Global Political Drivers: US-China truce is not peace

  • The powerful market driver of the US-China ‘trade war’ is underpinned by political drivers that are short-term positive and long-term negative.
  • Trump’s re-election campaign underlies the bullish short-term outlook on a ‘Phase 1’ trade deal.
  • Clinching any such deal won’t stop Trump’s habit of blowing hot and cold on China, causing market volatility: but that is not the main, or even the real, reason for viewing the US-China rivalry as a long-term negative factor for the global economy and markets.
  • That reason is not mysterious: since Trump launched his trade war in the spring of 2018, its geopolitical foundation has been clearly visible. This, in turn, has removed Trump-dependency – with the entire US political class rallying to the cause of the global struggle for mastery against China.
  • To the counter-argument that the geopolitical agenda could easily be dropped if expedient (with US public opinion still relatively malleable in this area), we would reply that the intractable ‘tech’ war will, on the contrary, entrench an adversarial approach to China.
  • The new development that we highlight in this note is the formalization of this approach in the US alliance system – as seen in last week’s NATO Summit.
  • This ‘alliance contagion’ sows dissensions that, in turn, will intensify the negative driver: this applies particularly to America’s Asian allies – now on the receiving end of a Chinese charm offensive.
  • As for the timing of this driver, next year’s US election looks pivotal.

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