The US-China Trade Deal Explained

Welcome back, everyone today on the Joseph Carlson Show. The market is surging right now. The Dow Jones is up 2.2%, the S&P 500 is up 2.7%, and the NASDAQ is up a whopping 3.3%. And all of this comes as a result of the China trade deal. That is the biggest trade deal. That's the one that really matters. That's where we do the most business outside of the US. We buy so much stuff from China, and China had the highest tariffs and we have a trade deal

announced. Now we're going to be looking at the details of this deal, trying to get to the bottom of it. We'll be looking at an interview with Scott Besant where he lays out the framework. He talks about how the weekend went in China, how the negotiations are going. He talks about his experience negotiating with the Chinese leaders and how they're reacting to this and how we seem to be closer together in our viewpoints than previously

thought. So this great news of at least there being a trade deal on the horizon and things going better than expected is causing this market to surge. Now, on top of that, we also have big news from President Trump. He announced, once again, his effort to lower drug prices within the United States. He's sick of Americans paying more than their counterparts in Europe and other places. And so he's implementing an

executive order to combat this. We'll be looking over the details of this effort to lower drug pricing and what it means for these pharmaceutical companies. And then, of course, anytime the market has a massive recovery like we've seen over the past month, we have the talking

heads. We have people going on and expressing their opinions, one of which is Mike Wilson from Morgan Stanley, which I want to highlight today is the biggest fail over the past month, The person who really got this more wrong than anyone could imagine. Now we also have a report that Microsoft Azure, Microsoft's cloud, is growing much faster than its counterparts with Amazon Web Services and Google Cloud. How is that the case? Why is Microsoft Azure growing so fast?

Well, this has stumped many analysts and Bloomberg editors and different investors, but I have a theory. I'll be going over my theory of why I believe Microsoft Azure is growing so fast. So we have all of that to get

into in this episode, plus much more. Let's go ahead and jump in Now We kick things off with the headline news that there is a new trade deal being announced with China. We have many of our diplomats, Scott Besant and other people going over to China over the weekend to meet with Chinese officials and to just discuss things. Now, this is called a trade deal, but in reality, it's a 90 day pause. So we have a framework for a deal.

We have a mutual agreeance, and more importantly, it seems like we have mutual respect between both countries trying to accomplish a similar goal. The big storyline here, and the thing that I think investors are so excited about is the fact that the US and China seem closer together than previously thought. At one point, it seemed like we were never going to come to an agreement on anything. The tariff battle was just going to race higher and higher.

But it seems like that narrative is dissolving quickly now. The Treasury Secretary, Scott Besant, is the one assigned to dealing with China. He's the one orchestrating these deals. And he was in China over this weekend talking to their top authorities. And he explains how things are evolving with these discussions. Look, the, the, the vice Premier is a very skilled negotiator. He is a high-ranking Chinese official. We, I had a very good economic briefing beforehand, but that

there was no sense of anxiety. There was a sense of moving forward. There's a sense of mutual respect, there's a sense that we had shared interest. But I have seen what's going on in the Chinese economy. We can see what's going on with the shipments to the US And again, we are the deficit country. Historically, the deficit country has a better negotiating position. Now both countries have interests in saving face on this.

China doesn't want to look like they're weak or being bullied, even though they have reports that this tariff war is bad for them. And China is understanding to some of the concerns the United States has the over reliance on Chinese production, especially for critical goods, which was

exposed during COVID. We saw during COVID a lot of the things that we needed to survive were made in China, and once we weren't able to get them there, that was problematic and a vulnerability for the United States. Now, Besant also goes on to highlight simply how the Chinese have set up their economy. It is not a way that they're accepting anymore, not a way that the entire world is accepting anymore. He calls this dual circulation.

Chinese have an economic plan called dual circulation and with dual circulation our goal is to make sure dual circulation means export and domestic use. Dual circulation cannot mean that China overproduces and that only Chinese goods are consumed in China and then they export the excess to the rest of the world. So we have had the equivalent, because of these high tariff rates, of an embargo on China, and those goods are going to leak to the rest of the world.

So, you know, our negotiations, we don't need to tell other countries what they need to do. They are seeing this wave of Chinese goods coming to their shore. They have to find a home and that could be at a discount price, undercutting local producers. So he highlights this dual circulation problem as one where China allows for massive exports of all their excessive goods.

And then at the same time they don't allow anyone to really sell within China. Now they allow some companies to do business in China, mostly retail companies, maybe Costco, Starbucks, a few manufacturers like Tesla and Apple. But China bans most American companies. They don't allow Google. They don't allow Netflix or Peacock or YouTube or Facebook or Microsoft most of their products, or LinkedIn or any great tech company. They're all basically banned in China.

So China has their own companies that they sell to Chinese people, and then they also have their own companies and their own production that they sell outside of China. And that's a little bit unfair. That's basically what they're trying to balance here is making it so that it goes both ways. If you want to sell to the rest of the world, we need to be able to sell to you as well. And as he also highlights, this isn't only a problem for the United States.

As soon as the US put on these tariffs, Europe realized that this is a big problem. They didn't want Chinese manufacturers to dump their products in their country as well, undercutting their local manufacturers. Now, Besson goes on to highlight that technically, this is just a pause. And we need to have an official trade deal by the end of 90 days for the tariffs not to resume back on China. So the pressures on, they know that Trump is willing to put these tariffs on.

He's not just bluffing. He's done it before and he'll do it again. And that puts significant pressure on both parties to complete a comprehensive trade deal. The reason that the market is surging today, just based off the news that this is a pause, is that the market now predicts the likelihood of a deal being made by the end of 90 days is much higher than prior. It looks like things are headed in the right direction. Well, again, Andrew, this is just a pause.

The April 2nd tariff level for China was 30, 24%, so we have moved that down from 34 to 10. We still have the 20% fentanyl tariffs that were put on in February. So we just in 2025, we have added 30%.

And again, one, one of the most important things that we're doing, we do not want a generalized decoupling from China. But what we do want is a decoupling for for strategic necessities, which we were unable to obtain during COVID and we realized that efficient supply chains were not resilient supply chains. This is something again that the market can get behind. The market likes seeing that we're not having an overall decoupling with China, that we're not becoming overly

protectionist and isolationist. We're still doing business with China, but we don't want to do it with our critical goods. The things that we need, if China doesn't want to give them to us, we need to be able to produce those things within the United States. So having this be more targeted and specific, protecting just the industries of critical things like steel and pharmaceuticals seems reasonable. And again, that's something that

the market likes to see. So to summarize the extreme level, tariffs have been paused on China. There is mutual respect between both countries now negotiating towards a more mutual goal. China understands that the US cannot be reliant on these critical goods that they're manufacturing, and they understand that they can't be an export only economy. They have to allow some level of business in their country as well.

And it seems like they're not only being receptive to that, but they also completely understand it and they're working towards these mutual goals. The optimism is is just emerging in the market because of these talks. You can fill it with investors renewed optimism in the United States, in the global markets, in the equity markets, everywhere, across the board. And this is all stuff that I must say should have been somewhat predictable. This was the most likely outcome

from the beginning. On April 11th, I tweeted out my predictions going forward over the next three months. So this was during the market recovery. We're still in a pretty significant dip, around 10% lower than it is today. But I said what I'd like to see. Over the next three months, a series of trade deals get announced. Trump will parade these around the White House as the greatest deals made in the history of

mankind. Trade deals with some countries will be made, further incentivizing them to be made with other countries. Eventually most non China territories will have made trade deals with the United States. I believe the market will look optimistically at every new trade deal being announced and eventually the Chinese tariffs will be removed as well, giving further optimism. I give the chance here that things could go South.

We could see further escalation, refusal to make deals out of the United States, partnering with China. But I said that I'm very hopeful this is not what will happen. As frustrated as some leaders are with the US, I don't think they truly believe that the most rational step is to replace the US with China. I just never believed that was the option. From the beginning.

I said that I believe it's most likely that deals are going to be made with the US and other countries and overall, the weighted tariff rate will continue to decline throughout the year. And that's exactly what we're seeing today. Now, I don't want to get ahead of myself. We only have the United Kingdom, but China's a big one. This was the whale. This is the big one in question. Having this out of the way paves the way for further deals to be done.

Next up is United Nation. Having all these European countries make trade deals with the United States will breathe further optimism into this market. So overall, this is good news for the market. The market deserves to be going up today as it seems like a risk

is being reduced. And if we look at the specific companies that are being impacted, we highlight ones like Amazon. The reason that I've remained bullish on Amazon throughout this entire tariff or is, again, my conviction that this was not an intrinsic problem for Amazon. It is never core to Amazon. This is a ChatGPT moment. The trade war with China is something that's macro.

It's not related to the core of the company and in my mind most macro concerns work themselves out one way or another. Amazon during this entire time has been incredibly undervalued. The stock has been trading with so much pessimism, One of if not the best company in the world, trading at an extreme discount. This is why I've repeatedly been bullish on the company and I've bought the company over the past month. We see it up 8% on the day. In my opinion, it's not done.

I still don't think investors have missed the trade with Amazon. I believe Amazon's going to go to 2:20 to 2:40 and up to 260. Just give it some time. Throughout this, I was lucky to be able to pick up more Amazon. This was a no brainer. I've increased my position in it now it's about the same size as Netflix, but it has around half the gains currently at 33,000. But the gains are starting to pick up and they're carrying the story fund up further and

further. Right now it's up around 6% year to date. Another one to highlight here is ASML. This stock has been undervalued for some time. I think it's still today attractively valued at 7:50. Now I own ASML, I'm in the company. I currently have around $50,000 of value, just a bit in the green, $2200 in the green. And I still think this one has a long ways to go. I think we're going to see prices of ASML around $1000 over the course of the next couple of years.

So we have around 30% a media upside. And even from there, this company is a monopoly of a product that is incredibly integral. In fact, it's core to creating the most impressive chips that we have today. Salesforce, even this meet up company, the old Salesforce company that's been talked down, it's a company that many investors think it's not a great company. It's up 4.25% on the day. I believe that Salesforce has traded with far too much pessimism. It trades at valuations that we

have not seen for this company in some time. 4 1/2% free cash flow yields 25 PE ratio for a company growing earnings this fast, Sure, the top line growth has moderated, but this one has been on a deal. If we look at Salesforce, this is another company that I have in the tech category. It's now back in the green and I want to hold this one a bit further. I think that Salesforce today is worth around 3:30, so I see a bit more upside. We even have Google in the green today.

Isn't it incredible to see this company in the green overall? You know that the the bullishness, the sentiment is very strong if it can drag this company into the green on the day. Then we have a company that I haven't mentioned recently, which is Texas Roadhouse. This is a surprisingly large position in My Portfolio. You might think just because it's a restaurant and I hold companies like ASML or Google or Amazon that Texas Roadhouse is a smaller position. That's really not the case.

This company has outperformed virtually all these major tech companies. You name it and it's likely beat it. Over the five year period, Texas Roadhouse's performance is astonishingly good. To just put this in perspective to really highlight it, because I feel like a lot of people may not actually believe this, but this is Texas Roadhouse's performance compared against four other leading tech companies over the past five years. Google has returned 133%. Not bad. Amazon is up 73%.

Meta is up to 100%. Really good for Meta. Microsoft is U 143 and Texas Roadhouse is U 313. Beating all of them now. Texas Roadhouse also pays a higher dividend than all of them. So in capital appreciation, it's crushed them and then you layer upon the dividend, it's crushed them even more. The stock is up today, up 4% on the year. So it's green year to date, plus it's paying a dividend. It's currently an $82,000 position with $47,000 in gains when you factor in dividends as well.

And this one has not given me a reason to sell it so far.

Now, it's fun to highlight all the stocks in My Portfolio doing really well today, but I want to highlight one that's pulling back a bit, which is Netflix. Netflix has just gone through an exceptional historic run, one-of-a-kind throughout the entire company's history where it went up 11 or 12 days in a row, I forget it, it's 11 or 12. It had a break during the Hollywood, the Hollywood tariff thing, and then it went right back up and now it's pulling back a little bit.

Anytime a company goes up for like 12 or 13 days for a row, you got to expect that it's going to come down a little bit. I mean, come on, let's not be pigs here. Let's not be so greedy that we never want the company to come back down. So this is fully anticipated. Many investors invested in Netflix because it was a safe haven during this tariff business.

Now that we have the tariffs coming down, they think maybe we can take a little bit from this add to beat up companies like Amazon, maybe a little Google, maybe companies like Salesforce. So I think a lot of this is trading, a lot of it is taking games. So we see this huge reversal.

Stocks are now approaching all time highs at the start of the year. The S&P 500, the QQQ are just very close to it. They're now making a full recovery. And This is why I've routinely said, even if you don't like what's going on, if you don't like the tariffs, if you don't like the policies, if you think things are going in a bad position or a negative way, you should still buy stocks and you should especially buy them. The worst that it feels to buy them.

Around April 7th, April 8th, that was the time to buy companies. Now we see a complete reversal of the sentiment that was going on during that time period. We have from Bloomberg. Buy America sweeps across global markets after trade talks. This is the exact opposite, the complete opposite of what we heard a month ago. A month ago, there were professionals on TV instructing you to sell America, that the trade was to move elsewhere, to move outside of the US companies.

American exceptionalism was under siege that things were headed in a dramatically bad position, and now we see that I'll reverse The people that ignored those professionals made a lot of money in the process by buying this dip. When we look at the biggest example of this possibly in the market today, it is Mike Wilson. This is what I consider the biggest fail over the past year, someone who has been on the wrong side of every single trade.

And here he is on CNBC downplaying his history a bit and going on about how he's now bullish on this market. Let's go ahead and hear some of his remarks. But now the markets are saying in six months are things going to be more uncertain or less uncertain? Are they going to be probably more constructive and less constructive? And that's before we even take

it to an account. Some of the positive things from an administration standpoint that are probably going to flow through, the most important being deregulation. You know, if we're going to err on the side of policy, it's probably to help the growth side, then maybe the tariff side or the inflation side. The tariffs aren't going to be as. Bad then why?

So there he is now optimistic on the future, saying that there's ample growth paths that even J pal may lower interest rates, that it seems like the risk is is reduced and investors should become optimistic and bullish now. Now let's go ahead and highlight what he was saying during the exact bottom of this dip, April 7th. April 7th was right here, this dot right on the chart right there. So that big dip in the S&P 500, the one really only big dip, the only really great time to be

buying stocks this year. This is what he was saying. Investors should brace for another 7 to 8% drop in the S&P 500. Morgan Stanley says this is on April 7th, that exact day. And this is from Mike Wilson, that exact analyst that is now bullish on the market. The commentary here always has a negative bent towards the

bottom. Barring the White House backing down on its tariff plan are signs of easing from the Federal Reserve. Investors should brace for another for the S&P 500 to slide another 7 or 8%. The professionals at Morgan Stanley like Mike Wilson go on to say that the sector has rich opportunities under the surface, but it's still too early for bottom picking, they say. So there you have Mike Wilson being bearish at the bottom and

bullish at the top. And not only that, this actually gets worse, if you can believe it. One of the things that they highlight in this article is specific stock recommendations. One large cap name they're adding to is American Tower Reed AMT. They added this to their Fresh Money buy list, upgrading it to overweight and replacing EN Corp ETN.

So their recommendation as professionals is to buy into AMT and to sell ETN AM T. The one that they're recommending to buy is down 2% and ETN, the one that they recommended to sell, is up 28% from that date. Now, even though this is one of the biggest fails of the year, I don't mean to pick particularly on Mike Wilson. He is, after all, one of many institutional investors that

they just don't have a clue. And this is something that you'll realize the more that you invest, the more that you do this, the more that you watch these people on TV is as nice as they dress with their ties and their suits, with their big titles, their fancy titles that they have from different firms. You'll realize that none of that means anything when they don't have a clue what they're doing. And that's the case in many of

these instances. These investors are recommending to become more defensive at the bottom after a dip has already happened. After they're down already 20% in a couple weeks, that's the point where they start trading up for defensive stocks. Then when there's optimism abounding, when prices go higher, when everything surges,

then they become more bullish. The exact opposite of good investment behavior, something that Warren Buffett would never do. Warren Buffett would never become scared about his holdings at the bottom and then become super bullish on them when they go up 20 or 30%. That's not the behavior we see from incredibly good investors.

It is the behaviors that we see all the time from these different institutional investors that make regular appearances to sell their stock strategy services, where they feel like they're always forced to give different recommendations and different calls of what direction the market's going. And of course, there's no evidence that they outperform the market in doing so.

Now moving on, we get to another Trump announcement that seems like a daily occurrence, that he's announcing some big thing for the markets that we have to be concerned about. In this case case, it was another truth. I think they call it a truth being posted here. And this one is about the Pharmaceutical industry. He believes that we're paying too much as Americans and it's unfair that other countries pay far less than us for drugs that

we develop. Now, this post is a mouthful, so I'm not going to read through the whole thing. I'll just skip to the punchline here where he really nails down exactly what they're trying to implement. He says I will be instituting a most favored nation policy whereby the United States will pay the same price as the nation that pays the lowest price anywhere in the world.

So this is a price cap being given to pharmaceutical companies that they can't charge U.S. citizens more than they can charge foreign countries for the same drug, or at least that's the intent of it. Now, as we jump into the story and go over some of the details and the likelihood of this actually happening, I just want to highlight that this is something that Trump has overwhelming universal support on, at least within the United States.

If you go to the United States and talk to anyone, almost anyone, there is overwhelming agreement amongst Americans that we pay too much for healthcare, we pay too much for pharmaceuticals. It's insanely expensive. Just overall, it's crazy how much things cost and it's one of the biggest concerns that Americans have now. I believe the issue is far more on the billing side and how we pay for things than the actual healthcare and the type of

specialists and the people working in healthcare. the US has great healthcare providers. We have people that are incredibly knowledgeable. They do the highest end surgeries. It's where I would want to have my healthcare done. I have people like my brother that's a surgeon, highly skilled. He's someone very capable. We have people like my wife that's a nurse. These people give incredible

health care to others. So the skill involved is not lacking in the United States. What's lacking is our system for paying for things. It is broken. The insurance system is broken. Doctors don't like it, patients don't like it. Our country fiscally can't pay for it. It is a broken system overall. So Trump is tapping into something that has overwhelming agreement amongst Americans. All of us feel like we're getting ripped off. All of us feel like we're paying

too much. Everyone feels like the healthcare system and the pharmaceutical system needs an overhaul. Now, Trump addressed this in the White House by bringing on doctors and economists that spoke on this subject as well. And they to share the same concern. President, on behalf of the many doctors I've talked to about this very issue, thank you for

taking the bull by the horns. Presidents on both sides of the aisle have talked about this and floated it and said they've wanted to do it, so you've had the courage to do it. Thank you. I've been a surgical oncologist at Johns Hopkins for 22 years, and I have seen patients suffer.

We didn't take an oath to heal patients and then watch their life get ruined financially with their home mortgage retirement going down the drain with GoFundMe campaigns raising money from church communities and synagogues and friends they haven't seen in 20 years to try to raise money for what? For a system where Americans have been getting ripped off by 10/12/15 times higher prices than we see in other countries? The fundamental problem in Healthcare is that we've had non

competitive markets. We can do little things around the edges or we can transform those markets to competitive markets. And that's what this executive order does today. Imagine buying a Ford for $175,000 a regular car and then hearing that people in London are buying it for $10,000 every day, all day long. That is the craziness of this system. We're going to do everything we can at the FDA to support this executive order. It's transformative.

Thank you, Mr. President. OK, so he gives a comparison there, and even though it's a bit exaggerated, saying 10,000 to 150,000, it's not exaggerated as much as you'd think. When looking into this issue, you find that the United States over and over again, by every study, pays two to four times as much as any other country for prescription drugs that we develop in the United States, and a lot of Americans find that unacceptable. Now, why is this the case?

Why is it that in many cases Europeans are paying 1/4 what Americans are for the same drugs that Americans develop? It's because of competition in the United States. There are so many different healthcare industries, different hospital networks, different healthcare providers, different insurance companies. It's all segregated, It's all broken up. We have all these different businesses, and the pharmaceutical companies can be aggressive with pricing. It's just the structure of the

United States's system. Then you go over to Europe and it's much more coordinated and organized, and it's much more consolidated. For example, for one country, they'll have one single entity, a buying entity for a drug. And since they work as a a big union almost, they can barter down with negotiating leverage because of their buying power.

That makes them much more unified against the pharmaceutical companies, meaning that those pharmaceutical companies have to compromise and lower their prices or they're excluded from the market entirely, meaning that Europe is a far less competitive, more dominant market when it comes to bartering for drug prices.

So with Europe having the single payer systems, these buying agents and negotiating power, they get great deals for their citizens, which results in this huge imbalance of drug pricing, making it so that even though the United States is a place putting up this risk capital of developing these drugs, even though the majority of drugs fail and it's highly risky, even after taking out that risk, they're paying the highest price. And this is what many Americans

believe is unfair. It has overwhelming support. And I think even from a European perspective, I understand around half my audience is from Europe. It's a huge portion. You can understand the unfairness here. He gives the analogy of selling a car that's probably a little bit exaggerated, the numbers he gave.

But you can just imagine if you had a system where you put up all the CapEx, you develop these vehicles, you design them, but then for specific geographical reasons and government reasons, they were sold to the United States for 1/4 of the price that they are in Europe, you'd probably be upset about that or at least think it's unfair. And that's what's being

addressed here. So there's a growing chorus of people supporting this, even more government agency supporting it, and it's something that probably should be looked at. Now, having said that, this is also something that's not exactly legal for the president to do. As much power as the president has with the executive orders right now, the president cannot set prices of a company. Nowhere in the Constitution does it give the president the ability to set or cap prices of

different companies. So this executive order, if it's implemented like he says it is, it'll be immediately challenged in court. And that's exactly what happened back in 2020. He tried to implement this exact same policy back in 2020 and the courts immediately shot it down. So while this may be an important issue for President Trump to look at and address, unfortunately just solving this problem by executive order probably won't work.

Now, next we get to this mystery, the mystery of why Microsoft Azure is growing so fast, especially against Amazon Web Services and Google Cloud. Now, this is especially interesting because we have Microsoft Azure, Microsoft's clouds in the middle. We have Amazon that's a bigger cloud, and we have Google, that's a smaller cloud. And Microsoft in the middle of size is growing faster than the

other two. So investors are wondering, why is it outgrowing both of them even when it's not smaller or bigger than them? Core sequential dollar growth was particularly strong, UBS analysts said Monday, to the point where Azure materially outperformed rivals Google Cloud and Amazon Web Services. UBS noted that this was the second consecutive quarter that combined sequential dollar growth that was up more than 10%.

Most significantly, the progress occurred against a challenging macro backdrop, and it's difficult to establish why. It's true that Microsoft saying they're executing well, but Google Cloud Management and Amazon AWS management will also tell you that they're executing well. They say what's surprising is that on Prem to Azure migration activity would pick up smack in the middle of one of the more uncertain macro periods in memory. And the analysts here are stumped of why Microsoft

continues to grow so fast. When we look at the strategy that Microsoft's pursuing, it's one of extreme integration. Microsoft already has all these connections, all these products in corporate America, and their cloud has seamless integration with these products. So they're leveraging their existing stuff like Microsoft Excel, for example, if you're an accountant and you have the option to use their AI services, you're always going to pick to use their AI services over some

external service. For example, I have a buddy that's an accountant and he prepares financial statements for a publicly traded company. The company uses many Microsoft products and he feels comfortable using their AI services. He feels comfortable using their cloud. He would never take information off of Excel or financial information that's important to the company out of the Microsoft ecosystem, to a random third

party company. He's not going to take financial statements and put it into Grok to run run estimates or anything like that or put it into Chachi. He will keep it within the ecosystem that the company's already using, that all the information is already secure on so many companies. In terms of trust, in terms of security, Microsoft already has that brand so much with these big companies.

They're already highly integrated with all these Office products that given the choice between Microsoft and other third party companies, they will have a preference for Microsoft. And we see this bundling effect work again and again. If Microsoft builds the tools, even if they're not as good as a competitor, most companies will use them anyways because they're already using so many of their systems. They already trust their data. They're already part of their

ecosystem. So I think we're going to see continued strong performance with Microsoft in both AI and cloud. Now, that's going to be it for this episode. If you like this type of content, make sure you subscribe to the channel. If you want to see more exclusive content, you can check out the Patreon in the description. See you in the next one.