The stock market seems to rise or fall almost daily based on the latest news from the front lines of the trade wars. When Trump threatens new tariffs and China threatens to retaliate in kind, stocks fall. When Trump delays the tariffs and China agrees to resume negotiations, stocks rise. And so it goes.
It has been this way since January 2018 when the trade war began. From the start, Wall Street has underestimated the impact of the trade war.
First they said Trump was bluffing. Then the analysts said that Trump and Xi would put their differences aside and make a historic deal. Some analysts said that trade wars were not important because of the relatively small size of the U.S. external account compared with the entire economy.
All of these analyses were wrong. The trade war was problematic from the start and is growing worse today. Slowly, Wall Street has caught up to the reality and is taking the trade wars seriously. But according to this article, Wall Street is still missing the importance of what is going on.
The trade war is important, but it’s not the main event. The trade war is part of a much larger struggle between China and the U.S. for hegemony in Asia and the Western Pacific. China and the U.S. are in a new cold war being fought on many fronts including trade, technology, rights of passage in the Taiwan Strait and the South China Sea and alliances in South Asia where China’s Belt and Road Initiative is promising billions of dollars for infrastructure development and the U.S. is responding with arms deals and bilateral trade deals.
Tensions are rising, as this article describes. Even if a modest trade deal is worked out with China this summer, it will not put an end to the larger struggle now underway. This new cold war could last for decades.
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