China Readies New Tactics for U.S. Trade War
QUEST: China is looking for more leverage in the escalating trade war with the United States. Investors are fearing -- now, the various things that they could do. You heard by the way Art Hogan talking about this, the fear is it could restrict exports of rare earth materials. This would be absolutely devastating, by the way. These are 17 chemical elements they're in just about every consumer electronics and military equipment, and China has by far, by far, the vast majority of them within its borders. It is the non-military nuclear weapon, if you like, the rare earth's part. And Huawei is reviewing its relationship with FedEx, it claims its diverted parcels destined for Asia to the United States. And Huawei is also pressing on with a lawsuit against the United States. It says Washington is using the strength of an entire nation to come after a private company. You can get -- you get an idea here of just how bad the situation is getting. Now, some would say these are skirmishes around the trade war, I happen to think it's actually part of the trade war, and so these are the battles within it. Professor Jim Rogers says he's got a plan to navigate the U.S.-China trade war. Now, the investor of course lives in the region, is an expert in its economics and he's made a fortune investing in EM Asia, Azion for example. When it comes to U.S.-China trade war, the worst is yet to come, says Jim.</s>JIM ROGERS, CHAIRMAN, ROGERS HOLDINGS: Every trade war in history has been a failure, has been a disaster. Nobody has ever won a trade war, there's no such thing. Now, Mr. Trump either thinks he's smarter than history, we know he thinks he's smarter than history, and he thinks it doesn't matter. This is not going to be good for the world, but what will happen soon is good news will be announced, Washington and Beijing will announce something, it will sound like good news, the markets will rally, then next year when things are bad, Mr. Trump will come back with another trade war and that will be the worst bear market we've had in my lifetime.</s>QUEST: You see next year -- hang on a second. But you see next year as being the bear market?</s>ROGERS: I'm not smart enough, watch CNN, they know when the bear market --</s>QUEST: But what I mean is --</s>ROGERS: Is coming, but it's coming, it's coming.</s>QUEST: You believe it is still to come?</s>ROGERS: I know it. This is not a bear market, you wait, the next bear market and we're going to have one, is going to be the worst in my lifetime, and I'm older than you, so it's going to be the worst in your lifetime.</s>QUEST: Predicated on what? What's going to be the cause of it?</s>ROGERS: Well --</s>QUEST: Look, let's just split the good -- I've known you long enough that I can be blunt.</s>ROGERS: Be blunt.</s>QUEST: Jim, the economy is growing, low unemployment, low inflation, risks are relatively contained, only a fool sits here and says there is a bear market around the corner some would say.</s>ROGERS: You finally found a fool to come on your show. The way these things always start, they start when nobody is watching. In 2007, Iceland went bankrupt, nobody knew or cared. Then Ireland, then Bear Stearns, then Northern Rock, then Lehman. And by then, it was on CNN, everybody knew there was a bear market. That's already started. Turkey, Indonesia, Latvia went bankrupt, Venezuela, Argentina, Indian banks, it's already started. It hasn't made CNN yet, but by this time next year it will be on CNN. Why? Well, first of all, it's been over ten years since we had a bear market, doesn't mean it has to happen, but that's the longest in American history --</s>QUEST: But --</s>ROGERS: Longest in American history.</s>QUEST: What's going to punctuate it? What's going to actually be the precipice of it?</s>ROGERS: Well, probably -- well, who knows? But it might be the new trade war after the first peaceful resolution, then we'll have the real trade war after that, but it's probably debt. I mean, debt is -- you know, in 2008, Richard, we had a problem of too much debt. Since then, debt has skyrocketed all over the world. So it's much worse now.</s>QUEST: This is valuable information if one knows what to do with it.</s>ROGERS: Yes, well, watch CNN, then you know what to do.</s>QUEST: No, we watch CNN and I'll ask you, what do you do with this information because let's take at the moment, you don't really want to get out of a market like this at the moment which is in the doldrums because of --</s>ROGERS: The trade war.</s>QUEST: Because of trade war. When do you do -- and once you're out of it, what do you do with the money?</s>ROGERS: Well, I -- my plan, but who knows?</s>QUEST: Yes --</s>ROGERS: Is that when the good news comes, there will be a rally, that will be the last rally, that will be the end, and then I hope I'm smart enough to sell my U.S. stocks and move into something else. Where? Probably China, maybe Russia, Korea perhaps by then. Good things happening in some places in the world. There's always a bull market somewhere.</s>QUEST: Are you worried about the inversion in the yield? We've only seen it in a very narrow area.</s>ROGERS: Yes, and that's why I'm not so worried yet. Normally in history, it has to be inverted for a while, and it has to be really inverted. So far, it's just piddling around. It's not -- so far it's not serious.</s>QUEST: Highly technical word, piddling around. This idea with the bear market that's coming inevitably, and by that I'm talking about a really serious message, I don't mean a salami slice --</s>PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, he says the worst in our lifetimes. And 2008 was pretty darn bad. So if it's going to be worse than that, that's pretty scary.</s>QUEST: But I just don't know what to make -- I mean, Jim has made a lot of money by being right and being contrarian and being on the wrong side of the right argument or the right side of the wrong argument, I don't know which it is. What do you make of it?</s>LA MONICA: Yes, I mean, he has a point about corporate debt levels. A lot of people are worried about the rising debt loads for companies that are not in the financial services industry. I mean, everyone looks back to 2008 and says it was the banks who were the big problem. We're probably not going to have the banks lead us into the next recession, whether or not that becomes a global financial crisis also remains to be seen. But there are a lot of other companies that are highly leveraged and that could potentially be a problem. But by the same --</s>QUEST: But --</s>LA MONICA: Token, interest rates are low and are not going to go up all that dramatically, so I'm not sure when the debt-ticking time bomb, if you want to call it that, actually explodes when now everyone --</s>QUEST: Right --</s>LAMONICA: Expects the Fed to be lowering rates.</s>QUEST: And I also know, fully understand them, it seems almost perverse to dis-invest out of the market which could go up another 15 percent whiles you're out of it on a prayer and a whim, whatever, that there might be a bear market. And I don't know.</s>LA MONICA: Yes, I mean, it is, I think, a very dangerous thing to do if you're trying to invest for the future to stay out of the market because you're worried about that bear that might eventually come. Yes, they are going to periodically come, but you also have the bull markets as well. I mean, if you use that as a sort of philosophy, then that's kind of like, well, I'm going to die some day, so I guess I'll just stay in bed. I mean, where is the fun in that?</s>QUEST: The market, look at it, we're off the lows of the day, we've rallied somewhat. But there's no real reason for this today.</s>LA MONICA: No, I think there are just continued concerns obviously about what's happening between the --</s>QUEST: Right --</s>LA MONICA: U.S. and China, the lack of any evidence that there's going to be a deal struck at whatever the last hour may be to avoid a full blown trade war. I mean, we're pretty much already there and I think --</s>QUEST: We are in a trade war.</s>LA MONICA: We are in a trade war --</s>QUEST: I don't --</s>LA MONICA: We don't need to piddle around anymore --</s>QUEST: No, we don't need a --</s>LA MONICA: And say it's a skirmish --</s>QUEST: No --</s>LA MONICA: Or a battle --</s>QUEST: No --</s>LA MONICA: We can call it a war.</s>QUEST: If this is not a trade war, what would you like?</s>LA MONICA: I wouldn't like this, so I definitely don't want things to escalate.</s>QUEST: Good to see you, sir. After the break, Boeing set aside old rivalries and congratulated Airbus, clocking up an aviation milestone. We'll offer to show you developments in the 737 Max crisis and when that plane might get back in the air. It is QUEST MEANS BUSINESS live from New York.