China's Long Game - Waiting for Trump to Bring Down the United States

China's economic prowess is just part of its rivalry with the United States. This is a standard part of an ascending power taking its rightful place alongside a once-dominant power.

According to research analyst, Laban Yu, Trump's trade war won't stop China's long game.

“China can only conclude that the U.S. is in long-term decline as President [Donald] Trump actively undermines the liberal international order with his tariffs on allies as well as adversaries, contempt for multilateral institutions and belligerent tweets … [China is] betting on American political decay … We believe China will test America’s pain threshold with the belief that U.S. politicians are beholden to interest groups (farmers, retail industry, corporations).” 

Mr. Yu sees the economic pain from an extended trade war as more or less evenly distributed, with the two-sided imposition of tariffs “not punches thrown at the other boxer but head butts which hurt both sides equally.” 

Citi economist Willem Buiter described similar concerns about U.S. politics in “How to Think about Political Risk and the Economy,” 

“Policy uncertainty affecting trade, sanctions, regulation, diplomatic norms, and the strength and independence of institutions is the greater risk going forward. The obstacles to appropriate countercyclical [stimulative] policy when global recession threatens are likely to stem from weak political capacity and will, owing to political fragmentation.”

Globe and Mail market strategist, Scott Barlow, concludes:

There were signs of institutional failure ...almost a year ago – political extremism, pathetically low approval ratings for U.S. congress, and an anti-vaccination movement that showed disdain for medical experts – but there was no clear battleground to test the relative strength of western democracies. 

Trade negotiations might be providing the arena that was missing. A deal that cools tensions could, of course, be signed at any point but Mr. Yu believes, “Even if a deal is signed next week, it is now clear to us that the China-U.S. relationship will be fraught for decades to come.”