One of the primary objectives of the Trump administration’s (trade) policies is to become less dependent on China, but policy implementation is poorly aligned with overall goals and too erratic. The trade war hurts everyone, but it hurts the US more than other major economic players. The price of China-decoupling is higher than just inflation: the US risks losing control of the global financial system, ABN AMRO’s economist Rogier Quaedvlieg notes.
US risks financial dominance in pursuit of manufacturing
“Trump and his advisors have at different times raised three apparent goals of this trade war: reshoring manufacturing, raising revenue to decrease the deficit, and getting better (trade) deals. If the aim is to bring back manufacturing to the US through tariff policy, you’d want to offer clear incentives for firms to invest. The Trump administration has done the opposite, with erratic, rapid policy changes, frequent reversals and delays.”
“Recent developments point toward growing evidence that the US’s major trading partners, and particularly China, have the upper hand. Most of the recent changes in tariff policy were undoing previously applied tariffs – forced by financial (in particular Treasury) markets – and the fear of an inflation shock in consumer goods. China retaliated because it believed it would hurt the US more than itself.”
“Finally, while China controls global manufacturing, the US controls the global financial system. In trying to bring back manufacturing, and reducing its dependence on China, the US is destroying its reputation and risks losing its dominance of the financial system, perhaps even to China. Tariffs can be unwound quickly, but regaining the world’s trust will take much longer.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
