Steve Bannon, the former top advisor to U.S. President Donald Trump, spoke about the trade tensions between the United States and China on Wednesday, and his words were surprisingly optimistic. “We’re at war with China,” Bannon commented at the Delivering Alpha Conference. Bannon added that the U.S. has been battling trade tensions with China for decades, and that “we’re winning,.” He went on to praise Trump’s decisions and to conclude that the U.S. will emerge from the war as the clear victor. “Victory is when they give all full access to their markets,” Bannon said.
Despite his support of Trump and their shared nationalist beliefs, Bannon was clear that he has no plans to return to the White House. Bannon left his post last August after becoming a highly contentious figure by leaking stories to the press. On a personal note, Bannon alienated President Trump by making derogatory comments about his son, Donald Trump Jr.
While optimistic American commentators are celebrating their early advances, the Chinese are carefully weighing their next steps. The trade war is developing just as China had begun to focus seriously on fixing its economic problems, and Chinese policymakers are trying to anticipate how the tensions and tariffs will impact investment, growth and business sentiment within China. Though exports to the U.S. don’t account for an overwhelming part of the Chinese economy, the indirect effects of the trade war could lead to serious collateral damage.
China’s banks offered a record 12.65 trillion yuan of loans in 2016, with the goal being to stimulate the economy to meet aggressive growth targets. To reduce the debt, tight fiscal policies have been implemented this year. It would be logical to ease monetary policy at a time like this, but this could call into question Chinese policymakers’ commitment to reducing debt. Which is more important? Reducing debt or financial deleveraging? The trade war is making this question more complex than it has ever been, and there is no quick or easy answer – just a lot more questions to come.
On March 2, Trump tweeted that trade wars are “good, and easy to win.” But analysts question the validity of this claim, and assert that if the trade war intensifies, everyone stands to lose. Weakening global trade will stifle global growth and higher tariffs will increase inflation. Despite these risks and the weakening yuan, it seems unlikely that China will throw in the towel in the near future.