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Update of the Commercial War 19 July 2018

        

On Wednesday, Steve Bannon, former chief aide to US President Donald Trump, spoke about the trade tensions between the United States and China, and his words were surprisingly optimistic. "We are at war with China," commented Bannon at the Delivering Alpha Conference. Bannon added that the United States has been dealing with trade tensions with China for decades and that "we are winning." He continued to praise Trump's decisions and concluded that the United States will emerge from the war as a clear victor. "The victory is when they give full access to their markets," Bannon said.

Despite his support for Trump and his shared nationalist beliefs, Bannon was clear that he had no plans to return to the White House. Bannon left office in August of last year after becoming a highly controversial figure after leaking stories to the press. On a personal note, Bannon distanced himself from President Trump by making derogatory comments about his son, Donald Trump Jr.

While the optimistic American commentators celebrate their first advances, the Chinese are carefully weighing their next steps. The trade war is developing just as China began to focus seriously on solving its economic problems, and Chinese lawmakers are trying to anticipate how tensions and tariffs will affect investment, growth and business sentiment within China. Although exports to the US do not represent an overwhelming part of the Chinese economy, the indirect effects of the trade war could lead to serious collateral damage.

China's banks issued a record 12.65 billion yuan in loans in 2016, with the aim of stimulating the economy and meeting aggressive growth targets. To reduce debt, strict fiscal policies were implemented this year. It would be logical to relax monetary policy at a time like this, but this could question the commitment of Chinese politicians to debt reduction. What is more important? Reduce debt or financial deleveraging? The commercial war is making this question more complex than it has ever been and there is not a quick or simple answer, but many more questions to come.

On March 2, Trump tweeted that trade wars are "good and easy to win". But analysts question the validity of this claim and claim that if the trade war gets worse, everyone can lose. The weakening of world trade will slow down world growth and the higher tariffs will increase inflation. Despite these risks and the weakening of the yuan, it seems unlikely that China will throw in the towel in the near future.

        

        
    

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