As the trade war continues with no end in sight, it now seems almost inevitable that is will take another turn for the worse.
According to Steve Hanke, professor of applied economics at John Hopkins University, things could get worse than originally believed.
The current political situation is one in which the leadership on both sides of the Pacific are unlikely to budge when it comes to their key demands. According to Hanke, the policies being enacted by the Trump administration are comparable to the trade tactics used against Japan in the 1980s. At that time, Japan had a higher trade surplus with the US than any other country. The main problem is that the situation is quite different, as the global economic situation was not the same, nor is China the same kind of trade partner today as Japan was in the 1980s. “They think they can do the same thing, the US, to China, but number one, China is a huge country, much bigger in relative terms than Japan was in the 80s and 90s, and we have a big bilateral trade deficit with China[…] Now, the Chinese, not only are they big, they’re communist…they’re not going to be humiliated, the Chinese have a different history than Japan, and they’re not going to be beat around like the Japanese were in the 80s and 90s.”
While the difference between Japan and China is clear, the current situation is made worse by the abnormal political situation. The leadership in the US has staked a lot on making serious, difficult changes to the trade relationship with China. On the Chinese side, while the trade war has created an unfavorable situation which is leading international businesses in China towards other emerging economies in Asia, the political leadership can’t be made to look weak either.