The trade war between the US and China is lose-lose according to Barclays’ Chief China Economist, but to what degree? How can China respond after it runs out of tariffs?
In a way the US has entered in the trade war in the stronger position. Looking ahead, we have been actually quite bearish in the trade war escalation scenario particularly since March when President Trump announced the US$50 billion tariff.
We continue to see further escalation very likely, and with the US side already committing to further tariffs on the rest of the imports from China.
I think realistically obviously this trade war is lose-lose to both sides, but because of the trade intensity, China has more to lose. This time the Chinese slowdown was largely policy-driven and in fact, the trade war impact have yet to show upon the economy because so far exports have held up.
The Chinese government I think at the moment is facing to me the most difficult balancing act I would say in the past decade. On one hand they need to maintain this direction of deleveraging, addressing the medium term, de-risking objective. And on the other hand that you know with particularly the trade war escalating and the negative headwinds to the external demands and the government's priority in the near term has been shifting towards growth stabilization.
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