Famed investor Steve Eisman has warned that a trade war with China could cause a recession.
Eisman, known for foreseeing the 2008 financial crisis, mentioned in a chat with the Daily Mail that he considers the US-China trade disputes over imports to be of great concern.
US stocks tumbled on Friday after President Donald Trump threatened a massive increase in tariffs on Chinese imports.
The conflict centers around China’s recent limitations on rare earth exports, which are crucial to industries like artificial intelligence, semiconductors, defense, and high-tech sectors.
The S&P 500 experienced its worst decline, dropping 2.7 percent, since April’s ‘Liberation Day’ tariff announcements by Trump. Additionally, the Dow Jones Industrial Average decreased by 1.9 percent, and the Nasdaq composite fell by 3.6 percent.
On Friday, after the stock markets had closed, Trump intensified the trade war, declaring that the US would implement new tariffs of 100 percent on imports, in addition to the current duties, starting from November 1.
Eisman said that when it comes to trade negotiations for the US, China is the ‘wild card.’
‘What became evident today is that although we have the upper hand as China exports significantly more to us than we export to them, they hold a strong position with their rare earth metals. Today, that advantage showed its impact,’ Eisman explained.
‘I don’t see a recession unless there is a trade war with China. If there is a trade war with China, all bets are off.’
Steve Eisman has warned that ‘all bets are off’ if the US enters into a trade war with China
The S&P 500 closed down 2.7 percent on Friday – its worst day since Trump’s ‘Liberation Day’ tariff announcements in April
China holds dominance over the rare earth market, controlling about 70 percent of the global supply and 90 percent of its processing, thus exerting significant influence over the high-tech industry supply chain.
On Thursday, China announced new restrictions, starting December 1, on rare earth exports and related technologies, extending controls on the critical materials.
Eisman, who hosts the podcast The Real Eisman Playbook and was played by Steve Carrell in the 2015 film The Big Short, explained how the US is in a unique position when it comes to trade negotiations with most of the world’s largest powers.
‘The US is in a great position to negotiate with any country about trade, because of all the developed countries, it has the least exposure to exports,’ he told the Daily Mail.
‘The percentage of US GDP that comes from exports is 11 percent, which is the lowest number in the world, while most other countries are around 30 percent.’
The European Union ‘basically caved’ when it came to trade agreements with the US, he said, and countries such as Mexico are willing to negotiate.
‘China is sort of the wild card.’
Trump on Friday morning accused Chinese president Xi Jinping of attempting ‘to hold the world captive’ through the ‘monopoly position’ on the materials critical to the AI arms race.
Donald Trump shakes hands with China’s President Xi Jinping during a meeting on the sidelines of the G-20 summit in Osaka, Japan, in 2019
Workers use machinery to dig at a rare earth mine in Ganxian county in central China’s Jiangxi province. China dominates the global rare earth supply chain, and the US is heavily dependent on imports
In a post on his social media site Truth Social, he called it a ‘rather sinister and hostile move’ which he would have to counter.
‘One of the policies we are calculating at this moment is a massive increase of tariffs on Chinese products coming into the United States. There are many other countermeasures likewise under serious consideration,’ the president wrote.
The rules require foreign companies to obtain special approval to export items containing even small traces of Chinese rare earths.
The same applies if using Chinese processing, smelting, recycling, or magnet-making technology. Exports for military purposes are expected to be denied.
Analysts say China’s new curbs are geopolitical as well as economic, forcing countries and companies to rethink sourcing and build independent supply chains.
The US has already started investing heavily in domestic rare earths production: MP Materials is opening a new magnet plant in Texas using US-sourced rare earths, Noveon secured supply from Lynas in Australia, and the Defense Department invested $400 million to secure supply and stabilize prices.
Meanwhile, shares of companies linked to rare earth minerals jumped Friday after Trump threatened the countermeasures against China.
On Friday evening, Trump said the US would impose new tariffs of 100 percent on imports from China, effective from the start of next month, ‘over and above any tariff that they are currently paying.’
Nearly all goods imported from China already face significant duties. The average US tariff on imports from China is near 58 percent, according to analysis from the Peterson Institute for International Economics. China’s average tariff on US goods, meanwhile, is around 37 percent.
