Statements about trade and foreign policy by U.S. president-elect Donald Trump during his campaign and since the election have set off alarm bells around the world, with some of the loudest ones sounding in China. On December 2, Trump upset decades of diplomatic precedent when he placed a phone call to Taiwan’s president, Tsai Ing-wen—the first conversation between a leader of Taiwan and a U.S. president or president-elect since the U.S. adopted the “One China” policy as part of a warming of relations with the People’s Republic of China in the 1970s. More recently, he has suggested that the One China policy itself should not be considered sacrosanct but should be part of negotiations with China over trade and other issues.
But according to Lei Zhang ’02, founder of Hillhouse Capital Group and a trustee of the Yale Corporation, if the past few decades of U.S.-China relations are any indication, China will hold fast to a “wait-and-see approach” regarding Trump’s pending presidency, banking on the history of mutual respect that has characterized relations between the nations in recent decades.
Zhang offered this guardedly optimistic view during a panel discussion at Yale SOM on December 9, organized by the school’s Greater China Club, that also included Nobel laureate Robert Shiller, the Sterling Professor of Economics; and Stephen Roach, the former chairman of Morgan Stanley Asia, who is now a senior fellow at Yale’s Jackson Institute for Global Affairs and a senior lecturer at Yale SOM.
“You have to believe over the long run that the wisdom of both country’s leadership is going to prevail,” Zhang said. He described China’s present stance toward Trump as one of “constrained goodwill.” Yes, there is concern, Zhang said, but the Chinese are pragmatic, and a realistic approach guided by common sense will shape their relationship with the Trump administration. “The Chinese philosophy always is going for the long-term orientation,” Zhang explained. “Especially in a time of uncertainty, probably it’s even more important to think for the long term.”
Roach, likewise, suggested that although Trump’s reputation as a “tough negotiator” and some of his statements—including questioning the “One China” policy—have ruffled feathers, Trump will ultimately move to a more “centered position,” with room to negotiate.
Zhang agreed: “There must be a win-win solution to be sustainable, for any successful deals.” Trump, the panelists agreed, knows this, too.
Roach also sought to calm anxiety that China will extend its economic might and its imperial ambitions in the South China Sea if Trump makes good on his promise to withdraw from the Trans-Pacific Partnership and if Trump’s administration focuses primarily on U.S. domestic issues, giving the Chinese more latitude on the global stage.
“Global power shifts are not as simple as that,” Roach said, explaining that strength abroad must first be rooted in strong, successful polices at home. “China has a lot of issues to deal with at home and it knows full well what’s on its plate,” Roach said. “Global projection in its current state would run the risk of going too far.”
Discussing Trump’s domestic standing, Shiller conceded that the president-elect does have a “sort of magic” and attributed much of it to the fact that Trump inspires a sense of confidence in people who are feeling dispossessed. “It amazes me how many people are passionately behind him,” Shiller said.
As a candidate, Trump focused on a message of “empowering people” at a time when many in the U.S., especially low- and middle-income citizens, feel left by the economic wayside, Shiller said.
While Hillary Clinton focused more heavily on “redistribution” achieved by raising taxes on the wealthy, Trump championed business stimulation and job creation—or at least retention—as a means to creating wealth, Shiller said.
“Most people don’t want redistribution in the U.S. or anywhere in the world,” Shiller explained. Trump, whom he called a “master storyteller,” capitalized on this sentiment. In the short term, the bullish stock market inspired by Trump’s pro-business rhetoric will continue, but the long-term picture is far less clear, Shiller said.
Zhang predicted continued strength for the Chinese stock market, which has leveled off after plunging in mid 2015. “The China market is actually very stable, and that stability is going to persist for a number of reasons,” he said. Primary among them is the fact that, in the wake of the bubble that burst last year, the Chinese market is no longer overvalued, and the Chinese leadership is encouraging companies to enter the market.
“They just restarted so many more companies going through the queue [to be listed on the stock market],” Zhang said. “It used to be such a long queue. Now with this speed, within a year and a half, I would predict there’s not going to be a queue anymore, and that would be the first time ever in the securities market history of China. This leadership, this administration, has done an amazing job not only of stabilizing the market, but also of using the market and developing the market to be an engine for economic growth.”
About the Event
Professor Stephen Roach, the former chairman of Morgan Stanley Asia; Professor Robert Shiller, an expert in financial markets and behavioral finance and the winner of the 2013 Nobel Prize in Economic Sciences; and and Lei Zhang ’02, founder of the Hillhouse Capital Management Group, will discuss the U.S.-Sino relationship in the current global economic and political environment, and its future in the Trump era. The panel discussion will be followed by a Q&A session. This event is organized by Yale SOM’s Greater China Club.
This event is open to the Yale student community.
Robert J. Shiller
Sterling Professor of Economics, Yale University
Robert J. Shiller is Sterling Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and Professor of Finance and Fellow at the International Center for Finance, Yale School of>>...
Robert J. Shiller is Sterling Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and Professor of Finance and Fellow at the International Center for Finance, Yale School of Management. He received his B.A. from the University of Michigan in 1967 and his Ph.D. in economics from the Massachusetts Institute of Technology in 1972. He has written on financial markets, financial innovation, behavioral economics, macroeconomics, real estate, statistical methods, and on public attitudes, opinions, and moral judgments regarding markets.
Senior Lecturer, Jackson Institute
Stephen Roach is a Senior Fellow at Yale University’s Jackson Institute of Global Affairs and a Senior Lecturer at Yale’s School of Management. He was formerly Chairman of Morgan Stanley Asia and the firm’s Chief Economist for the bulk of>>...
Stephen Roach is a Senior Fellow at Yale University’s Jackson Institute of Global Affairs and a Senior Lecturer at Yale’s School of Management. He was formerly Chairman of Morgan Stanley Asia and the firm’s Chief Economist for the bulk of his 30-year career at Morgan Stanley, heading up a highly regarded team of economists around the world. Mr. Roach’s current teaching and research program focuses on the impacts of Asia on the broader global economy. At Yale, he has introduced new courses for undergraduates and graduate students on the “The Next China” and “The Lessons of Japan.” His writing and research also addresses globalization, trade policy, the post-crisis policy architecture, and the capital markets implications of global imbalances.
Lei Zhang ’02, MA ’02
Founder, Hillhouse Capital Management Group
Lei Zhang ’02, MA ’02 is the founder, chair, and CEO of China-based Hillhouse Capital Management Group. While studying at Yale, where he earned a master’s degree in international relations as well as an MBA, he served as an intern at the>>...
Lei Zhang ’02, MA ’02 is the founder, chair, and CEO of China-based Hillhouse Capital Management Group. While studying at Yale, where he earned a master’s degree in international relations as well as an MBA, he served as an intern at the Yale Investments Office, which administers the Yale endowment. Later, the investments office was an early investor in Hillhouse Capital Management.