Experts worry the world’s two biggest economies are plunging headlong into an economic cold war that could last years
Many economists and stock market strategists are starting to bet that trade wars aren’t “easy to win,” as President Donald Trump famously declared in a tweet more than a year ago.
As April 2019 turned to May, most economists and other trade and investment experts were optimistic a trade deal could be reached between the U. S. and China. As the calendar approaches June, many now say their main working premise is that the world’s two biggest economies are instead heading down a path to an economic cold war that could last years.
“We now take it as our base case that the ‘deal’ to end the trade war, which many market participants were sure was forthcoming just a few weeks ago, is now the tail risk” — an improbable event that suddenly seems probable, wrote Carl B. Weinberg, the chief economist at High Frequency Economics, in a note Friday.
Why the change of heart? Some shifts can be traced to developments this past week tied to technology.
Chinese state media on Friday accused the U. S. of seeking to “colonize global business” with moves this week that effectively cripple China’s telecom giant Huawei – and potentially other Chinese tech companies – by mandating U. S. government approval for all corporate transactions in this country.
U. S. investors are already worried Beijing will eventually try to limit, or even choke off, American companies that both sell into its markets and manufacture products there, such as Apple and its iPhone. Apple stock, like the S&P 500 Index, is down for the month of May.
The escalation in the tech realm comes after trade talks fell apart in early May. Mr. Trump accused China of reneging on some parts of a deal and unexpectedly raised to 25 percent from 10 percent tariffs on Chinese goods and threatened tariffs on $300 billion more worth of good annually, effectively taxing every good imported from China.
“This is a close call, and without additional signs of progress over the next few weeks, implementation of the next round of tariffs on $300 billion of imports from China could easily become the base case,” wrote Jan Hatzius, the chief economist at Goldman Sachs in a note to clients this week.
