Dispatches from the US: US-China trade tensions remain front and center

Having just completed a week of meetings with market participants and stakeholders in the US, I wanted to share a quick debrief with you. As you might expect, trade tensions dominated the discussions.

Most counterparts saw the macro effects of tariffs as negligible for US and China, although many policymakers were keen to know whether the tariffs had caused any damage. My current impression is that the damage is minimal. Many agreed that second round effects – uncertainty around how this all plays out leading to slower investment and consumer spending – could be sizeable for both economies.

I think there is some way to go before we clearly see the end game for US policymakers. Many of my counterparts did not think the tariffs were the right way to make progress in further opening the Chinese economy, but were resigned to the current trajectory. There was also universal agreement that removing the tariffs will prove trickier than imposing them.

While many folks acknowledged that the Chinese economy is on a par with the US in terms of size, they struggle with the notion that China is mainly consumer driven and that (net) exports play almost no role in driving Chinese growth. Fewer seem to get that Chinese consumers are now driving global growth, and that US and other advanced countries might want to remain plugged into that dynamic.

My bottom line: assuming the real US aim is to change the way China does business and/or move some supply chains out of China, then we are in for a long haul and the tariffs may be in place for some time. Success in this scenario will involve some concessions on trade but will hinge on changes to China’s IP regime, bilateral investment symmetry and operating conditions for business on the ground in China.