US: The US has already lost the trade war – ABN AMRO

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."