Any Trade War Is Going to Be Tactical

With moderate economic adviser Gary Cohn set to exit the White House, and U.S. President Donald Trump reportedly mulling broad curbs on imports from China, fears of a 1930s-style trade war are spiking. Indeed, for the past several months, a potential U.S.-China trade battle has ranked as one of the key macro investment risks of 2018. Given Trump's predilections and China's leverage, however, the conflict to come may look very different than most are imagining.

For one thing, it's important to remember that we're nowhere near Smoot-Hawley territory yet. When that legislation was enacted in 1930, tariffs were applied to over 20,000 different goods, and direct retaliation by key U.S. trading partners exacerbated the damage. So far, the Trump administration has or has threatened to impose tariffs on just four goods. And while the White House is reportedly considering casting a wider net, an across-the-board penalty still seems unlikely.