[Editorial Analysis] Could trade war lead to the real thing?

Historically, we have failed to see tipping points of the kind that might result from escalation of the US-China trade war until too late.

Mains Paper: 2 | International Relations

Prelims level: US-China trade war

Mains level: Explain the US-China trade war.

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Context

• China and the US will resume trade talks this week swiftly lifted markets.

• This follows the first meetings at the annual summer retreat of the Chinese Communist Party leadership at the beachside resort of Beidaihe.

• It might be expected, the main topic this summer has been the US-China trade war.

• It leads and what could conceivably be done to avert it without an unacceptable loss of political face.

• While we won’t have any real indication as to the tenor of the Chinese discussions or their conclusions for awhile yet.

• It’s worth thinking through where this trade war could take us all in the absence of effective diplomatic intervention.

• History tells us trade wars are easy to start and hard to stop, just like real ones.
Trade comparison between China and US

• The traded sector represents some 38% of Chinese GDP (gross domestic product) and 27% of US GDP.

• In small-scale dispute escalates to cover the entire $650 billion in bilateral trade.

• The world will have an objective economic problem on its hands, not just one of general market sentiment.

• Falling sentiment and economic numbers will contribute to a mutually reinforcing spiral.

• The US that because China exports nearly $500 billion to the US and the US exports only $150 billion in return.

• There’s a limit to the impact Chinese retaliatory tariffs can have.

Conclusion

• Bilateral investment flows are already slowing rapidly.

• A new Cold War in high technology is looming, if not already underway.

• And on the security front, we could easily see escalation in the South China Sea and beyond.

• Historically, we’ve routinely failed to discern when the tipping points come between public disagreement, failed diplomacy, political crisis, failed crisis management, limited conflict and then more general war.

• In this case, we aren’t even yet at phase two in the sequence.

• A great deal rides on them, and not just for the US and China.

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