, yeah,
there's just so much more opportunities ahead. So it's a
very different approach, but it's really interesting to see the contrast.

Speaker 2 (09:41):
And interesting to talk to you, Tiffany. Thank you so
very much. Tiffany Shao, portfolio manager at Matthew's International Capital Management,
joining from San Francisco here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm Dog Krisner.

(10:03):
The American economy expanded in the third quarter at the
fastest pace in two years. We're talking about GDP at
an annual growth rate of four point three percent. Now,
this reading seems to have dampened some bets on further
rate cuts, at least in the near term. Right now,
money markets see less than a twenty percent chance of
a FED rate cut in January. For a closer look,

(10:24):
I'm joined now by Chris Campitsis. He is managing partner
at Barnum Financial Group. Chris thank you for joining us.
How do you make a case for FED rate cuts
when you have a GDP print of four point three percent.

Speaker 1 (10:39):
It's a challenge to make such a case. I don't
see it realistically being on the table. As you mentioned,
predictions are saying a less than twenty percent chance. It
would be extremely accommodative and potentially inflationary to cut further

(10:59):
with that type of unexpected GDP growth.

Speaker 2 (11:01):
And yet at the same time, today we have President
Trump in a post on social media saying that he
expects his FED share to lower rates even if the
economy and the markets are doing well, and anyone who
disagrees with the President will never be FED chairman. Does
that create a bit of risk going forward? Just the
way in which the President is framing the discussion.

Speaker 1 (11:24):
The FED needs to maintain its independence, and I think
most FED officials will will tell you that that's job one.
And definitely any influence from any presidents on either side
of the aisle, and we do have a long history
of presidents who do try to influence the FED. It
doesn't it doesn't make for great outcome. So you know,

(11:48):
to your point, if I'm applying for the job, I
don't want to be disagreeing with the president right now,
but it's a risky proposition to be cutting rates further.

Speaker 2 (11:58):
Here we did have one data. I guess you could
make the case that would argue for a cut in
interest rates. Consumer confidence in the month of December dropping
for a fifth consecutive month. We've talked a lot about
this case shaped economy. Is that really what we're trying
to kind of wrap our arms around that we essentially
have a bifurcated situation.

Speaker 1 (12:20):
It most certainly is you know, the economy and effect
becomes a tale of two cities, and you have what's
very interesting is increased with the latest labor numbers, increased
participation in the labor market, which it caused the unemployment
rate to go up. However, I think that is actually

(12:41):
a good sign. We're seeing more people looking to return
to work, looking to get employed, and I think that's
really important. Consumer confidence historically has bit of a has
been a bit of a contrarian indicator. When it goes low,
you tend to see strong economic numbers in the months

(13:02):
to follow. So I'm actually not completely concerned about that reading.

Speaker 2 (13:09):
If you look at what happened today in the precious
metals market, we had gold and silver prices rising to
fresh all time highs. A lot of this seems to
be tied to the narrative on more rate cuts from
the Fed. It looks as though the precious metals market
is a little concerned about inflation. Is that one way
in which to read this.

Speaker 1 (13:30):
I think you can view precious metals as in essence
of potential Canarian the coal mine. It's telling you that, yes,
there's concern around inflation, and there's concern around the economy
that is starting to build in the months and quarters ahead.

Speaker 2 (13:45):
Give me some specifics. What are you looking at right now?
In order to make that conclusion.

Speaker 1 (13:50):
We have a situation where the consumer has been extremely resilient.
It's spending. I think consumer spending was up three point
five percent, Business investment relatively strong, up about two point
eight percent, and corporate profits have been strong. So that's
the book case. That's the thinking that despite tariffs, despite

(14:14):
concerns around stock valuations, despite concerns around unemployment, the market
and the underlying economy are healthy. On the flip side
of that coin, you're seeing a situation where unemployment is
ticking up. We're seeing that bifurcation starting to occur in

(14:36):
the economy. I think the retail data that comes out
this holiday season is going to be very, very critical
as to just how resilient the consumer is on a
go forward basis as we enter into twenty twenty six,
and then ultimately we have to pay close attention to
what's happening with inflation, because on the bottom end of

(14:58):
that bifurcated economy, what you're seeing is, you know, consumers
are telling us things are just getting two expensive. Debt
levels are increasing, and there's a lot of concern around
that as well.

Speaker 2 (15:10):
So everything that you believe right now in terms of
what you've just kind of captured there, how is that
leading you to create a strategy for markets in twenty
twenty six.

Speaker 1 (15:23):
We're taking a Barbelle approach because we understand that ultimately
technology artificial intelligence that's going to be tremendously expansive, but
most certainly not in a straight line. We anticipate that sector,
which is obviously driving the top of the market, to

(15:44):
be more volatile than ever as more and more investors
are looking for a reason to sell rather than a
reason to buy. And you see that with the last
couple set of earnings on the you know each where
stocks have reacted really negatively despite really positive earnings reports

(16:07):
out of these tech companies. On the flip side of
the coin, you're seeing some increase to the breadth of
the overall market where sectors that have been out of
favor for a really long time, healthcare, consumer staples, they're
starting to show signs of strength and begin to show
some momentum. So we want to play both value, still

(16:31):
participate in growth, but not quite as much in terms
of the overall portfolio allocation as in twenty twenty five,
and we want to have some dry powder to be
able to buy those dips because there will certainly be dips.
We know that going in There's never been a year
where there hasn't been ups and downs, and so cash
on the sidelines is critical, and we're seeing that a lot.

(16:54):
Over these last couple days. There's been an increase in
tax us harvesting in stocks that have underperformed this year
being sold and and we're seeing cash on the sidelines
increasing a little bit. I think that's a wise move
as we head into the new year.

Speaker 2 (17:11):
What about increasing your exposure to markets offshore, particularly in Asia.
Does that seem to make sense at this point?

Speaker 1 (17:20):
I like Asia absolutely. I also think there's a lot
to like with Europe. You know, when we think about Europe,
the valuations of their equity markets stocks are cheaper. Also,
they're more aggressively cutting rates. The governments there are spending
more as they feel like they can rely less on

(17:41):
the other global superpowers and the dollars weeker. So there's
a lot to like about international markets in general. In particular,
we like Europe quite a bit.

Speaker 2 (17:53):
I'm wondering about opportunities in the bond market. If you're
somewhat defensive and you want to be part in some way,
is the bond market a good option right now?

Speaker 1 (18:04):
If you believe ultimately that in twenty twenty six interest
rates are going to ultimately be lower rather than higher.
It tends to lead to say, hey, well, maybe parking
some money and bonds make sense. You want high credit,
quality government bonds. I don't think you want to be
taking tremendous amount of credit exposure here. We're starting to

(18:26):
see cracks in the private credit story as an example
of that, So high yield it is going to be
a little bit riskier, but quality, quality credit quality bonds
a potential increase to the allocation. That being said, the
idea of when stocks go down, bonds go up, that

(18:46):
equation is not quite as true as it used to
be historically, at least it hasn't been over the last decade.
So I'm not so sure that one is a certainty
when the other happens going forward.

Speaker 2 (18:57):
Can you give me a call that you would make
for the new year that may be a little counterintuitive.

Speaker 1 (19:03):
A call that I would make for the new year
that would be a little counterintuitive would be number one,
gold and precious metals may be a little bit overpriced here.
And number two, you might want to really consider taking
some of those tech profits off of the table, but

(19:23):
not being afraid to go back in when you see
prices adjust.

Speaker 2 (19:27):
Chris will leave it there. Thank you so very much.
Chris Campittsis is managing partner at Barnum Financial Group. Joining
us here on the Daybreak Asia Podcast. Thanks for listening
to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Each weekday, we look at the story shaping markets, finance,
and geopolitics in the Asia Pacific. You can find us

(19:50):
on Apple, Spotify, The Bloomberg Podcast YouTube channel or anywhere
else you listen. Join us again tomorrow for insight on
the market moves from Hong Kong to Singapore and Australia.
I'm Doug Prisoner and this is Bloomberg