Trump wins his trade war with China. Why it might not last

President Donald Trump may find it harder to claim victory over China's longer trade war will last long, even though he points out that the US economy and stock market are proof that he has won for the moment.

The president this week ordered his officials to hit a $ 200 billion tariff on Chinese products on Sept. 24. In retaliation, Beijing said it would receive $ 60 billion in US goods with tariffs. Yet, even as the conflict worsens, the Trump administration has said it will still be open for talks next week.

In confronting China, Trump uses the same solid tactics he used as a real estate mogul, taking care to stifle any suggestion that he would be in a hurry to reach an agreement.

But Trump's leverage can be short-lived. The president's political power will be reduced if Democrats win the House in congressional elections in November because they are favored. While the US economy has so far appeared to be resisting the trade war, the surge in this year's tax cuts should fade.

Meanwhile, the Chinese economy is showing signs of slowing down, but it continues to grow at a brisk pace, giving Beijing the opportunity to mitigate the shock. President Xi Jinping, who consolidated his power in March by repealing the terms of office, has reason to be patient.

"The question of leverage varies over time. If you ask the same question tomorrow, the calculation will have changed slightly in favor of China, "said Stephen Jen, CEO of Eurizon Slj Capital Ltd., a London-based asset management company. "If you ask the question in a week, things will be even more favorable to China."

Trump has a point on how markets have responded to the conflict. Since the president ordered its officials to prepare tariffs on a first $ 50 billion of Chinese products in March, US stocks have risen by about 10 percent, while Chinese stocks have fallen by more than 16 percent. %.

The US economy, which has its second-longest expansion to date, has a lot to like. Growth in the second quarter was the fastest in four years, while the unemployment rate of 3.9% is near its lowest level since the 1960s.

China, on the other hand, is showing signs of softness. Investment growth in fixed assets over the first eight months has been the slowest since at least 1999. The yuan has been down about 8% since Trump imposed tariffs.

"China should really wait another five years to resist the United States," said Jen.

The Chinese economy is expected to slow as it relies less on debt and shifts to a growth model driven more by consumption, a change announced on Wednesday by Prime Minister Li Keqiang. Beijing has already unveiled measures to protect against the trade war, including infrastructure spending and banks' capital requirements. Although a high level of debt can limit the ability to react, Xi has many ways to reduce the pain.

The United States has already used a lot of tax ammunition. The $ 1.5 trillion tax cuts that came into effect in February have given the economy a boost, but the IMF expects stimulus measures to dissipate. by 2020, when growth will slow down. China remains the world's largest economy by 2030.

What do our economists say

"China already faces a daunting challenge with deleveraging; Fighting a trade war at the same time would be hard to do. Even so, the strength of the United States – a reflection of substantial and time-limited tax cuts – will not be maintained. And with large, deep-rooted US companies as a growing production base and market, the escalation of trade conflict is likely to result in a self-inflicted injury. – Tom Orlik, Chief Economist, Bloomberg Economics

Trump's latest weekly estimate is 38 percent, according to Gallup. His Republican party could lose control of the House in the November 6th legislative elections. Senior Democrats such as House Minority Leader Nancy Pelosi have urged Trump to keep up the pressure on China, but Democrats are not guaranteed to support his tariffs.

"In fact, we have to face what is called elections," said Stefan Selig, managing partner at BridgePark Advisors and former senior business executive of the Obama administration. "Culturally, they will just be able to bear more pain for a longer period of time."

The opposition of American companies to tariffs is increasing. The administration says it is trying to minimize the direct costs to consumers. However, Trump said he was ready to charge duties on all Chinese imports, suggesting that it was only a matter of time before mobile phones and other popular items were affected.

"The idea that you are going to hit China in the face or make China weaker is not a recipe for resolving our differences," said Jake Colvin, vice president of international trade at the National Trade Council in Washington. "The sooner both sides realize that the current situation is untenable and that they must reach an agreement that allows each party to see the value, the better it is the better."