Yesterday we talked about Reagan’s strategy to end the Cold War, “escalating to de-escalate.” It looks like Trump is taking the same approach in his attempt to end China’s multi-decade global economic war.
And just as the Soviet Union responded to Reagan’s escalation with escalation, China has responded to Trump’s escalation with escalation.
The Soviets were drawn into an arms race with the U.S. that economically broke them. Similarly, China has now been drawn into a trade war, which will economically break them.
That said, as we’ve discussed in recent weeks, we should expect China to counter Trump’s tariffs by weakening the yuan.
No surprise, heading into tomorrow’s doubling of tariffs on China, the Chinese central bank has been walking its currency lower, and now have set it to very near the weakest level (versus the dollar) in 18 years.
As for the rest of the world, as the additional “reciprocal” piece of the tariff plan kicks in tomorrow, it should represent the high-water mark, from which any news should be in the direction of lowering tariffs.