As chairman, CEO and a co-founder of investment firm Blackstone, Stephen A. Schwarzman has been involved in all phases of the firm’s development since 1985.
With over $554 billion in assets under management, the private equity firm has invested across all asset classes and also is a global leader in the credit market for small and middle-market firms. Schwarzman’s new book “What it Takes: Lessons in the Pursuit of Excellence” was published in September.
As an advisor to some of the world’s leading political figures and financial powerhouses, he has a bird’s eye view–and first-person insight–on the thinking behind some of the global issues facing the world today.
As part of a new SJ series on the C-Suite, the following recaps Schwarzman’s conversation with Reuters’ editor-at-large Sir Harold Evans at a Reuters Newsmakers event Wednesday.
U.S.-China trade deal
Schwarzman expects that a deal will get done, despite what’s been halting process that has forced both the U.S. and China to keep their expectations in check.
Much of the trade war as centered around compelling to shift gears and adopt a new way of operating in the world. And while change can be slow, Schwarzman said, “China as a country is recognizing they need to make certain changes as the developed world has changed.”
Addressing the impetus for the trade dispute, the Blackstone chief said the Trump Administration’s objective was pretty straightforward when it comes to its trade and tariff policies with China: ensuring the “two countries can compete on an equal footing.” The U.S., he explained, has been competing at a three-to-one disadvantage when it came to tariffs and trade.
American-branded products exported to China have historically paid three times more in taxes than those levied on Chinese imports to the U.S.
“You can have free trade if you are disadvantaged three times more in taxes to start,” Schwarzman said. The last trade agreement between the two countries was forged 70 years ago, and that’s now about to change, he added.
Together, the U.S. and China together represent about 35 percent to 45 percent of the world’s economic productivity, he said, and both countries recognize that making progress on their trade agreement is important all of the other nations not embroiled into the dispute.
“It looks like things have lined up for the parties to move forward,” he said, noting that he expects the agreement that President Trump has dubbed “Phase One” to progress.
And while “there’s reason for optimism” for a trade agreement, Schwarzman said, it’s been interesting to consider the standoff from both the American and Chinese perspectives.
“China still thinks of itself as a poor country,” he noted, explaining that they “see themselves as having a long way to go to become a developed country.” Because government officials are focused on elevating financial and living conditions for its citizens, he doesn’t think they will veer too far off course and get involved in long-term issues, such as the riots in Hong Kong, that could take their eyes away from their ultimate goal of economic development.
Recession risks
Having seen seven major market recessions over a 50-year investment career, Schwarzman doesn’t see a recession on the horizon. Recessions begin when there’s an excess in what’s being created, with the result that no one is buying, he explained.
As for that happening anytime soon?
“I don’t think so,” he said, explaining that the “consumer is doing quite well.” He also noted that it’s the “first time in many, many years [where] people at the bottom of the scale are out-earning inflation.”
Because people have wages, they are spending on things they need and not saving. He expects to see ahead “continued wage pressures [as the country is] is running out of workers,” both of which will help prolong the current economic cycle.
Even the three Federal Reserve interest rate cuts aren’t necessarily a precursor to a recession. Raising rates can sometimes ignite a recession, Schwarzman noted, citing how Fed Chair Paul Volker’s hike in the interest rate to 16 percent contributed to the beginning of the 1982 recession.
Negative interest rates are the new normal in some European countries, where citizens essentially “are paying [the government] to take their money.” That prompted Schwarzman to add, “I have never seen anything like this.”
In contrast, as long as American consumers continue spending money and the labor markets remain tight, the risk of a recession isn’t that high. Keeping rates within the 2 percent zone is “not as exciting as people want, but as we say in the [financial community], it’s better than the alternative,” he said.
