Why “Who Will Win?” Doesn’t Matter in This Trade War

John Mauldin  |


With all the trade war talk, we all ask the obvious question: Who will win?

President Trump says the US will win. Chinese business leaders say no, we will win. Free-traders on both sides say no one will win.

But what does a “win” look like?

People argue a condition they can’t even define. Victory will remain elusive until each side knows what it wants. Regardless, I’m on the “no one wins” side.

I believe, and a lot of evidence proves, that free trade is the best way to maximize long-run prosperity for everyone.

However, as Keynes famously said, we’re all dead in the long run. Trade war may end with no winners. But the parties will be better and worse off at various times as it progresses.

So we have to distinguish between “winning” and “holding a temporary lead.”

On that basis, I think the US will have the upper hand initially, and could hold it for a year or two. This is because our economy is relatively strong for now. This means we can better withstand any Chinese retaliation.

Later, our current policies will likely begin to backfire, maybe big time.

Remember that China also has growing trade surpluses with much of the world.

One Chinese insider told me that within four years China can replace lost US exports via increased trading with the rest of the world.

I can’t verify that but general data shows it’s plausible. That doesn’t mean lost US trade won’t be felt. It means China is not entirely helpless.

When watching a fight, we ask metaphorically, “Who will blink first?” In this case, that’s the wrong question. Neither side will blink, but one may eventually fall to the floor unconscious.

So the better question might be, “Who will faint first?”

Let me be clear: I hope President Trump is engaged in a trade bluff and not a trade war.

The market seems to think so. My Asian sources believe that it will be resolved by the end of this year.

But make no mistake, an actual trade war will impact both economies negatively.

Enough to throw the US into recession? Enough to cut Chinese growth in half? No one actually knows, which is a big part of the problem.

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