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US-China trade war effects are a 'net losing strategy': Stephen Schwarzman

Julia La Roche
Reporter

Private equity billionaire Stephen A. Schwarzman, the founder of $545 billion Blackstone Group ( BX ), has been actively involved in the trade negotiations between the U.S. and China.

And even as doubts grow on Wall Street about whether the two warring sides can declare a truce, Schwarzman remains optimistic that a deal will be reached.

"What's important is it appears that this is a serious engagement and we'll see where it goes," Schwarzman told Yahoo Finance.

As the trade war has dragged, the world’s two largest economies have slowed — along with the global economy.

While it's impossible to handicap when exactly an accord will happen, the billionaire investor said that “there is now a recognition on both sides that the decoupling of these two economies is really adversely affecting the world, global growth.”

Schwarzman said that “if you do that as a long-term strategy, that will have a depressing impact on global growth. And that's a net losing strategy.”

He added: “And so, hopefully, the fact that we're going into re-engagement is a recognition by the parties that, particularly by China, that this isn't in their long-term best interest either to decouple."

[ See also: Steve Schwarzman sees a 'wake-up call' for investors ]

‘Complicated negotiations’

U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque TPX IMAGES OF THE DAY

In his new memoir, "What It Takes: Lessons in the Pursuit of Excellence," Schwarzman writes that the trade talks between the U.S. and China are "some of the most complicated negotiations" that the dealmaker has ever experienced.

One reason in particular: The trade talks have been going on for over two years — which is much longer than most deals take to complete. And Schwarzman highlighted another “simple” factor behind why the path to a deal is so complex.

"China, for the last forty years, has grown more than any other country in world history. It's pretty amazing,” he said.

“But they've done it through a system where they have relatively closed borders. They have high tariffs. They have a variety of other practices which are not done in the developed world, like the United States and Europe and some other countries," Schwarzman added.

[ Read more: How billionaire Stephen Schwarzman built a private equity empire ]

He pointed out that China’s breakneck growth occurred as a massive swath of the U.S. population has struggled financially.

"And so given the fact that somewhere between 40% and 50% of the people in the United States are having a tough time economically, and they're unhappy with their government — the previous government — doesn't matter, and they want changes,” he said. “And they're angry. And they should be."

As a result, China — which clearly benefited as American investment and jobs went abroad — has become the target of that frustration.

"And so, China's where the jobs went. And China's where a lot of the wealth went during that period. So, people want China to adjust," he said — noting that Beijing recognizes what's happened.

"There are a lot of people who just like it that way because it works. There are other people who recognize you just can't keep doing that with things getting relatively worse in the developed world," the billionaire said.

Schwarzman added that there "needs to be an adjustment," but "people don't like giving up things they have."

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The billionaire private equity chief has a long history with the world's second-largest economy.

In 2007, as Blackstone prepared for its initial public offering, China's sovereign wealth fund made its first major investment in the firm before exiting in 2018.

And in 2010, Schwarzman gave $100 million to endow the Schwarzman Scholars and the Schwarzman College at China’s prestigious Tsinghua University. That money created a year-long program, similar to the Rhodes Scholarship, to bridge the next generation of leaders with the world and China.

Schwarzman’s experience in dealing with the Chinese makes him relatively optimistic that the two sides will eventually “normalize” their differences. But exactly when that will happen, however, is a matter of debate.

"The question is, how fast does it happen? And how much of it happens?” he asked.

“And so that's an area of tension as each one of these cultures decides what they're really willing to satisfy as a first step. Because you're not going to get all this done,” Schwarzman added.


Julia La Roche is a finance reporter at Yahoo Finance. Follow her on
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