The trade war between the U.S. and China is headline news on every channel. Despite glossy analyses by the mainstream financial media, this trade war is just getting started and should be expected to get much worse before it gets better.
Reports that Trump’s tariffs are just for show and China’s response is just posturing are nonsense. The tariffs are real, more are on the way, and the animosity level is rising. This article explores the fact that the implications of the trade war go far beyond trade.
China will have to undertake major structural changes in its economy to offset the negative growth from reduced trade. The trade war is being viewed inside China as part of a U.S. strategy of containment similar to what was applied with success to the Soviet Union during the Cold War. This means that China must shift from an export-driven economy to a consumer-driven economy and build trade ties with South Asia and Europe to replace lost business with the U.S.
These are huge adjustments that may take decades to implement. In the meantime, China’s slower growth could be a source of internal instability and social unrest.
The U.S. and China are playing for high stakes. Markets are just beginning to wake up to this reality.
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