The U.S. and China Will Probably Work It Out

The U.S. and China keep escalating a trade war that markets had expected to be over by now. How will it ever end? Actually, as I see it, the prospects for a benign outcome remain quite good.

Market participants have long assumed that the two sides would reach a deal involving modest concessions from China -- such as steps to increase imports, improve U.S. firms’ access to Chinese markets and toughen protection of intellectual property rights. Instead, trade tensions have increased, with the U.S. threatening to impose a 25% tariff on the remaining $300 billion of Chinese imports not yet subject to tariffs. And it could get worse: U.S. President Donald Trump’s demands have backed Chinese President Xi Jinping into a corner, leaving little room for the latter to make a deal without losing face.