President Donald Trump needs to be careful not to alienate China with trade tariff threats to the point where the world's second-largest economy won't invest in the United States anymore, Starwood Capital's Barry Sternlicht told CNBC on Tuesday.
"It's very tough if you know the Chinese persona to punch them in the face publicly and ask them to back down," said Sternlicht, founder and CEO of the global Starwood Capital investment firm with $56 billion in assets under management. "We kick everyone in the face and we become the 'Island Nation of the States.'"
Sternlicht said the possibility of a trade war with China could put at risk or slow Chinese buying of U.S. Treasury bonds, a primary means of funding Trump's plans to grow the American economy. China is the largest foreign owner of U.S. debt, second only to the Federal Reserve.
"We're not a rich country right now. We're rich in ideas, and rich in optimism, and rich in prosperity. But we're fiscally undisciplined," said Sternlicht.
Washington had been "fiscally undisciplined" long before Trump became president, Sternlicht acknowledged. But he contended the current White House should not have done a $1.5 trillion tax cut and a $1.3 trillion spending bill back to back.
"What the government did was very risky," said Sternlicht. "I was surprised at the scale of the tax cut. It was bet the ranch. We have to grow. If we grow, we pay for it."
Either the tax cut or spending bill alone would have led to "larger deficits," he added, warning that "larger deficits" until the projected economic growth replenishes federal coffers require more government borrowing at time when demand for U.S. Treasury bonds has been slowing.
With Fed interest rates trending higher and the 10-year Treasury yield on Tuesday hitting 3 percent for the first time since January 2014, the cost of paying down U.S. debt is going up, Sternlicht pointed out.
"We could come up with a scenario ... that we could wind up having to print money to pay interest," he warned. "People are nervous. I think they're glued to their TVs. [The Trump presidency] is the longest-running sitcom or drama, whatever you call it. It's very busy. It's very unsettling."
Sternlicht founded Starwood Capital in 1991. The investment firm, which created Starwood Hotels and other leisure brands, focuses on global real estate, hotel management, the oil and gas sectors and energy infrastructure. Starwood Hotels is now part of Marriott.
The White House did not immediately respond to a request for comment.
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