"It is that he believes we are already in a trade war, one that the Chinese are waging against us. And it's not that he wants to retaliate — it's that he wants to win," the "Mad Money" host said.
Trump believes that the Chinese have had their way with the U.S. endlessly, Cramer said. It's as if the U.S. are "lapdogs" who are willing to let them take away U.S. manufacturing jobs and don't put up a fight.
And while Trump wants to protect U.S. manufacturing jobs, Cramer thinks he doesn't care about the business that U.S. companies already do in China.
"They may have to be sacrificed," Cramer said.
Cramer believes the Chinese wouldn't have seized a U.S. drone before the election of Trump. It seems as though the Chinese don't know how to handle him, aside from calling Trump names in its state-run newspapers.
"They aren't sure what Trump really has up his sleeve. Tariffs? Outright recognition of Taiwan? Maybe even something military?" Cramer said. "Trump, I believe, is betting that all the Chinese will do retaliate against our businesses."
It's not that Trump doesn't care about U.S. businesses. It's that he believes that the Chinese need to "know who's boss" and in his view, that boss is the United States — even if that view will hurt the earnings of some U.S. companies.
Cramer expects the positives to U.S. business under Trump — deregulation, repatriation and lower taxes — will be partially offset by the fact that it will be harder to ship jobs to another country. That is the real risk factor to Trump.
However, this doesn't mean investors should sell all stocks with exposure to China.
"You just need to recognize that you can't pay as much for them knowing that Trump is willing to play hardball," Cramer said.
Cramer understood the tradeoff, but he says it's too soon to tell who's right.