WSJ What’s News - Trump Lowers the Temperature on China. What Next?

Episode Date: January 24, 2025

A.M. Edition for Jan. 24. With Donald Trump deferring the threat of tariffs and promoting diplomacy, we ask the WSJ’s Chun Han Wong how the U.S.-China relationship might play out. Plus, the gears of government slow to a halt after major federal initiatives across Washington get axed. And two Republican senators oppose Pete Hegseth’s nomination for Pentagon chief, setting the stage for a close confirmation vote. Kate Bullivant hosts.  Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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as two GOP senators oppose the Pentagon pick. And Trump's opening gambit vis-à-vis China keeps Beijing guessing. The Chinese know that while there is possibility for engaging the president who is seen as more transactional, that also comes with a flip side, which is if he doesn't think he's getting what he wants, he could rain fire and act on those threats. It's Friday, January 24th. I'm Kate Boulevent for The Wall Street Journal, filling in for Luke Vargas. And here is the AM edition of What's News,

the top headlines and business stories moving your world today. We begin in Washington, where President Trump's first week in office has seen major federal initiatives scrapped, throwing much of the government into disarray and bringing even routine functions to a halt. Confusion has loomed over Trump's executive order to pause distribution of funds allocated by the previous administration, causing the Transportation Department to temporarily shut down a computer system for road projects. A hiring freeze has led some agencies to rescind job offers and orders to halt all external communications from health agencies through February 1st left food

and drug administration employees scrambling to clarify that they could still issue critical safety alerts. A spokeswoman for the White House said the communications pause doesn't relate to emergencies or critical health needs and that food and safety inspections continue, describing the disruptions as temporary inconveniences. According to people familiar with the matter, the pause was meant in part to ensure

that new missives aligned with Trump's executive order declaring only two genders. While glitches aren't uncommon during presidential transitions, some long-time federal employees say the chaos seemed more extreme this week, highlighting the wide-spanning differences between the two administrations. Pete Hegseth's nomination for defence secretary heads to a vote today in the Senate where Republicans face a razor-thin margin to confirm President Trump's most controversial pick. That's after two centrist GOP senators said they opposed the nomination yesterday raising questions about Hegcess character and his ability to run the Pentagon. In a procedural vote yesterday

Senators Lisa Mikowski of Alaska and Susan Collins of Maine voted against advancing Hegseth's confirmation. Some Republicans who voted in favour yesterday haven't committed to supporting Hegseth on final passage. If Democrats unite against him today, he can't afford more than three no votes from his own party. he can't afford more than three no votes from his own party. When OpenAI announced its new Stargate venture with Oracle and Softbank earlier this week, there was, for some, a $3 trillion elephant in the room. Its longtime partner, Microsoft,

was nowhere to be seen at the White House, where tech leaders outlined plans to invest up to $500 billion in data centers to power OpenAI's development. Journal reporter Tom Dothan told our tech news briefing podcast that the companies that help drive the generative AI boom have been drifting apart as each focuses on its own evolving needs. OpenAI is always wanting more and more and more. They're this fast-growing, highly funded AI startup

that is trying to create artificial general intelligence, which requires huge computing clusters. And Microsoft is a publicly traded company that has to justify billions of dollars that they pour into something. All of the models that OpenAI has built, products like ChatGPT or GPT-4 and Sora, that's all almost entirely built on Microsoft's cloud computing. And as OpenAI has grown, Microsoft has had to build more and more data centers for them. And that's actually caused a lot of tension. And so these guys were trying to hammer out

a new agreement where they figured out what the relationship going forward would be when it comes to basically cloud computing. Both companies say their relationship is still solid. Microsoft CEO Sacha Nadella told CNBC this week that Altman wants to build enormous AI models, while Microsoft wants to focus on integrating those products into software. And in market news today, the Bank of Japan has resumed rate hikes, lifting its key interest rate to 0.5% as the economy advances toward a target of stable 2% inflation and wage-backed growth.

More clarity on US policy under President Trump had been a key consideration for central bankers, and Japanese markets and the yen have stayed relatively calm in the wake of his return to office. And on deck, earnings are due from American Express and Verizon this morning, and will also get existing home sales for December. Economists polled by the journal expect the report to show a 1.2% uptick from the previous month when it's released at 10am Eastern. Coming up, Trump has so far kept Beijing guessing on his tariff threats. We'll take a look

at how he's on China raised the prospect that his first day back in the White House would mark the dawn of a new trade war. But so far, Trump is holding off on imposing tariffs and indicating he's willing to talk business with Beijing. To help us understand this approach and how it might shape US-China relations, our Luke Vargas spoke to journal reporter Chen Han-Wong and began by asking him about the signals Trump has been sending. So we saw him invite Xi Jinping to attend this inauguration, which Xi didn't take up personally, but he sent the next best option, which is his vice president to attend, which is also unprecedented.

And then on day one, he didn't impose the tariffs that he had sort of suggested that he might do, as much as 60% on goods from China. He did raise the possibility of 10% tariffs from China starting February 1st, but he did not deliver them immediately. And he didn't bang the table on perceived Chinese threats to American interests as hard as people thought he might. And I guess the handling of the whole TikTok situation maybe also fits into this as being a bit lighter or more gentle than could otherwise have been. Indeed.

So TikTok has been discussed over the past few days. Trump's position now seems to be he's willing to preside over a deal that would give American shareholders 50% ownership in this app rather than to kill it. And his rhetoric was saying that it could be worth a lot of money and Americans should have the right to partake in this. So some people are seeing this as a gambit to let the Chinese know that he's interested in dealing, he's interested in talking, he's not trying to set a table on fire from day one, he wants to find ways to develop some kind of a working

relationship with Beijing. But having said that, there's also a possibility that he would want to take very drastic action if he doesn't get what he wants. Let's go through both scenarios. So I guess there's sort of the blue sky one in which there's actual space for cooperation. What have officials in Beijing said about that? Do they see a possibility that, you know, they could actually engage in constructive dialogue with the administration? What might that path look like?

So, from China's point of view, they always insist that they are very willing to engage and very willing to cooperate. They want to be able to say that they've tried their best to avoid any direct confrontation or turmoil, and it's the Americans that force them to do it. So when Trump won the election in November, the Chinese immediately started signaling that they're willing to do more, for example, on fentanyl. There's also talk about

buying more American agricultural products. Some Chinese scholars have suggested maybe Chinese money could be channeled towards supporting more US-based manufacturing., basically trying to find ways that would satisfy what Trump wants to achieve on the economic front as a way to, you know, build some sort of mutually beneficial relationship and try to sustain this for as long as possible. Okay, economic and possibly also some foreign policy compromise that Chinese government advisor you spoke to hinting that maybe China could play a role in helping to end the war in Ukraine.

Yes. So Trump actually mentioned this briefly in one of his press remarks after taking office. He talked about the fact that in his conversation with Xi Jinping, they did discuss Ukraine, and he suggested that China could do a lot more to contribute to a peaceful resolution to the ongoing conflict. There's also talk about China playing a role in the Middle East, which already has in the last few years, but obviously Trump wants to be able to say that he's willing to partner with China to solve some of the world's biggest issues. And that is also another platform for potential cooperation. Okay.

So some potential avenues there to get along, but let's bring some gray clouds into the forecast here. And I guess we can look at that scenario by remarking that there was kind of a honeymoon period in US-China relations at the start of the first Trump administration, and we saw where that went. Yes. So in the first administration, Xi Jinping, if you remember, he went to Mar-a-Lago, and then Trump went to Beijing later that year in 2017. He got a quote unquote state visit plus treatment. He was given a tour of the Forbidden City. There was all this very public and very grand gestures on both sides to show that the two leaders had

a good report. And then 2018, the trade war started and things went downhill quite quickly. So the Chinese understand this. The Chinese know that while there is possibility for engaging the president, who is seen as more transactional and willing to put all sorts of things on the table for discussion, that also comes with a flip side, which is if he doesn't think he's getting what he wants, he could, you know, rain fire and act on those threats. And it's not just Trump, right? We've only seen, I guess, one real high profile cabinet approval so far. Marco Rubio is secretary of state, but he is one of many folks picked by Trump to have major roles in the administration who

are quite hawkish on China. Indeed. So that is one area that remains to be seen how the dynamics between people of different persuasions on China, yes, across the board, they're all fairly hawkish on China, but there are different degrees as to how hawkish they are. And it remains to be seen which of these figures proves to be more influential. Have Chinese officials said more? Do they have a favored interlocutor perhaps on issues with the US? No, but they do have people that they try to engage fairly regularly in the Washington Beltway, but none of them would be considered within the Trump circles at the moment. There

were some connections from the first presidency, but the Chinese don't seem to have as many of these channels through to the second Trump administration so far. That could change. For example, Trump's choice for his ambassador this time is Senator Perdue, who has some experience working in Asia. He has traveled to Beijing before as senator. So there are existing potential channels that can be built upon in the coming weeks and months. I've been speaking to the Wall Street Journal's Chen Hen Wang in Singapore. Chen Hen, thank you as always for the update. Thank you very much. And that's it for What's News for this Friday morning. Today's show was produced by Daniel

Bach with supervising producer Christina Rocca. And I'm Kate Bulevant for the Wall Street Journal, filling in for Luke Vargas. We will be back tonight with a new show. Until then, have a great weekend and thanks for listening.