The Trump Tariff Tussle

Over the last month, the tariff tussle between China and America has heated up. So far, all the action has been confined to big words and big threats, which is where Trump really shines. But what will happen next?
If the result is that China opens its economy to more American products and stops stealing our technology – the whole world will benefit. In other words, this has the potential to be a wonderful thing for the global economy and stock market. However, that potential reward comes with a lot of potential risk. Trump claims that China has more to lose than us in a trade war. In a way, he’s right. China sells a lot more stuff to us than we do to them (which is part of the problem of course). Therefore, we have more targets to hit with tariffs.
However, China has advantages too. The biggest one might be the tough negotiating position Trump is in. The tougher he talks, the more he scares the business world and stock market. Already, Trump and his economic advisors have softened and assured the world that this is all just a negotiation – which isn’t a particularly effective way to negotiate.
The problem is that Trump can’t afford to cause much economic pain because there’s a mid-term election coming up, and a Presidential election in 2020. On the other hand, Chinese President Xi Jinping is essentially President for life. So, China can make a short-term sacrifice. In addition, China’s economy is growing at nearly 7%, so they can afford a little economic pain.
For that reason and more, this trade war (or negotiation) will not be easy to win. However, Trump should get some credit for his courage. For years, China has crossed the line with their trading policies, and Trump is the first President willing to make a fuss about it. He has brought this issue to a head. In the coming months, it’s going to go one way or another.
If I had to make a prediction, I think it will work out okay. China knows they’ve been pushing the limits, and I think they are ready to change - although Trump may push them to do it more quickly.  China’s economy has matured, and they aren’t as focused on selling cheap stuff to the world. In fact, they are aiming for a much more “America-like” economy built on consumers. So, I think Trump might have picked the right time to pick this fight with China. Unfortunately, I’m still worried he’ll mess it up.

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