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Could Trump and Xi Jinping Prove Warren Buffett Wrong?

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Warren Buffett

Over the last couple of weeks, we’ve seen the US-China trade war escalate after months of hectic discussions. Negotiators from the two countries have held eight rounds of talks since the meeting between US President Donald Trump and Chinese President Xi Jinping in Argentina late last year. However, the talks seemed to have failed for now and we’ve seen tit-for-tat tariff increases. The United States has also slapped restrictions on Huawei and is reportedly planning to target Hikvision, another Chinese company, which produces surveillance equipment.

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A long march?

China is also stoking nationalistic sentiments, and the state broadcaster has doubled down on patriotic movies like those based on the Korean War. Earlier this week, Xi Jinping, in an apparent reference to the US-China trade spat, said at a rally, “We are now embarking on a new Long March, and we must start all over again!”

China has made its intentions quite clear that it won’t bow down to what it sees as unreasonable demands from the Trump administration. On the other hand, President Trump also looks content with collecting tariffs on Chinese goods.

Warren Buffett

While both the sides have turned up the heat in the trade war, Berkshire Hathaway’s chair Warren Buffett, whose conglomerate holds stocks of companies like Apple (AAPL), Amazon (AMZN), and Red Hat (RHT) (IBM), has been optimistic about US-China relations. Berkshire Hathaway’s returns have lagged the S&P 500 (SPY) by a wide margin this year.

Last year, Buffett said, “I don’t think either country will dig themselves into something that precipitates and continues any kind of real trade war.” Amid the US-China trade spat, Buffett in his 2018 annual letter said, “Americans will be both more prosperous and safer if all nations thrive.” Meanwhile, while Buffett was optimistic on US-China relations, Alibaba’s (BABA) co-founder Jack Ma last year predicted that the trade war could last decades.

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