As a trade war continues to escalate, it will disrupt global supply chains, causing prices to rise. Consumers and businesses will hesitate to spend and invest, slowing growth and employment. Companies that depend on international trade may see fewer opportunities for sales in China, Europe or other key markets. This “risk-off” sentiment can prompt investors to shift out of stocks and into safer assets like bonds or gold, further weighing on stock prices.
When Trump first imposed tariffs in 2018, he claimed the levies would decrease the US deficit with China, bring back manufacturing jobs and force Beijing to reform its trade practices, including intellectual property theft. But few of these promises have materialized. In fact, China has used the ensuing escalation as an opportunity to strengthen its domestic economy and gain greater political legitimacy.
The United States and China have a lot in common, but they also have substantial differences. The biggest of these differences is that the US relies on China for essential goods and services that cannot be quickly replaced or made at home at prohibitively high cost. The current war risks decoupling these two massive economies, resulting in pain for their residents and a period of debilitating uncertainty for the world economy. Moreover, it is unlikely that the United States will win this war. With a president who disregards precedent, contracts and even his own words, the odds of an expedient and mutually satisfactory solution look slim.
