My quickie tweetstorm analysis of the U.S./China trade conflict. 1/7: Both U.S. and China have mobilized but trade war has not begun. Both have left time to negotiate before implementing tariffs.
2/7 Whereas Trump jumped the gun on Sec. 232, announcing across the board steel & aluminum tariffs form which he eventually had to climb down, the 301 on China has so far been a graduated program leaving room to escalate/de-escalate.
3/7 Congressional Rs, allies and business saw 232 tariffs, Nafta & KORUS threats as needless attacks on allies. By contrast they agree China is a bad actor & action is warranted, though not necessarily this specific action. Gives Trump useful cover, staying power.
4/7 China more vulnerable economically in this trade war: it depends much more on exports to U.S. than U.S. does on exports to China. Its role in global supply chain also at risk. Vulnerability grows w/escalation b/c U.S. has more left to hit & its exports are harder to replace.
5/7 Initial market drop overstated (modest) economic consequences; real issue is policy uncertainty adds to volatility: headwind to price-earnings ratios, not earnings, with notable exceptions e.g. Boeing. Volatility = wide range of risks around trade war, not base case.
6/7 U.S. is more vulnerable politically. District-specific retaliation a tried & true weapon of U.S. trade partners in disputes. Trump, R's more likely to pay political price for economic harm than Chinese leaders who are politically insulated from consequences of trade war.
7/7 Incentives are important drivers of outcomes. U.S., China have strong incentives to negotiate a solution rather than let these tariffs go into effect.
