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We are perilously close to conflict escalation

Win-or-Lose

In this month’s Globalisation Outlook we argue that the US-China trade conflict is perilously close to escalation

  • a growing perception that the US economy is motoring along while the rest of the world struggles may embolden President Trump to double down on his policies
  • the US-China trade conflict is at an impasse and a degree of escalation has started
  • China’s latest white paper states that “China does not want a trade war but is not afraid of one and will fight one if necessary.”
  • an escalating trade war will likely damage China more than it will the US
  • China has hinted its willingness to use its near monopoly of rare earths production (an indicator of a major weaknesses of the Western economic model) as a weapon in the escalating conflict
  • China is, however, vulnerable to the power of the dollar and its dependence on foreign oil and gas imports
  • should things go that far, all bets are off in terms of where the conflict will end
  • as far back as October 2018, we wrote: “As China rises to a major geo-political power, we should be thankful if its conflict with the US remains restricted to skirmishes around international trade when most previous transfers of power have ended in armed conflict”
  • we are not there – and hope we won’t get there. But it is hard to see an easy way out of the current impasse without one of the two sides being willing to give way.

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