U.S.-China Trade War Likely to Worsen

The ongoing trade war between China and the United States will most probably only intensify, an expert said on Monday, as both sides believe they have the advantage in the matter.

“I think we are in for a prolonged period of continuing escalating tensions,” said Deborah Elms, the executive director at the Singapore-based Asian Trade Centre, adding that, “both sides think they have the upper hand in this debate.”

Her comments, made on CNBC’s “Capital Connection,” followed the latest round of tariffs levied last week by the world’s two greatest economies on each other.

Elms further maintained the trade conflict will likely worsen in the months to come. “I think we don’t have enough pain in the system yet for either side to say, ‘Okay, I declare that we’ve got to have a different approach right now.’ That’s the challenge.”

Another round of tariffs on $200 billion worth of Chinese goods is expected later this year. However, since China doesn’t import enough U.S. goods to be able to match Washington’s potential levies, it could possibly retaliate against American companies in China.

If “they can’t continue to match the U.S., they’ll have to do something else — it’ll be on services, it’ll be on retaliation against U.S. companies in China, it will be some other mechanism and they’ll have to wait and see what that will be, but it will be something,” Elms said.

Some analysts further said that President Donald Trump could escalate the trade war as a diversion mechanism intended to distract voters from the problems at home, especially those concerning his legal problems.

“The point is that with the political pressures at home, Trump needs to up his political capital (buffer),” said Vishnu Varathan, Mizuho Bank’s head of economics and strategy.

Another analyst, Nick Marro, expressed similar sentiments, explaining that Trump has previously also used geopolitics as a domestic ploy.

“There is a chance that the president could use the trade war as a diversion: We’ve seen him do it before with international affairs,” Marro said.