I believe the United States could have avoided its current predicament by using the World Trade Organization’s existing dispute resolution process to address its justifiable concerns with Chinese behavior.
Still, from the perspective of a single country, starting a trade war could potentially be justified if the end result ultimately shifts the terms of trade in its favor.
Such a victory can only be achieved when the country has more bargaining leverage than its opponent — in other words when it can impose more pain on its adversary than it experiences itself.
And the longer the trade war continues, the more concessions that country will have to win in order to compensate for the damage caused.
So, after nearly 18 months of escalating disputes between the U.S. and China, where are we? Is either side winning, and can any concessions justify the economic harm that both sides have already experienced?
First and foremost, it has become increasingly clear that the trade war is hurting the economies of both countries. Neither will emerge from this conflict unscathed.
Unfortunately, however, the last 18 months have done little to clarify who is winning — that is, who is hurting less and can credibly hold out for longer.
Take China. Before the trade war, it was already facing a number of significant challenges, first among them how to effect a transition from its current reliance on cheap manufacturing to the production of higher value-added goods. China’s political stability is also somewhat precarious, as evidenced by recent events in Hong Kong and Xianjing, as well as Chinese leader Xi Jinping’s authoritarian crackdown.
Moreover, China’s economic growth has slowed to a 27-year low of 6.2%. And perhaps more ominously for the country, there are growing signs that foreign companies from America and elsewhere are looking outside China as they expand their sourcing, production and distribution activities.
Of course, China’s growth rate still makes it among the fastest-expanding economies in the world, so the recent slowdown can hardly be termed a crisis. And the shift away from China, limited as it is, began before the trade war, spurred on by rising prices, intellectual property theft and other issues.
As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.