President Trump is treating the Chinese government like he might treat a business competitor under the mistaken idea that this is a simple negotiation with the usual economic rationales at work. China has always played a very long game. Trump has a maximum limit of 6 years to "win" this gambit. The now "President for Life" in China has no such practical limit and can also greatly influence who his successor ultimately will be. Xi Jinping is also fairly immune to "suppressed" public opinion while here in the US, public opinion will shift under the feet of all political leaders. While I am afraid Trump's ego will not let him back down, the potential for protracted and economically damaging trade friction is very real. China can continue to simply table ante until they get a hand they like while Trump's chip stack is shorter than the simple sum of potential tariff goods. Hopefully, a back channel compromise can be worked out to save face all around while not doing too much damage to the global economy.
If Trump fails he doesnt get reelected, if Xi fails, the government can fall and he can be executed/imprisioned. I would think China leaders have to be a lot more risk averse because of that but I`m no China expert
If China wants to play a game of chicken with Trump, its hard to do if I`m right they are risk averse. Trump is borderline mentally ill, so he has an advantage on that game
Investors that are freaking out about things might want to remember this Trump quote http://www.azquotes.com/quote/638583
WHITE HOUSE SAYS "THERE COULD BE SOME FLUCTUATION" IN STOCK MARKETS AS RESULT OF CHINA TRADE DISPUTE short-term this is quite negative (and a mini-crash monday seems a possibility) but medium to long-term it shouldn't mean much. The White House is behaving like a parent who is letting an infant swim without help for a while but as soon as the infant starts to drawn, it will be there to rescue it. Trump needs a healthy stock market to win the reelection. He will try this poker game with China for a while but if they fail to persuade China to do a deal, he will have to backdown
I have to respectfully disagree (not trying to start an argument). The probability of a Chinese government falling and its President ending up imprisoned or executed due to an economic downturn resulting from trade conflict initiated by the US or any other country is near 0%. The probability of a new US president in 2 years is roughly 50% and in 6 years is 100%. China can absolutely manage the reduced economic activity in this short time frame if it believes the long run strategy will be of greater benefit. The Trump administration does not have this luxury and China knows it. I suspect they will choose to play the waiting game unless a face saving compromise is offered. I also want to take the opportunity to thank you for this blog. I came across it a couple of years ago and have learned much of value, particularly in your discussions of convexity, startups and vc. It has really helped my thinking about upside possibilities that I didn't give proper consideration to in the past . Many thanks.