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U.S.-China relations: Cooperation ‘is over and not coming back any time soon,’ analyst says

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Control Risks Partner and head of Global Risk Analysis Dane Chamorro joins Yahoo Finance Live to discuss Goldman Sachs cutting earnings expectations for the MSCI China index, navigating volatility, removing tariffs on China-made goods, the global economy, and Chinese President Xi Jinping's call with President Biden.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: Chinese President Xi Jinping called President Joe Biden on Friday to wish him well after the news of Biden's COVID-19 diagnosis. This, as a Chinese foreign ministry spokesman expressed, quote, "serious concern" about House Speaker Nancy Pelosi's reported planned trip to Taiwan, and also as the Biden administration weighs whether to remove tariffs on China-made goods.

So let's assess the US-China relationship overall with Dane Chamorro, Control Risks partner and head of Global Risk Analysis and Business Intelligence. Dane, so how would you characterize the current relationship there? Obviously, there are sort of a lot of cross-currents.

DANE CHAMORRO: Yeah, that's a good way to put it. I think it's become a bit more predictable in the last couple of years, a little bit more normal, less volatile. But it's not gonna go back to the way it was, kind of pre-2014, pre-Xi Jinping. That's over. That more or less cooperative relationship between the United States and China that had been there for a good 30-plus years is really over and it's not coming back any time soon. I would say, it's a generational shift actually.

BRAD SMITH: So should we not expect for any kind of broad rollback of tariffs that were implemented during the kind of tit for tat a few years back or even the purchases that were agreed upon to be followed up on?

DANE CHAMORRO: Right. Yeah, so it's a great point. And obviously, from the Chinese perspective, you know, they would say that those purchases were committed under duress, so to speak. I suspect we might see some rollback of the tariffs probably after the midterm elections. Remember, this is an election year in the US and it's a selection year in China. So it's not a great time for either side to be kind of exposed to their opposition.

And so you mentioned the visit of Speaker Pelosi to Taiwan or the planned visit, you know this is one of those things that if you're Xi Jinping, you're gonna use that as an opportunity in a relatively weakened economic environment in China to remind everybody in the party, your selecterate, that you need me here because of the situation with the United States.

BRIAN SOZZI: Well, Dan, that brings me to my next question, does that-- does really either country have any upper hand here? The US is potentially nearing a recession next year. China, growth slowdown continues. Wouldn't it just be in the best interest of both countries to work hand-in-hand to address some of these issues?

DANE CHAMORRO: Sure, and that's-- you know, if we go back a few years, that's probably the way that it would have happened even if it happened kind of quietly off to the sides. But I think you know, COVID pandemic was a great example of a situation where normally, pre-2014 the US and China probably would have found-- despite disagreements-- would have found a way to work through that for the betterment of both and the rest of the world, and that didn't happen.

It's a classic example of-- in the past, we were kind of a cooperative relationship defined by a couple of areas of disagreement. Taiwan being one of them. The future is a relationship that is defined by conflict. I don't mean the kinetic conflict, but is defined by friction and mistrust. And hopefully, hopefully, there will be episodes or topics where we can cooperate, whether it's climate change or pandemic or whatever.

But it just shows you how bad the relationship is that we weren't able to cooperate. And still aren't able to really cooperate on that subject. In which the Chinese, of course, have a lot of information, a lot of research because they've been studying it for many, many years in many times-- in many cases with US funding. So it's just an example of how bad the relationship has actually become.

JULIE HYMAN: Talk to us about then the ripple effect and the implications for sort of the global picture, if you will. You've said that there is a broad geopolitical realignment. What does that mean in terms of global economic growth, for example, with this relationship sort of at the center of it?

DANE CHAMORRO: Yeah, I mean, it's a great question. So China, on any given year pre-pandemic, was responsible for a 1/3 to 40% of global economic growth. Not GDP but global economic growth. So when the Chinese economy slows down as it has dramatically, largely from their own from their own side because of COVID lockdowns and things, it affects everybody. It affects some countries more than others.

It roughly takes off about a 0.5% global GDP growth when China slows by one percentage point. But a lot of emerging economies slow by almost a full percentage point when China slows because they're primarily commodity exports to China, whether it's exporters to China, whether it's Indonesia or Chile. So it has a big impact on the rest of the world.

There is absolutely a realignment going on that's not just US-China. But I think the systems that both represent, if you want to call it that, that's where the realignment is taking place between kind of what we call your liberal democracies and countries that are more autocracies.

And what it means for business is that, you know, you have to negotiate that. Because whether it's China or Russia or whatever it might be, these are big markets. You can't ignore them. We've put Russia, obviously, on ice for the moment. But China is too big a market for anybody to ignore or anybody to leave.

So how do you actually navigate that as a business from Germany or North America or whatever it might be, from a compliance perspective, from a data perspective, from a geopolitical perspective? That gets much, much more complicated.

JULIE HYMAN: And with particular regard to Russia, does the allure of that market eventually prove too strong, that you will start to see businesses return there? Or do you think this is going to be a long-lasting, putting it on ice, as you put it?

DANE CHAMORRO: Well, that's a good question. I think it remains to be seen right now. And probably, of course, the ones that are most exposed to it really are Western European economies, like Germany. But you've seen some big economies-- and this goes back to the realignment comment-- that really haven't alienated Russia that much, including some of the liberal democracies like India.

India continues to do a brisk trade with Russia. China does, too, of course. There are a lot of countries that kind of haven't fallen in line with the idea of we should penalize Russia economically because of what they've done with Ukraine. So that just is another example of even within some of the liberal democracies "camp," so to speak, versus the autocracy camp, even there, you don't have a uniform view, a uniform action.

JULIE HYMAN: Right, so we'll see how all that plays out. Dane, great to get your insight this morning. Dan Chemor-- Dane Chamorro, Control Risks partner and head of Global Risk Analysis and Business Intelligence. Thanks so much.