William Priest, CEO and co-chief investment officer of Epoch Investment Partners in New York, recently warned that a U.S. cold war with China has already started and won’t end anytime soon.

“A trade war such as the one that seems to be brewing between the U.S. and China, is a lose-lose proposition,” Priest told Barron’s.

“Tariffs effectively are paid by the country imposing them. This trade war could be considered the start of a cold war between China and the West, or between state capitalism and free-market capitalism, with its individual rights and opportunities. The playing field is trade, but at stake are values. Many things suggest we have entered a cold war with China, and it is likely to last a long time,” Priest explained.

Priest predicted that with the slowing global economy and central banks poised to cut interest rates, companies will warn that earnings will fall below expectations.

“Technology is playing a big role: It is highly deflationary. As you substitute technology for labor and capital—or bits for atoms, as we say around here—your profit margin can rise even with constant revenue. If you substitute technology for physical assets, your asset turnover goes up and your sales per dollar of assets are higher. Every company we talk to is trying to create a capital-light business model. As your capital demands decrease, payout ratios can rise. The outlook for dividends is truly excellent,” he said.

For his part, President Donald Trump on Monday pointed to slowing economic growth in China amid restarted trade talks, saying U.S. tariffs were having “a major effect” and warning that “possibly much more” were to come.

Growth data released earlier on Monday showed the world’s second-largest economy had slowed to 6.2% in the second quarter, its weakest pace in at least 27 years amid ongoing trade pressure from the United States, Reuters explained.

“This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place,” Trump tweeted.

Trump and his administration are seeking to push China to make a trade pact after talks broke down in May. Trump and Chinese President Xi Jinping agreed to restart negotiations at their meeting at the G20 last month.

U.S. and Chinese negotiators spoke by phone last week, and in-person talks are expected soon in Beijing, U.S. officials have said.

Meanwhile, Priest added two more stocks among his investment picks:

• MGM Resorts International (MGM), which operates gaming, hospitality, and entertainment resorts, including the Bellagio and MGM Grand in the U.S. MGM also owns 56% of MGM China Holdings [2282.Hong Kong], which operates the MGM Macau and MGM Cotai. “The macro backdrop supports continued revenue growth in the U.S. and China, and new projects and expansions will continue to build value. A greater focus on entertainment and events, especially in Las Vegas, will prove revenue-enhancing, as well. Longer term, MGM’s Las Vegas assets are well positioned for convention-space expansion,” he said.
• Centene (CNC) is the leading health insurer in Medicaid and the health-care exchanges. Centene will have $100 billion in revenue in 2019 and $5 billion in Ebitda, and insure 23 million lives across 50 states, making it the No. 5 health-care insurer in the U.S. “We think the company can sustain a high-single-digit organic growth rate, driven by market-share gains and conversion of Medicaid programs to private insurance at the state level.”

Related Stories

• China to Provide Liquidity Support to At-Risk Brokerages
• China Regulator Resumes Securities Firm Approvals, Issues New Rules