“Trade War for 20 years”: Jack Ma

Alibaba founder issues a warning over the trade conflict between Washington and Beijing, claiming the dispute could last as long as 20 years.

Background

Jack Ma is the CEO of Alibaba and the richest man in Asia. His net worth is above $46.9 billion, and he is considered by many to be a political force to be reckoned with. His business, Alibaba Group Holding Limited is a Chinese e-commerce, retail and technology conglomerate founded in 1999 with Leng Lei.  Alibaba owns and operates an array of businesses around the world in numerous sectors. As of November 2017, Alibaba's market cap stood at US$486.27 billion. It is one of the top 10 most valuable companies in the world.

Ma has warned against trade wars before. In January, speaking at the World Economic Forum in Davos, Ma warned global leaders not to “use trade as a weapon”. “The world needs trade. If the trade stops, the wars start," he said.

Ma stated that the US-China trade relationship has allowed both the US and Chinese governments to achieve their respective goals. The US has become “became a pre-eminent technology leader.” Meanwhile, China has been able to maintain the social contract between the communist party and the people, improving standards of living and increasing per capita GDP. Ma cited Apple as a “beneficiary of this symbiotic relationship.” Apple products are designed in California, components are manufactured in South Korea, and then assembled by Chinese workers; most of the profit returns to the US.

Analysis

Chinese billionaire and Alibaba founder Jack Ma said on Tuesday said that trade frictions between Washington and Beijing could last for two decades and would be “a mess” for all parties involved.

“It's going to last long; it’s going to be a mess,” Ma said at an annual conference for Alibaba investors. His remarks came just hours after US President Trump’s administration slapped a new round of tariffs on Chinese goods worth $200 billion, with Beijing promising to retaliate. He added that the trade war will last not for 20 months or 20 days, but “maybe 20 years.”

According to Ma, trade tensions between the world’s two largest economies would likely impact Chinese and foreign companies immediately and negatively.

He predicted that Chinese businesses would move production to other countries in the medium-term to get around the tariffs. He acknowledged that the ongoing spat with China's largest trade partner was hurting Alibaba’s business as well.

“You may win the battle, but you lose the war,” Ma said, adding: “Middle term, a lot of Chinese business will move to other countries.” New trade rules are needed over the long term, according to the billionaire. “Even if Donald Trump retired, the new president will come, it will still continue... We need new trade rules, we need to upgrade the WTO,” he said.

The businessman said the trade war is “against China” but also criticized Beijing's policies, urging authorities to view the pain inflicted by Trump's tariffs as an opportunity to “upgrade.”

“China must open the market,” he stressed. Ma met with Trump last year and promised to create one million US jobs linked to small merchants selling items on Alibaba platforms.

Counterpoint

Ma’s Alibaba group has reaped the benefits of the US’s tech boom in Silicon Valley as well as China’s skilled and cheap labour simultaneously. President Trump’s tariffs are negatively impacting Alibaba’s e-commerce business which spans across the Pacific Ocean. His recent statements against the trade war may be directed at reducing the impact of the dispute on Alibaba’s operations.

Additionally, Ma’s arguments are based on certain assumptions. Despite President Xi having the “President-for-life” title, there could be a change in leadership in Washington as early as 2020. Additionally, the 2018 Midterm elections may result in a Democrat-controlled Congress, which may not seek to escalate the trade war.

Assessment

Our assessment is that Jack Ma’s warning should be taken with a degree of circumspection. We feel that Jack Ma’s primary objection to the imposition of tariffs is purely business-related and do not carry any altruistic overtures. We believe that the trade dispute between the two countries might escalate in the near future. However, we feel that a change in leadership in Washington may lead to a thaw in the trade war.