❝ Seemingly at odds with the world, US President Donald Trump has once again raised the possibility of a trade conflict with China. On August 14, he instructed the US Trade Representative to commence investigating Chinese infringement of intellectual property rights. By framing this effort under Section 301 of the US Trade Act of 1974, the Trump administration could impose high and widespread tariffs on Chinese imports.

This is hardly an inconsequential development. While there may well be merit to the allegations…punitive action would have serious consequences for US businesses and consumers. Like it or not, that is an inevitable result of the deeply entrenched codependent relationship between the world’s two largest economies.

❝ In a codependent human relationship, when one party alters the terms of engagement, the other feels scorned and invariably responds in kind. The same can be expected of economies and their leaders. That means in a trade conflict, it is important to think about reciprocity – specifically, China’s response to an American action. In fact, that was precisely the point made by China’s Ministry of Commerce in its official response to Trump’s gambit. China, the ministry vowed, would “take all appropriate measures to resolutely safeguard its legitimate rights.”

❝ …Three economic consequences stand out.

First, imposing tariffs on imports of Chinese goods and services would be the functional equivalent of a tax hike on American consumers…

Second, trade actions against China could lead to higher US interest rates…

Third, with growth in US domestic demand still depressed, American companies need to rely more on external demand. Yet the Trump administration seems all but oblivious to this component of the growth calculus…

Stephen Roach is the United States’ leading economic expert on China Trade – IMHO. His decades of experience in place on behalf of Morgan Stanley, his research and analysis over time are with few peers. His knowledge of the topic towers over the twerp who is our fake president and most of his second or third tier pimps-as-advisors.

RTFA for the details of this outline.