| One of my favorite crime movie clichés is when a suspect who's getting interrogated asks a question and a hard-bitten detective barks: "We ask the questions around here!" I usually ask the questions around here. But not always. For this week's Big Interview, my colleague Jim Pearce suggested that he turn the tables and interview me for a change. Jim is the chief investment strategist of our flagship publication Personal Finance. I can always count on him for incisive thinking. As news events take potshots at investors, you need to "bulletproof" your portfolio. Below, I discuss protective (but profitable) steps to take now. Jim Pearce: The U.S.-China trade war gets a lot of press coverage. What's the media missing? John Persinos: The U.S. trade deficit with China reached a record high of $419.2 billion in 2018. President Trump and many media pundits decry this deficit as "bad." But it's not as if that money were lost. The increase in the deficit actually reflects American strength, as a strong U.S. economy and a strong dollar boost demand in the U.S. for Chinese goods. To be sure, the U.S. imports more than it exports, particularly manufactured goods. But the U.S. government's trade numbers can be misleading, because they tend to emphasize lower-skilled manufacturing jobs and underestimate the importance of value-added services. In the services sector (which tends to generate higher-paying jobs than in manufacturing), the U.S. ran a $244 billion trade surplus last year. Don't we want America to be an incubator for skilled jobs, rather than low-paying unskilled ones? Yes, Beijing flouts trade rules. China subsidizes domestic manufacturing, erects barriers to its market, and steals intellectual property. The West should bring the country to account. But tariffs are a foolish way to do it. They're a tax ultimately paid by businesses and consumers. History shows that tariffs raise the cost of goods, reduce output, destroy jobs, and exacerbate geopolitical tensions. What's more, these tariffs are disrupting thousands of supply chains around the world, making life miserable for corporate planners. President Trump and President Xi Jinping had better find a way to resolve these trade disputes or we'll shatter the multilateral system that has given the world peace and prosperity - and robust investment returns - since the end of World War II. In the past, corporate executives and the U.S. government were willing to look the other way at China's trade transgressions, because the country supplied us with cheaply made goods like t-shirts and tennis balls, while in return China purchased our aircraft and high-tech equipment. But that started to change as China's middle class grew, along with the country's ambitions as a world power. America got nervous when China in 2015 unveiled its plan, "Made in China 2025," which seeks to shift China from a low-end manufacturer to a high-tech powerhouse that provides value-added goods and services. This blueprint calls for China to give up selling the inexpensive stuff you find on the shelves at Walmart, which increasingly is getting made by lower-wage countries such as Vietnam and Pakistan. Forget plastic toys! Instead, China wants to make and sell smartphones, electric cars, robots, Internet of Things infrastructure, artificial intelligence machines, and 5G capabilities. Trade tensions between the U.S. and China go beyond the Trump administration's desire for the Chinese to import more goods from the U.S. We're witnessing a "great power" struggle between America and China that will likely last for many years. It's not just about American jobs. Global hegemony is at stake and that's an under-reported angle in the media. If tariffs don't work, what should the U.S. do? Line up our allies in the West in a united front. They're encountering the same trade problems with China. Get the European Union and Asian countries on our side and then approach the Chinese and tell them, let's make mutually beneficial rules. Do it quietly via back-channels, so no one loses face. Make it a case of the world versus China. But instead, the U.S. has alienated even its allies and has chosen to go it alone. "America First" could become "America Last," and investors will be poorer for it. | 
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