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The US versus China on trade - who wins?

Economic aggression? Around the world, governments will feel Trump has a fair point. It’s a truth universally acknowledged that China stacks the trading deck in its favour by restricting imports - happy to sell, less keen to buy.

A decade ago there was a willingness to cut an up-and-coming China some slack. Now the size and stature of China’s economy is such that the US feels unsettled.

No only is China showing ambition to dominate sectors in which the US has traditionally held sway but it’s fighting dirty. When it comes to intellectual property, show me the CEO of a multinational who doesn’t believe China steals company secrets, hacking for them if necessary.

Trump has been bruising for a scrap with China ever since he took office. He’s taken his grievances to the World Trade Organisation (WTO) but he’s not waiting around for a ruling. While the WTO pontificates, the US is going it alone and Trump has just thrown a pretty serious punch.

Trade disputes between nations are common, trade wars are rare. Trump boasts they are “easy to win” but most economists will tell you they are disastrous for everyone involved.

President Donald Trump signs an executive memorandum targeting China on trade in the at the White House on March 22, 2018. Credit: PA

The US memorably tried sky high tariffs against its major trading partners in 1930. They retaliated, trade slumped, prices rose and jobs were lost on both sides of the Atlantic. The trade war didn’t cause the Great Depression but it made it deeper.

The seriousness of the current confrontation hinges on how China responds. It could retaliate in kind, the anxiety will be it takes the hostilities up a notch.

China is the world’s largest holder of US government debt. In theory, China could dump those government bonds on the market, causing prices to crash, forcing up interest rates across the US and beyond.

It’s easy to work-up an Armageddon scenario. In reality China will know it has a lot to lose, not least because the balance of trade heads from East to West.

President Trump will already be feeling the pressure. Shares on Wall Street fell sharply today - Caterpillar and Boeing among the worst hit. The reaction of the financial markets may water-down Trump’s tariffs without China having to do very much at all.

At the moment the threats sound uncompromising and the stakes are undoubtedly high. But compromise is still possible and co-dependant superpowers should be able to find common ground.