Investors debate whether the US or China will control the future

Investors debate whether the US or China will control the future
Source: Tingshu Wang, Reuters
While Warren Buffett remains confident in the future of America, other investors have begun viewing China as the next global superpower.

High-profile investors have taken somewhat different stances when it comes to measuring the future of the United States and China. Two big ones are Warren Buffett and Ray Dalio. Warren Buffett is incredibly optimistic about the US whereas Ray Dalio believes that China is the future.

In February 2021, Warren Buffett released his annual shareholder letter where he expressed his beliefs in America’s future.

“Despite some severe interruptions, our country’s economic progress has been breathtaking … Our unwavering conclusion: Never bet against America,” Warren Buffett said.

The letter comes as the world approaches the three-year mark of a trade war between the US and China started by former President Donald Trump.

US-China trade war

In 2018, Trump famously tweeted that “trade wars are good, and easy to win” as he began to impose tariffs on about US$360 billion of imports from China. The dispute has seen the US and China impose tariffs of hundreds of billions of dollars on one another’s goods.

Trump had accused China of unfair trade practices along with the theft of intellectual property. The former administration began the trade-war by not only establishing these high tariffs but also by including restrictions on investments and visas for Chinese nationals.

Despite Trump’s claims that “trade wars are good, and easy to win,” experts have pointed out that the US has not “won” the trade war.

“China is too big and too important to the world economy to think that you can cut it out like a paper doll,” Mary Lovely, an economics professor at Syracuse University, told Bloomberg. “The Trump administration had a wake-up call.”

While Warren Buffett remains confident in the future of America, other investors have begun viewing China as the next global superpower.

Ray Dalio’s predictions

While not a household name, Ray Dalio’s wealth and influence are proven. Founder of the world’s biggest hedge fund firm, Dalio was the 46th richest person in the world according to Forbes’ list of the richest in 2020 and his net worth was US$20.3 billion at the time of writing. Dalio’s hedge fund firm, Bridgewater Associates, manages roughly US$140 billion.

In May 2020, billionaire investor Ray Dalio wrote in his essay series that “The United States is now the most powerful empire by not much, it is in relative decline, Chinese power is rapidly rising, and no other powers come close.”

In the 10,000-word essay that compares the trajectories of the Dutch, British and American empires and their reserve currencies, Dalio writes that empires have a typical life cycle that ultimately comes to an end.

While Dalio states that the US is reaching the end of its “empire cycle,” he remains confident that the country will still hold significant power even if China’s power and influence supersedes it. Dalio says that both the US and China are leading the way in a new period “of great inventiveness due to advanced information/data management and artificial intelligence supplementing human intelligence.”

In October 2020, Ray Dalio provided more information regarding the trade war between the two global superpowers in an interview with Yahoo! Finance where he stated that China’s rise as “a great power, challenging an existing great power, the United States," has “enormous implications.”

Warren Buffett’s letter and investments

While Warren Buffett claimed in his letter to shareholders to “never bet against America,” the same letter demonstrates that one of Buffett’s most profitable gains in 2020 was from his investment in a Chinese car company called BYD.

BYD Company Ltd. is focused on providing sustainable, clean and energy-efficient automobiles. Buffett’s investment firm, Berkshire Hathaway, held an 8.2% stake in the automaker which showed a market value of US$5.9 billion at the end of 2020.

With an initial investment of US$232 million in 2008, BYD has proved to be a great investment for Berkshire Hathaway. Comparatively, the investment firm holds a 3.7% stake in the American motor company GM which was valued at US$2.2 billion as of December 31.

The American motor company was not as profitable as BYD in 2020, but GM has only recently begun investing in mass-producing electric cars.

When asked how the Biden administration was planning to handle the ongoing trade war, White House press secretary Jen Psaki said that the Biden administration was focused on approaching the issue “from a position of strength, and that means coordinating and communicating with our allies and partners about how we’re going to work with China.”

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