Donald Trump and Uptick in US-China Trade Tensions

02.02.2018

President Trump proved quite statesmanlike in his first State of the Union address. His focus was on depicting the United States as a prosperous nation on track for further gains. This was in sharp contrast to his much gloomier inauguration speech, and was likely meant to portray the president as being responsible for the trajectory of the past year. While the president’s tax and deregulation agenda have certainly supported growth, it is also worth noting that presidents often inherit the work – both constructive or destructive – of their predecessors. Corporate fundamentals are also to thank for the recent, high asset valuations.  

While the president outlined a domestic agenda for 2018, it is pale in contrast to last year’s push for tax reform. The president will likely allow Congress to drive policy this year, and the overriding focus in both chambers will be on maximizing gains – or containing losses – in the upcoming midterm elections. The White House suggested ambitious infrastructure plans, though these are unlikely to materialize in their current shape given lack of funds and partisan divides. Immigration reform will also be a sensitive topic throughout the year – with neither party being in a position to compromise much given the strong views of their bases, or constituents.

On foreign policy, President Trump presented a particularly strong stance vis-à-vis North Korea while toning down his rhetoric on the question of US-China trade relations. Speculation remains that US military action against Pyongyang is a real possibility this year. Tensions will surely resurface following the Winter Olympic Games. That said, military conflagration is not imminent, and it's not likely that the US will ever attack.

More realistic, and impactful, is an uptick in US-China trade tensions. President Trump is likely to take a strong stance against what he perceives as unfair Chinese practices in the coming weeks and months. Recent investigations into the repercussions of China’s economic model on the US economy will serve as the basis for these moves. Beijing’s response will most likely be moderate and proportional as President Xi Jinping will want to avoid domestic economic instability while maintaining his image as a provider of global political stability. This said, a cycle of trade measures including both formal and informal retaliatory actions will certainly cast a shadow over bilateral and to some extent global trade. Most importantly, one must hope misperceptions between Beijing and Washington will not lead to an escalation in tensions that would be detrimental to both parties and beyond.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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