J. Kyle Bass, the CIO of Hayman Capital Management, says the trade war between the U.S. and China is "bigger than economics" as markets sink over the latest escalation between the two sides.
Investors panicked on Monday over Beijing’s decision to allow its currency, the yuan (CNY), to weaken against the dollar. Meanwhile, another round of tariffs is set to take effect on Chinese goods in less than a month.
"It's important to note that the frictions that are happening between the U.S. and China aren't just, 'How much is a pair of sneakers going to cost when we buy them from Walmart,'" Bass, a noted macro investor, told Yahoo Finance in an exclusive interview.
"This is much bigger than the economics. This is all about the entire relationship between the U.S. and China,” he added.
Both sides are digging in their heels despite a global economic slowdown that many economists warn will be made worse by a trade war.
President Donald Trump said last week that the U.S. will impose 10% tariffs on the remaining $300 billion worth of Chinese imports beginning September 1. The latest round of tariffs is in addition to the 25% on $250 billion worth of Chinese goods.
Bass, however, stated that the differences weren’t just about tariffs, or even currency levels.
"I think it's important to note that this is about intellectual property theft. It's about industrial espionage. It's about resetting our relationship with a China who has been taking advantage of the U.S. for a long time," Bass said.
To put it in perspective, Bass noted that the Chinese economy is roughly $12 to $13 trillion U.S. dollars worth of yuan, while the U.S. economy is $20 trillion.
"Let's say we put 25% tariffs on the entire lot of $500, call it $520 billion of imports. We're only talking about $100, $125 billion on economies of $20 and $13 trillion," Bass said.
"We can't get lost in the bigger picture here, and it is the incompatibility of two economies butting heads with one another in their cultural differences,” he added.
Stocks swan-dived on Monday after China’s currency move added to fears about the trade front. In afternoon trading, the S&P 500 (^GSPC), the Dow (^DJI) and the Nasdaq (^IXIC) all tumbled by more than 2%.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.