The Dividend Cafe - Where Do Things Stand With China?

Episode Date: November 7, 2025

Today's Post - https://bahnsen.co/47ogHOD US-China Trade Deal Updates & Insights from The Bahnsen Group Annual Retreat In this week's episode of Dividend Cafe, host David Bahnsen reports from The Bahnsen Group's annual retreat in Dallas, Texas. He highlights the team's dedication to client experience and shares updates on the significant US-China trade deal. The discussion covers recent agreements between the two nations, including tariff reductions, market commitments, and cooperation plans. Bahnsen reflects on how market discipline has influenced policy decisions and gives insights on the potential economic impacts. Looking ahead, he hints at a forthcoming evaluation of the AI CapEx bubble burst in the next episode. 00:00 Welcome to Dividend Cafe 00:06 The Importance of Our Annual Retreat 01:41 US-China Trade Deal Overview 05:06 Key Elements of the Trade Agreement 10:18 Implications and Future Prospects 18:43 Conclusion and Upcoming Topics Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to this week's Dividend Cafe. I am your host, David Bonson. I'm the chief investment officer here at the Bonson Group, and our entire team is in Dallas, Texas right now where we are doing our company offsite, our annual retreat, if you will, a couple days of meetings, sessions, discussions, and hopefully a little bit of fun and all that kind of stuff as well. And then we all go back to our respective destinations on Saturday and

Sunday. So the reason I bring that up is that we really care about. this event a lot because we really care about the client experience that we deliver. To say we care about it is somewhat cliche and also understates the reality. We obsess over it. We're a very competitive and driven group. And there's also about 90 of us now. And the first time we ever did this kind of offsite that has been an annual tradition for many, many years now, there were six of us there.

And so it's grown a lot over the years. and the complexity that goes into the event and how we go about really try to build that culture, that camaraderie with one another, and yet drive a better, shall we say, business plan out of it, the way in which we go about serving clients, which is our business. It's really a wonderful experience and event. I just wanted to share that with all of the Dividing Cafe listeners and viewers. Now, business must go on, of course, and right now, business must go on, of course, and right now, Now, one of the major elements of business and markets has been the U.S.-China deal.

Now, it's not just right now. It's not just because last weekend the president announced that they had basically gotten to the point they wanted to get with President Xi of China. In rating the deal on a scale 1 to 10, President Trump said it was a 12. But that's all current events and important right now and where I'm going to focus today's Dividend Cafe talk on. But the China-U.S. story has been a major story, if not the major story, and adjacent to the major story of the economy all year. And of course, we remember the drama in markets back at Liberation Day in early April, which is now seven months ago. But even entering

2025 after the Trump election in November, we knew that U.S. China trade and the overall issue of tariffs, not just with China, but other trading partners as well, was going to be a major part of the economic story of 2025. And it took quite a few turns along the way. Now, my theme, if you read exactly what I wrote about it back in our annual white paper, our year ahead forecast paper at the beginning of the year, was that those who believed there would be nothing at all, no noise around this, were wrong. And those who believed we would go into another Smoot-Hawley trade war were wrong. So in other words, the far end of right-tail and left-tail risk were likely in error, but that there would be a lot of noise and enhanced

volatility, and yet ultimately, markets would not allow something ultra-severe to play out. And I do believe that that is exactly how this is gone, and what we're dealing with in the U.S.-China discussions would be categorically different without the prominence of what I call, my friend Renee Anana now calls, but I can't remember if I gave this term to Renee or he gave it to me, but let's just say we both share it together and do not charge each other a royalty fee. For use of the term market discipline, that market discipline, first of all, is the major driver of what is altered administration policy with China this year, but also market discipline permanently constrains the political leadership. The political leadership does not create market

discipline, market discipline constrains political leadership. It is true that Renee Annanau, Corbu, writes about this a lot, but it's been a focus of discussion between Renee and I privately for many, many years. And so as I go through right now the highlights of what has been codified in the U.S. China trade talks, market discipline undergirds a lot of it. And I want to highlight what has changed since Liberation Day. And then what really remains unknown and what, we ought to be thinking about as market actors as we go forward with the rest of this. So the major issues I want to highlight in the arrangement, first of all, let's just put the caveat out there that we don't know all the details because we often are given frameworks and not

the specific deals. And a codified written deal is not yet in place. But we do know what both sides have stated is part of the arrangement and what has allowed the administration to say this is a 12, not a 10, not on a 1 to 10. What are we talking about here? Well, first of all, the U.S. is reducing tariffs on China by 10% after President Xi has promised to do more to clamp down on fentanyl coming in the United States. So President Trump had added a 20% tariff as a so-called fentanyl levy and he's now cut that in half. China is agreeing to pause their export controls a review process on rare earth minerals for one year, and then the U.S. is dropping its threat of additional tariffs around that. China is committed to buy, and I quote, a tremendous amount

of U.S. soybeans from the U.S. The quantity commitments do not appear to be part of the deal, but they may be forthcoming and just haven't been released yet, but the specific language has been released was via the White House release and President Trump's press conference that it uses the very specific term of tremendous amount. The U.S. has greenlighted a significant amount of Nvidia chip sales to China, not yet the full-powered so-called Blackwell chip. So they are still seeking to limit the most high-powered and competitive chips in sales to China.

I'm going to talk more about that in a moment, but a big increase in quantity of, high-tech semiconductor capacity being sold by the United States to China. China is agreeing to purchase more oil and gas from Alaska. The LNG part of that, the liquefied natural gas, is largely going to be from Alaska for logistical reasons, but there will be other LNG producers part of the export process to China, and I believe the crude oil will be entirely from Alaska. And then the U.S. has agreed to suspend pork fees on Chinese ships for a period of time. This comes with President G saying that he believes cooperation is the better way to get things done, and retaliation is counterproductive.

There's a lot of de-escalation from both sides. Both sides had leverage over the other, and both sides have used it. And what you really get, and that, by the way, even intensified as recently as the last four weeks, but alone the last seven months. But what you essentially get out of this, if I were just giving a very basic summary, is China will be a bigger customer of soybeans, oil, and gas. The U.S. will be a bigger customer of rare earth minerals. The U.S. will continue selling China, high-tech equipment, and the bulk of the rest is status quo. Now, there's a lot here we don't know, and I want to point some of these things out as well. A broader trade deal, again,

again, using the White House's own language, is supposed to be forthcoming. And we do not know exactly what will be included in that, but we expect more carve-outs, more tariff reductions, and more increased potential markets. President Trump is agreeing to go see Xi in China in April of 2026. So a six months from now, U.S. stateside visit, President Trump being stateside to China. That's a very big deal. and yet it also, being six months away, there's a lot that can happen in between and a lot that will end up on that agenda that may not be foreseeable right now.

President G. will supposedly become in the United States after that visit, and that would be a really historical moment if it were to happen. We do not know exactly what posture China will be taking with Russia going forward as it pertains to U.S. efforts to end the Russian. Ukraine War. We do know that there has been discussion in this deal about China being a part of U.S. efforts to end it, but there's uncertainty as to what China's willing to do and not do as it pertains to flexing with Russia. And we also do not know where exactly Taiwan discussions

will go. They are not a part of this deal. According to President Trump, it hasn't come up. We know that China wants to see a greater commitment from the U.S. U.S. to lean out of Taiwanese independence, and I imagine that would be part of the agenda of a Trump visit to Xi in China in April, but it is not part of the particular imminent arrangement now. And then finally, I believe that additional 10 percent so-called fentanyl tariff will be coming off, but we don't know exactly when, and right now the speculation would be that it would be in April, we will see. But I think that this really brings us to an important point about the change in everything around the U.S.-China situation since Liberation Day.

I want to quote the aforementioned Renee Anna now in a recent commentary, the post-liberation Day market discipline and subsequent rewards in capital markets has converted President Trump from a protectionist to an integrationist. And while there is a continued significant amount of protectionist rhetoric that comes from the president and is still an ongoing theme in a lot of the ways he's trying to talk about other trade deals, I don't think we're going to stop hearing him say about other companies are ripping us off or I want to bring these jobs back and things like that. But when it comes to the China relationship, we hear absolutely no conversation about decoupling. What we do here, instead of protectionist rhetoric about jobs coming back, is opening new markets. In other words, increasing and intensifying sales of an activity between the two countries. This is categorically different than the language we heard back in April. This does resonate in a more consistent way with the agenda of Treasury Secretary Scott Besson. want to open new markets.

And that has always been, look, he's going to tow the party line about tariffs. And yet the agenda behind tariffs from Secretary Besson's lips has always been more about opening new markets than it has been trying to shut down trade activity. And I think trade protectionism carries a much different macroeconomic risk than attempting to increase markets. Now people can agree or disagree with whether or not this should be happening. can agree or disagree or whatnot, it will happen, particularly when you start talking about FDI from China, the foreign direct investment commitments may very well not materialize, and I think

everybody understands that. But it is a different focus, and markets are far more open to a back and forth about China and U.S. doing more than they are to the idea of really trying to shut down imports in the United States, us importing from China. So it's exports for them, imports for us around cosmetics, around toys, around plastics, around low-priced goods. And to the extent that there is a higher cost now baked in, that is something I've written about a lot this year, that the U.S. economy will have to absorb, but there is very little possibility at where things stand

that we totally de-incentivize the purchase of these items from China. I think that there are textbook comparative advantages that exist, the rare earth mineral side with China, the high-tech capacity here in the United States, and both sides are leaning into those comparative advantages and selling them to one another. Now, we're not just selling them, but doubling down on that. Is this going to be the final outcome here? We don't know, I mentioned the Blackwell Chips of the Vida, the highest tech, highest capacity

chip that the U.S. has to offer via one of the U.S.-based companies. companies, in this case, NVIDIA, that remains to be seen. The CEO of NVIDIA has been on speed dial with the White House throughout this process, and that's a theme that we ignored to our imperil. It is paid to be big in this trade and tariff drama with China in 2025. The way in which things have been threatened, but then not done with the apples and invidias, is categorically different than the impact that we're seeing with a lot of small business. Does this whole, what's called quasi-stabilization in trade tariff drama with China put China out of the woods?

Like, are they okay now economically? Not by a long shot. Their challenges were primarily never about a marginalization of exports to the United States. They face the bursting of a property bubble that is large, dramatic, and nowhere near over. They have a state-owned banking system that is then going to have to require some form of first liquidation of bad debt and second reflation. they are not going to, and I say this to their credit, they don't appear to be going to the use of monetary elixir, the way that the U.S., well, first Japan, then the U.S.,

then the U.S., then European Union all did, and that may very well improve their recovery and limit some of the hangover effect that I believe lingers with countries that overly drink from the hair of the dog cup of monetary policy. but the overall balancing act of China's economy, of trying to be, trying to fortify domestic consumption and be less reliant on the exports of their own production, they have a long way to go there. And how do you go about normalizing and fortifying an economy?

It's with freedom, and they don't have that. And so the lack of a free flight of human beings, a free flight of capital, a high flight, mobility for people to come and go and capital to come and go. They do not have that. And that is really the elephant in the room for their economies. But all things being said, if you have all the problems you're going to have and an additional destabilizer of uncertainty around U.S. trade, then that is much worse. And I do think some of that left tail risk has been largely remedied. Now, we're not out of the woods here in the U.S. either. I mean, all indications that we are making ourselves more dependent on rare earth minerals from China, even though we are seeking to buy ourselves

time to consider other options. And we are most certainly continuing to sell some of our best technology to China. Yet we have also produced big incentive to China to go about coming up with their own solutions to this. And so as the ongoing AI and tech battles and race play out, I mean, look, the U.S. is in the lead there. That's just incontestable. But the race isn't over. and anyone who thinks so is wrong. I think it's a good thing for the U.S. to be a seller of oil and gas, leaning into that aforementioned comparative advantage. But I don't think that we know the final answer about where demand stands.

If China's economy is weakening and global demand is softening, the supply side is less relevant. And so getting a big benefit to the U.S. energy sector on the supply side of demand is waning. Those things remain to be seen. And so we have more work to do here. I am going to recommend you read the article on this subject at dividendcafe.com. I think there's a few charts there in a little elaboration that will be useful. But essentially, this is where things stand, that we really got back to the status code deal.

We took a lot of the heaviest levels of risks off the table from Liberation Day. I'm doing my very best here to depoliticize this discussion because this is not fundamentally a political thing for me. Do I happen to believe a lot of what we got done here? Could have been done with a lot less noise on the way I certainly do. And do I really believe that a lot has gotten done? I mean, isn't a lot of the top headlines here cut and paste from 2019. Yes. But nevertheless, if you get more foreign direct investment,

that will end up being a boon for the U.S. And a lot of that is priced in. If we get a larger customer base, at least on those few things that we have a comparative advantage of soybeans and oil and gas, that's a boon to the U.S. Those who are hoping for some sort of isolationism in the dynamic of China, that I never believe was going to happen, and it most certainly is not on the table from what we're seeing here. So this remains an ongoing element, both for the global economy, but certainly for the U.S. economy, but do I think it appears we're ending

2025, exactly where I forecasted we would on this subject in our white paper a year ago, in a stronger U.S. relationship with China than we started, despite the fact there was a lot of noise along the way. Well, I think so. And I'll use President Trump's own words to end today's Dividend Cafe. We just made a great deal with a great leader of a great country, and President Xi is a great friend. Those are the words of President Trump five days ago describing this 12 on a scale of one to 10 of a deal. That's where things stand, my friends. Pays to be big. apparently right now, and we move on to other economic discussion items. Next week, by the way, one of those is going to be a pretty big evaluation of what might

happen out of an AI-CAPX bubble burst. More to come on that. Thanks for listening. Thanks for watching. Thank you for reading the Dividing Cafe. All of TBG wishes you all the best from Dallas, Texas. Have a great weekend. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC, member FINRA and SIPC with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities.

No investment process is free at risk. There is no guarantee that the investment process or investment opportunities referenced TIRAN will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities, referenced TIRAN, may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonsor Group in Hightower shall not in any way be liable for claims and make no expressed or implied

representations or warranties as to the accuracy or completeness of the data and other information or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date reference. Such data and information are subject to change without notice. This document was created for informational purposes only, the opinions expressed, are solely those of the Bonson Group and do not represent those of Hightower Advisors LSC or any of its affiliates. High Tower advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information.

Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.