When we think of the ongoing trade war between the US and China what comes to mind? For some its tariffs, higher prices, and economic slowdown. For others it’s a long game betting on which economy backs down first. When it comes to the trade war the lenses in which you see can be obstructed by numerous angles. These angles revolve around business and politics and collide in the arena of global markets.
Each of angles has a different set of values and objectives that drive the rational of their feelings. Business, (generally speaking) seeks to provide a good or service to consumers in order to turn a profit. For business the more consumers that they acquire or the cheaper they can produce a good or service are seen as a positive. Business also compete with each other within the market for profit, this has led to a need for seamless logistics for expansion especially for a global good or service. In order for this logistical capability to be met corporations work in various markets across the world to secure what they need. This works best when markets are stable and players work by the same rules. For most global firms anything outside the market that interferes in securing profits for them can be seen as a negative. Due to these values business have tended to not want government interference in the markets, which they see as disruptive and potentially harmful to profits and long-term sustainability
Governments who represent the political side have a whole different list of concerns and values. Whether national security, unemployment or GDP growth, governments look at national issues and thus tend to look for more macro level decisions that will affect the overall system with a positive. For governments a negative is any perceived threat to the sustained prosperity to the nation. This threat can come the arms of other nations like nuclear weapons, cyber-attacks, or physical invasion. They can also come in the form of the economies of other nations as in the case of China. For government the only option is the permanent removal of these threats which they see as harmful to their nation and long-term prosperity.
This is where the different values come to a head. Governments view all aspects of their nation as tools and thus will use all macro to and micro indicators equally to further their goals. Governments will upend markets if it will secure the long-term prosperity of their nation. We see this playing out in the case of the tariffs and trade war between the USA and China. The US government perceives the Chinese trade balance as existential threat that can be levied against it in the future and therefore has acted in what it considers as its own best interest to secure future prosperity for the USA. In the eyes of the government the way to obtain this future is to use the markets as leverage, thus incite a trade war to that end. The goal is to put enough pressure the Chinese government while-capitulating and thus make a deal more beneficial to the USA relative to product cost dynamics and fair share tax contribution. In the short term, the markets will suffer while negotiations wear down the weaker opponent.
From the business perspective, firms thrive during market stability and grow weary of adapting with this kind of political showmanship. Disruption on this level can mean the end of many businesses that aren’t responsive in volatile markets. China in the eyes of business is important not only as the largest global manufacturer but has become a leader in global manufacturing value creation. For some industries Chinese markets are vital to their success and disruption within those markets can spell the end of their enterprise. We see this in particular in the case of agriculture which exports most of their goods to China. government intervention and trade wars depict uncertainty which can spook investors and pull money out of market which can cause extreme market fluctuations.
All in all when it comes down to how you view the global future. By and large businesses believe that the trade war needs to end before it can cause irreversible damage not only to the relations with China but the local economics of USA that rely on exporting to China or importing their goods. The government in this case the Trump administration believes that this economic pain is only short term and is necessary in order to secure a future in which the USA will have good relations and come out with a better “deal” with China, thus increasing prosperity in the USA. However the trade war plays out, you can rest assure- the 2020 elections in the USA will be telling. Especially so as a referendum of sorts to the current administrations leadership value in this embattled trade and tariff war.