Both the US and China know that this is much bigger than a trade war, that the future leadership in Asia is now on the table – so at least for now, feel that the trade deal can come at a later date. More importantly, the problems are structural and a simple trade deal is not what is at risk.
After a series of threats of new trade tariffs and refusals for supplying major Chinese firms with much-needed components, the G20 talks between President Trump and President Xi that lasted for 80 minutes resulted in, as we thought for so long – no deal. The threats will continue but in the end both the US and China are now on a path the will result in more talks as it is now transparently obvious that current tariffs will not be rolled back and the next stage in the talks will start.But what is the next stage? Are the two world leaders now looking to purposely trigger a world recession?
Our Views: We feel that China will now move into a mode of disrupting President Trump and the 2020 election as another 4 years of Trump would be a real pain for the Chinese leadership. At the same time, the US feels that it can force change in the Chinese economy, diving the current leadership to change policy. The strategy seems to encourage the current leadership in Beijing to keep ramping up liquidity and then draining it again and again – possibly causing fractures in economic growth and forcing leadership to become even more repressive.
Many westerners do not realize that the Chinese leadership has rounded up 1.5 million members of the part and business leaders in the regional areas, throwing them all in prison. The rationale is that fractures on the government could lead to regional and even separate states – President Xi named himself President for Life, to crush any thoughts of regionalism. We have seen this type of social engineering before in China.
China and the US are waging war on each other – just not firing shots. The US and China can drag the world into a serious recession in the coming years – and both feel they will come out the other side as a winner.