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The US may not have the upper hand in its trade war with China, says Dymon Asia Capital’s Founder & Chief Investment Officer.

  • In the near term it may seem like the US is fine and China has the shorter end of the straw. But I think in the longer run, perhaps an area that isn't fully priced in by the market is the destruction in the global supply chains and how the tariffs will lead to higher prices in the US as well.

    It will take a long time before the US can start producing semiconductors itself domestically, just as one example. So it will still need to depend even say for automobile parts or solar panels. Many of these products, again, you know the companies have been very used to manufacturing them overseas.

    So it's either you continue to buy from the likes of China and the rest of Asia at a much higher price, which will get passed on to the consumer, which will then lead to higher inflation in the US and higher interest rates, which will eventually come back and punish the US in my view. Or you know, you try to ramp up your own domestic manufacturing capabilities, but that will take at least four to five years.

    I think what will may be even worse is also the liquidity divergent, where more and more money is going back to the US because of higher interest rates. And their growth divergence leading to capital going back to the US and leaving Asia and emerging markets.

    I would say since the tax reforms happened late last year, we estimate that about US$800 billion have already moved back onshore. I think that's part of the reason why it has led to a lot of US companies buying back their stocks and supporting the S&P index, leading to a divergence between the S&P and the emerging market equity index, of about 20%.

    No one really seems to care anymore for now, right, because in many ways as long as your debt is in your own local currency, where you have the flexibility and ability to monetize and print, then it shouldn't matter.

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