Chi Lo, Chi Time

Unintended consequences of the Sino-US trade conflict (II) – Surprises for America and EM

01/11/2018 - Chi Lo

US President Donald Trump believes that “trade wars are easy to win”. Many observers and investors agree with him as the US economy is recovering strongly while the Chinese economy is slowing down with the emerging markets (EM) being caught in the crossfire1. How about thinking out of the box about the opposite: The US will be hurt while EM will benefit, with China playing a role in all this?

Classical trade theory of comparative advantage argues that limiting imports reduces both consumer welfare and productivity growth in the long-run. So no one wins in a trade war. Macroeconomic conditions determine who gains and who loses in the short-run, but such analysis does not seem to have gained much attention in the political debates on President Trump’s tariff tactics against China…

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