Purpose Of Trade War

Purpose Of Trade War

Every day we seem closer and closer to spiralling into a trade war with China.  The Chinese markets are taking this very seriously.  For the year, the Shanghai Index is down 18% with 2/3 of that coming post May 15th when the rhetoric really started heating up.

In the same time frame, the S&P 500 is pretty much flat. Does that mean investors here think it won't impact US companies that much or does it mean investors here give it a lower probability of happening?

Granted, the direct impact isn't as large to us.  We do have a $375b trade deficit with China.  But there will surely be an indirect impact to the US as we have to find other trading partners or be willing/able to pass along higher prices via tariffs to consumers.

Here is a graph showing S&P v Shanghai:

Now let me riddle you this... what is the purpose of this trade war?  I will skip down a bit while you ponder your answer.  And while you ponder, do you think the Chinese view the purpose of the trade war the same as a US citizen views the purpose?

Ok, long enough wait... I hope you pondered.  My belief is that trade with China is not "fair".  Their markets are much more closed than our markets.  I worked in insurance and to do business in China, you typically had to do a joint venture with a Chinese insurer.  I am pretty sure a Chinese insurer could just start writing business in the USA. So it isn't an even playing field and I suspect it is like that in many areas.  Please leave comments on what you think the purpose of the trade war is.

Now for part two, what do the Chinese believe?  I think this is critical in how we approach negotiations.  Here is an article from the South China Morning Post (The US sees the trade war as China containment policy. So does Beijing), it really caught my attention as it wasn't what I

expected.

I encourage you to read the article, but the gist of it is that the US views China as becoming too powerful and we want to reduce their power.  So China believes their national rejuvenation is at stake. 

So is the trade war trying to put China in their "place" - well behind the US?  Or is it a way to get more American's manufacturing jobs and sell more US goods in China (ie reduce trade deficit)?  The two purposes are very different.  I think you fight a lot harder if you believe your path to wealth/rejuvenation is at stake.  What do you think?