New tariffs are not the main worry, as new shots are fired in the trade war between China and the US, says economist Arthur Kroeber according to Barron’s. Next is the upcoming disengagement between both economies and the question of what domains will be involved.
Scenario-planning around whether or not there is a deal isn’t very useful for investors, [writes Arthur Kroeber]. The reason? The Trump administration isn’t likely to impose the next tranche of tariffs, Kroeber writes, noting that the next round could crater the U.S. markets and hurt the economy—both unfavorable as Trump goes into his re-election campaign. Even if there is a deal, he writes, it may not restore U.S.-China trade and investment relations back to their prior state. Investments from China have plummeted to $5 billion last year, down from $29 billion the year before, according to Rhodium Group. Plus, Kroeber expects some tariffs to stay in place even if there is a deal and U.S. restrictions on China’s access to high-value technology to continue, as will companies’ efforts to diversify their supply chains and rely less on China.
The bigger question for investors is how the U.S.-China relationship is reset. “The shift from seeing U.S.-China economic integration as positive to seeing it as negative is a fundamental one. There is no doubt that the U.S. government will now try to drive as much economic disengagement from China as possible. The question is how effective that drive will be, and which domains will be most affected,” Kroeber writes.
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