Daiwa: We’re not calling it a trade war anymore

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Daiwa said the Trump administration’s efforts to impose tariffs on China weren’t really a trade war.

“The big picture is that the U.S. and China are now locked in a geopolitical contest. Whoever wins in this contest will determine the rules, norms and institutions that govern global economic and political order in the next few decades, as well as the levels of prosperity for these two countries,” Daiwa said in a note on Friday.

“Here at Daiwa, we don’t call it a trade war anymore. We call it ‘great power rivalry.’ And Asia is obviously caught right in-between,” Daiwa said.

Rather than just the disagreements over trade “fairness” and the prospect of tit-for-tat responses, Daiwa pointed to deeper issues of how the U.S. administration was approaching China.

“Peter Navarro said the tariffs were part of a new National Security Strategy presented in December, which labelled China a ‘revisionist power’ and cited its ‘economic aggression’ against the U.S.,” Daiwa noted. ” He said there is a ‘seismic shift’ from the previous approach of
treating China as an economic partner, which dated back to the Nixon period.”

Daiwa also noted that H.R. McMaster has been replaced by John Bolton as national security adviser, with Bolton a “distinctive hawkish figure.”

The bank expected Bolton would pursue a hard line with China and closer U.S. ties to Taiwan.

But when it comes to the current tariff tit-for-tat, Daiwa said it expected China would suffer more than the U.S. because of its higher export exposure, with the mainland’s shipments to the U.S. around 3.3 times bigger than the U.S. exports to China.

With the U.S. economy around 1.5 times the size of China’s, “broadly speaking, for each equal blow to the other, the impact is 5:1,” Daiwa said, adding that every 10 percent U.S. tariff on all Chinese goods would lead to an around 1 percent loss to China’s GDP.

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