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Even if the writing has been on the wall for years, breaking up is never easy.
China and the US don’t often see eye to eye, but for decades, they have broadly agreed that it is better to be trade partners than trade enemies.
That alliance is now hanging by a thread. And the real-world collateral damage is already piling up.
The presidents of the world’s two biggest economies don’t appear ready to talk turkey. China indicated Wednesday that it would be open to negotiations only if talks are based on “respect,” and greater “consistency and reciprocity” from the Trump administration, a person familiar with the matter told my CNN colleagues. (I, for one, am not holding my breath.)
Without some kind of retrenchment, US-China trade is expected to fall by more than 80% — a magnitude “tantamount to a decoupling,” said Ngozi Okonjo Iweala, the director general of the World Trade Organization, which issued a similarly grim report on global trade Wednesday. (The upshot: Pre-Trump tariffs, global trade was penciled in to grow 2.7% this year. Now, it’s expected to shrink 0.2%.)
Here’s how Trump’s trade war is already rippling through the economy:
US stocks tumbled on Wednesday — dragged down by Nvidia’s China shut-out, the grim forecast from the WTO, and comments from Fed Chair Jerome Powell, who warned of a “challenging scenario” in which tariffs lead to a triple whammy of weaker economic growth, higher unemployment and faster inflation, all at the same time.
“There isn’t a modern experience for how to think about this,” Powell said at an event hosted by the Economic Club of Chicago on Wednesday.
You might think the “Art of the Deal” president would be eager to hash out some kind of pact with China. But if Trump has taught the world anything, it’s to expect the unexpected.
“There may be another game plan here,” Ed Yardeni, a veteran investor and president of Yardeni Research, told investor Louis Navellier on a podcast this week. “It’s conceivable that he’s got no interest in doing a deal with China. It’s conceivable that the US has come to the conclusion that China is a geopolitical threat… and what we’re trying to do is ruin their economy.”
Some new reporting from Bloomberg is lending weight to that theory.
According to the news outlet, which cited unnamed sources, the Trump administration is “preparing to pressure nations to curb trade with China.” One option on the table, Bloomberg said, is essentially a monetary sanction in which the US would ask other nations to impose tariffs on certain countries with close ties to China.
Whether a trade deal is the goal or not, “it’s not a pretty thing to watch,” Yardeni said. “He is trying to use America’s economic power to bully other countries… But it’s going to be real hard to bully China.”
As many observers have noted, China may be in a stronger position to withstand a tit-for-tat trade war, in part because it maintains an authoritarian grip on every facet of its economy.
But perhaps more importantly, Beijing has learned from its first go-round with Trump in 2017. The country is already going beyond the tit-for-tat measures that characterized the earlier trade feud.
China’s halt on Boeing deliveries and its restrictions on rare-earth exports show that the country “has learned how to weaponize its imports in a new way,” Mary E. Lovely, a senior fellow at the Peterson Institute for International Economics, said in an interview.
“China still wants to look like a respectable stakeholder” to trading partners like Australia, the EU and Southeast Asia, where President Xi Jinping visited this week, Lovely notes. “They want to say, ‘The door is open. We’re reasonable, we’re just combating US aggression.’ And they are doing it now with a much bigger set of tools.”
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