US-China Trade Equilibrium, China's Economic Shift, and Housing/Airline Industry Pressures - Episode Hero Image

US-China Trade Equilibrium, China's Economic Shift, and Housing/Airline Industry Pressures

Bloomberg Surveillance · · Listen to Original Episode →
Original Title:

TL;DR

  • The US-China trade relationship has reached a new equilibrium with de-escalation in export controls and tariffs, but ongoing tech competition and tit-for-tat measures like export restrictions on critical minerals will persist.
  • China's economic strategy is shifting from property to tech investment, yet faces headwinds from declining consumer confidence and local government debt, necessitating a boost in social welfare to drive domestic demand.
  • A stronger yuan is being considered by China to boost consumer purchasing power and international credibility, despite its export-driven economy, as it faces global pressure over overcapacity in sectors like EVs.
  • The US housing affordability crisis is primarily driven by local zoning and development fees, which the "Housing for the 21st Century Act" aims to reduce by streamlining building regulations and encouraging density.
  • Smaller airlines struggle to compete due to high operating costs (fuel, labor) and pricing pressures, necessitating consolidation or diversification into adjacent industries like credit card rewards to survive.
  • Boeing is doubling production of the 737 to 42 planes per month, supported by new leadership and an invigorated workforce, but faces certification challenges for larger programs like the 777x.

Deep Dive

The airline industry faces a critical juncture where consolidation is increasingly driven by defensive maneuvers rather than proactive growth strategies, as smaller carriers struggle against high operational costs and intense pricing pressure. This environment necessitates either significant consolidation or a shift towards premium service models, as airlines attempt to leverage assets like loyalty programs and maintenance operations to offset the inherent challenges of the core business. The outlook for 2026 suggests a potential improvement in airline profitability, contingent on disciplined capacity management and favorable pricing in the main cabin, particularly for American Airlines which benefits from easy comparative metrics due to past corporate relationship disruptions.

The aviation manufacturing sector, specifically Boeing, is demonstrating a notable recovery in production rates, with the 737 line doubling its output and leadership changes aimed at invigorating the workforce and enhancing operational efficiency. This increase in production is crucial for meeting airline demand, though certification processes for larger programs like the 777x remain a point of scrutiny. Simultaneously, the broader aerospace and defense tech market is experiencing a prolific transaction environment, supported by administration policies that encourage industry growth, contrasting with the more constrained consolidation pressures within the airline sector itself.

China's economic strategy is increasingly focused on investment in strategic sectors like technology and clean energy, a playbook that is showing signs of strain due to a prolonged slump in the property market, declining consumer confidence, and insufficient social welfare support. This domestic weakness, coupled with external pressures from trade partners like the US and Europe regarding overcapacity in exports such as EVs and batteries, is prompting discussions about currency appreciation to boost imports and international credibility. However, the effectiveness of these strategies is questioned, given ongoing domestic challenges like the real estate crisis and demographic decline.

The US housing market faces significant affordability challenges stemming from rising house prices and mortgage rates, which have been exacerbated by inflation and regulatory costs. Proposed legislation aims to alleviate these issues by streamlining housing development, improving zoning for density, and enhancing rural housing opportunities, while also seeking to hold HUD accountable for public housing management. Addressing inflation remains a primary goal, as it directly impacts homeowner expenses like utilities and insurance, with the expectation that sustained pressure on price stability will eventually lower property and casualty insurance costs and financing expenses.

Action Items

  • Audit airline industry consolidation: Analyze 3-5 smaller carriers' survival strategies against market dominance (Delta, United, American).
  • Evaluate AI agent security: For 3-5 business functions, assess Okta's identity controls for AI agent trust and risk mitigation.
  • Analyze B2B payment infrastructure: For 3-5 merchant acquiring businesses, evaluate Mastercard's adaptive approach for high-value payment acceptance.
  • Assess Adobe Acrobat Studio AI capabilities: For 3-5 common business documents (e.g., market research, sales proposals), test AI-powered insights and tone tailoring.
  • Track Chinese export competitiveness: For 3-5 key export categories (e.g., EVs, batteries), measure the impact of yuan appreciation on global market share.

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Key Quotes

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"smaller carriers really need to be given a fair shot to win um in this environment and that's not happening right now so we're focused on what we can control we're focused on a whole series of initiatives under our jet forward program we do need uh the government to kind of make that a more level playing field so smaller carriers can more effectively compete"

JetBlue CEO Joanna Geraghty expresses a need for a more equitable competitive landscape for smaller airlines. She indicates that current conditions are not favorable for these carriers to succeed. Geraghty emphasizes JetBlue's focus on internal initiatives while also calling for government intervention to create a level playing field.

"consolidation is driven by defensive tactics and airlines in general are a very tough business that's why they trade at 60 discounts to the market airplanes are expensive boeing knows that uh costs are expensive 30 is jet fuel 30 is labor labor and when your revenues are growing 3 because your pricing is down and your costs are up 5 it creates a very difficult environment for airlines to thrive in"

Sheila Kahyaoglu explains the underlying pressures driving consolidation in the airline industry. She characterizes airline consolidation as a defensive strategy, stemming from the inherent difficulties of the business. Kahyaoglu points to high costs for assets, fuel, and labor, combined with low revenue growth due to pricing pressures, as creating a challenging environment for airlines.

"i think the setup is positive for airlines and that capacity going into 26 is fairly tight that goes across the board for the airlines and american in particular has very easy comps uh recall a year and a half ago they had a snap boo with their corporate relationships so their corporate is just getting back to 2024 levels so they're about a year behind and if that's where we've seen a lot of the premium growth is on that corporate so that could be a huge upside driver for them"

Sheila Kahyaoglu discusses the positive outlook for airlines in 2026, citing tight capacity. She specifically notes that American Airlines has easy comparative performance metrics due to a previous downturn in corporate relationships. Kahyaoglu suggests that the recovery of corporate travel, a key area for premium growth, could significantly benefit American Airlines.

"we've done that for american the last two years but i do think the setup is positive and that capacity going into 26 is fairly tight that goes across the board for the airlines and american in particular has very easy comps uh recall a year and a half ago they had a snap boo with their corporate relationships so their corporate is just getting back to 2024 levels so they're about a year behind and if that's where we've seen a lot of the premium growth is on that corporate so that could be a huge upside driver for them"

Sheila Kahyaoglu reiterates a positive outlook for the airline industry in 2026, anticipating tight capacity. She highlights that American Airlines faces particularly favorable comparisons due to a prior dip in corporate travel. Kahyaoglu believes that the resurgence of corporate relationships, a significant source of premium revenue, presents a substantial opportunity for American Airlines' growth.

"well first let's be clear the tax credits for obamacare policies are not expiring the ones that were expanded by joe biden during the covid 19 pandemic are expiring but that base tax credit that dates back to the beginning of obamacare for moderate income families with children is still in place so let's be clear about that"

Congressman French Hill clarifies the status of healthcare tax credits, distinguishing between expiring pandemic-era expansions and the enduring base tax credits for Obamacare policies. He states that the fundamental tax credits for moderate-income families remain in place. Hill aims to correct a potential misunderstanding about the expiration of these subsidies.

"well on homeowners again 80 of the cost that goes into a house are local zoning local code decisions local development fees that are charged on building new houses if you want to bring down the cost of the mortgage or the cost of property and casualty insurance you need to confront inflation which is why i believe the fed's primary focus is price stability and we've made progress from the 9 we experienced under joe biden's fiscal mismanagement and the fed's mismanagement coming out of the pandemic"

Congressman French Hill attributes a significant portion of housing costs to local regulations and fees, rather than solely to inflation. He argues that addressing inflation, which he links to the Biden administration and Federal Reserve's past actions, is crucial for lowering mortgage and insurance expenses. Hill emphasizes that the Federal Reserve's focus on price stability is key to reducing these homeowner costs.

"you know i think the chinese stock market you know has been compared to a casino uh you know and gambling by uh you know some of china's most prominent economists so you know i would always just say buyer beware uh but you know i am not in a position to be giving advice in this space"

Elizabeth Economy expresses caution regarding the Chinese stock market, referencing comparisons to a casino made by Chinese economists. She advises potential investors to exercise extreme care. Economy explicitly states that she is not qualified to provide investment advice on this topic.

"you know so from 57 down to 47 so i think a new equilibrium but that's not to say that there aren't going to be perturbations to the system um and we've already seen uh just over the past week with the announcement um out of the state department of pax silico uh this you know new arrangement between the united states and eight other countries to try to develop really a trusted supply chain from you know ai for the ai semiconductor supply chain all the way from you know investments in australia in rare earth elements and critical minerals all the way through the uae with you know providing financing and then of course taiwan is a special partner to the group"

Elizabeth

Resources

External Resources

Books

  • "Made in China 2025" - Mentioned in relation to China's technological ambitions and dominance in key industries.

Articles & Papers

  • Pax Silico announcement (State Department) - Discussed as a new arrangement between the US and eight other countries to develop trusted supply chains for AI semiconductors.

People

  • Sheila Kahyaoglu - Senior Equity Research Analyst at Jefferies.
  • Rep. French Hill (R-AR) - Republican Congressman from Arkansas.
  • Elizabeth Economy - Hoover Institution Senior Fellow and former US Commerce Department Senior China adviser.
  • Joanna Geraghty - CEO of JetBlue.
  • Kelly Ortberg - CEO of Boeing.
  • Scott Besson - Treasury Secretary.
  • President Xi - Mentioned in relation to the summit with President Trump.
  • President Trump - Mentioned in relation to the summit with President Xi.

Organizations & Institutions

  • Jefferies - Mentioned as the employer of Sheila Kahyaoglu, Senior Equity Research Analyst.
  • Hoover Institution - Mentioned as the affiliation of Elizabeth Economy, Senior Fellow.
  • US Commerce Department - Mentioned as the former employer of Elizabeth Economy, Senior China adviser.
  • JPMorgan Asset Management - Mentioned for its active fixed income ETFs and as the brand name for the asset management business of JPMorgan Chase & Co.
  • JPMorgan Chase & Co. - Mentioned as the parent company of JPMorgan Asset Management.
  • JPMorgan Distribution Services Inc. - Mentioned as the issuer of communications from JPMorgan Asset Management.
  • Okta - Mentioned for securing AI agents' identities and providing control and trust for AI.
  • Mastercard - Mentioned for its adaptive approach to B2B acceptance and solutions for the supplier lifecycle in commercial acceptance.
  • Adobe Acrobat Studio - Mentioned for AI-powered PDF spaces and capabilities in transforming documents.
  • Bloomberg Audio Studios - Mentioned as the producer of the Bloomberg Surveillance podcast.
  • Frontier - Mentioned in relation to discussions to merge with Spirit Airlines.
  • Spirit - Mentioned in relation to discussions to merge with Frontier Airlines.
  • JetBlue - Mentioned as a smaller carrier focused on initiatives under its Jet Forward program and its CEO's comments on a level playing field.
  • Delta - Mentioned as one of the "big three" airlines.
  • United - Mentioned as one of the "big three" airlines and as a company JetBlue is bullish on.
  • American Airlines - Mentioned in relation to management decisions, Seattle, routing, and airplane retirement, with easy comps for 2026.
  • Boeing - Mentioned in relation to airplane costs, the 737 and 777x production lines, and leadership changes.
  • Airbus - Mentioned in relation to manufacturers and supply chain bottlenecks.
  • Public Investing - Mentioned for its brokerage services and advisory services.
  • Open to the Public Investing Inc. - Mentioned as the provider of brokerage services for Public Investing.
  • Public Advisors LLC - Mentioned as the provider of advisory services for Public Investing.
  • Chase for Business - Mentioned for its solutions for small business owners, including banking, payment acceptance, and credit cards.
  • JPMorgan Chase Bank N.A. - Mentioned as the issuer of communications from Chase for Business.
  • CVS Caremark - Mentioned for its prescription plans and member savings.
  • CVS - Mentioned for serving communities, filling prescriptions, and offering healthy snacks.
  • FedEx - Mentioned for its smart platform and digital intelligence in navigating supply chain issues.
  • Delta SkyMiles - Mentioned as a membership that moves with the user, allowing earning miles on everyday purchases and connecting to new experiences.
  • China - Mentioned in relation to its trade surplus, export controls, and economic policies.
  • Taiwan - Mentioned as a special partner in the Pax Silico arrangement due to its advanced semiconductor production.
  • UAE - Mentioned for providing financing in the Pax Silico arrangement.
  • Australia - Mentioned for investments in rare earth elements and critical minerals within the Pax Silico arrangement.
  • The Fed - Mentioned in relation to fighting inflation and determining price stability.
  • HUD - Mentioned for its management of public housing and accountability for private landlords and housing authorities.
  • Meta X - Mentioned for its successful IPO, contributing to Chinese equity market gains.

Tools & Software

  • Adobe Acrobat - Mentioned for its capabilities with PDFs, including AI assistance for insights, templates, and tone tailoring.
  • Okta - Mentioned for securing AI agents' identities and providing a single layer of control and trust.

Websites & Online Resources

  • jpmorgan.com/getactive - Mentioned as a website to learn more about JPMorgan Asset Management's active fixed income ETFs.
  • omnystudio.com/listener - Mentioned for privacy information related to the podcast.
  • mastercard.com/commercialacceptance - Mentioned as a website to discover Mastercard's solutions for B2B acceptance.
  • adobe.com/dothatwithacrobat - Mentioned as a website to learn more about Adobe Acrobat Studio.
  • public.com/market - Mentioned as a website to learn more about Public's generated assets and to earn a bonus when transferring a portfolio.
  • chase.com/business - Mentioned as a website to learn more about Chase for Business solutions.
  • cmk.co/story - Mentioned as a website to learn how CVS Caremark helps members save on medication.
  • delta.com/skymiles - Mentioned as a website to learn more about the Delta SkyMiles membership.

Other Resources

  • AI Agents - Discussed in the context of identity security and trust provided by Okta.
  • B2B Card Payment Landscape - Mentioned as an evolving landscape where Mastercard offers solutions for merchant acquiring businesses.
  • Jet Forward Program - Mentioned as a series of initiatives by JetBlue.
  • Housing for the 21st Century Act - Discussed as an act expected to streamline housing development and provide incentives for builders.
  • Veteran's Loan - Mentioned as an area where the Housing for the 21st Century Act aims to improve opportunities.
  • Obamacare Policies - Mentioned in relation to tax credits that are not expiring, with expanded credits from the COVID-19 pandemic expiring.
  • Variable Interest Entity (VIE) Structure - Discussed in relation to foreign investment in Chinese shares, where investors own a hold co in the Cayman Islands rather than the operating company.
  • Made in China 2025 - Mentioned as a set of technologies where China aims for dominance.
  • EVs (Electric Vehicles) - Mentioned as a cutting-edge technology where China aims for dominance.
  • AI (Artificial Intelligence) - Mentioned as a cutting-edge technology where China aims for dominance and as a focus for trusted supply chains.
  • New Materials - Mentioned as a cutting-edge technology where China aims for dominance.
  • Clean Tech - Mentioned as a sector where China's investment has shifted.
  • Legacy Semiconductors - Mentioned as a sector where China's investment has shifted.
  • Generative Assets - Mentioned as a feature on Public that allows users to turn any idea into an investable index with AI.
  • Passive Fixed Income ETFs - Mentioned as capturing only about 50% of the US public bond market.
  • Active Fixed Income ETFs - Mentioned by JPMorgan Asset Management as capable of capturing 100% of the US public bond market and exploring more opportunities.
  • AI-powered PDF Spaces - Mentioned as a feature of Adobe Acrobat Studio.
  • AI Semiconductor Supply Chain - Mentioned as a focus for the Pax Silico arrangement.
  • Rare Earth Elements - Mentioned as critical minerals where China has a hold and as an area of investment in Australia.
  • Critical Minerals - Mentioned as areas of investment in Australia and as part of the Pax Silico arrangement.
  • Gallium - Mentioned as a material subject to Chinese export controls.
  • Germanium - Mentioned as a material subject to Chinese export controls.
  • Graphite - Mentioned as a material subject to Chinese export controls.
  • Unreliable Entities List - Mentioned as a list used by China for companies involved in the Pax Silico arrangement.
  • Consumer Appetite - Mentioned as declining in China, with concerns about falling prices.
  • Social Welfare Net - Mentioned as something China has done little to reshape, impacting consumer confidence.
  • Pension System - Mentioned as broken in about a third of Chinese provinces.
  • Birth Rate - Mentioned as tracking with consumer confidence in China and as a demographic challenge.
  • Yuan - Mentioned in relation to China's policy debate and the potential for appreciation to encourage consumer buying and enhance international credibility.
  • De-dollarize the Global Economy - Mentioned as a push by China.
  • Overcapacity - Mentioned in relation to China's exports of EVs and batteries, leading to international scrutiny.
  • Chinese Equities - Mentioned as having gained value, with a successful IPO of Meta X contributing to the rise.
  • Casino - Mentioned as a comparison for the Chinese stock market by some Chinese economists.
  • Trade War - Mentioned in relation to the relationship between the US and China.
  • Export Controls - Mentioned as moves taken back by both sides during the Biden summit.
  • Shipping Port Dock Fees - Mentioned as moves taken back by both sides during the Biden summit.
  • Tariffs - Mentioned as being reduced by 10% on China from 57% down to 47%.
  • Inflation - Mentioned as a burden on American families, with 9% inflation under the Biden administration.
  • Cost of Living Burden - Mentioned as something all Americans are suffering from.
  • Premiums - Mentioned in relation to lowering them across the board for all Americans.
  • Zoning - Mentioned as a local cost that contributes to house prices and as an area the Housing for the 21st Century Act aims to improve.
  • Density - Mentioned as something zoning improvements in the Housing for the 21st Century Act aim to encourage.
  • Rural Housing Development - Mentioned as an area where the Housing for the 21st Century Act aims to improve opportunities.
  • Public Housing - Mentioned as an area where HUD has done a deplorable job managing.
  • Opex (Operating Expenses) - Mentioned as having risen significantly.
  • Property and Casualty Insurance - Mentioned as a cost that could be lowered by confronting inflation.
  • Financing - Mentioned as a cost that could be lowered by confronting inflation.
  • Price Stability - Mentioned as the Fed's primary focus.
  • Fiscal Mismanagement - Mentioned in relation to the Biden administration and the Fed's actions coming out of the pandemic.
  • Ample Reserves - Mentioned as a level the Fed

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