Although it may not seem so, timing is proving to be everything in the on-again, off-again trade war between China and the US. In coinciding the imposition of $75-billion worth of tariffs on US goods and oil with the Jackson Hole Federal Reserve retreat and ahead of the G7 weekend meeting, China’s announcement was designed for maximum impact.
Neil Shearing, Capital Group’s group chief economist, tackled the implications of the end of the world as we know it, in a recent note on the trade war. He has believed for some time that it is more likely that the conflict between China and the US will escalate than recede, given the political dynamics on both sides of the trade war. One of the longer-term scenarios he considered was “a more malign form of deglobalisation driven by the deliberate erection of barriers by policymakers”.
In the medium term though, the most challenging aspect of these tortuous, and unpredictable, negotiations are that the parties on either side have such completely different, but equally difficult to read, confrontational negotiating styles. Time is not on the side of either the US or China, with both countries likely to suffer the consequences of not reaching a deal within the next few months. The stakes get higher each time either side tries to land the knockout blow and the one thing we do know, contrary to Trump’s claims that tariffs are already benefiting the US, is that no one will be left standing if the two parties fail to meet in the middle before the end of 2019.
In a note titled “Time is running out for Trump to cut a trade deal”, ING says: “Voters will not like this, mainly because they will increasingly pay the price for the trade war now that the tariff hikes are about to hit imported consumer prices as well.”