Despite this last week’s dramatic market selloff, President Trump has already won the intermediate and longer-term trade war with China. For over a year now, his administration has been strongly suggesting that firms either build new manufacturing facilities in the United States, or, at the very least, move to non/low-tariff countries. In the short run, pending no resolution between the countries, global growth will be impacted (therefore the harsh market reaction); but the meager list of retaliatory measures announced by the Chinese serves as evidence that any longer-term material damage to the US economy would be quite modest. This also serves to underscore how one-sided the current deal really is. Since the Chinese do not buy much from us, there is not much too much for us to lose. Sure, some individual companies that either have a preponderance of manufacturing in China, or the need to access the Chinese market for meaningful growth, could be targeted and suffer, however, these are few and far between. Moreover, it seems like the Trump administration has a plan for subsidizing US farmers that could be hurt by retaliatory moves, eliminating a political liability.

Looking forward, what firms would make the decision to incrementally increase their presence in China given the current terms and environment? So, at the margin, the Chinese will lose incremental business and jobs unless deal terms change.

As long as it appears that President Trump will be re-elected, China doesn’t really have much leverage. Our sense is more and more investors and Americans understand this and sense victory in this trade war.

Once again, a case of short-term pain for long term gain.

Bruce