Trump Might Win Reagan-Style Victory over China, Says El-Erian

Allianz economist thinks the president can create a new international dynamic while winning trade war.

Donald Trump may forge a new world order while winning the trade war with China, according to Mohamed El-Erian, the chief economic advisor at insurance and financial services giant Allianz.

He likened the odds of a US victory to the triumphant end of the Cold War. “I think we should not underestimate something ‘Reaganesque,’” El-Erian said in a CNBC appearance Monday. His reference was to how the US, during Ronald Reagan’s presidency, in effect bested Moscow. Economic fissures that appeared in the Soviet Union in the 1980s led to its crumbling in 1991.

“If the US goes full-blown with this as about national security, it can actually change the economic dynamics on a global scale,” El-Erian said. “It really can.” He contended that President Trump has a good chance of getting the Chinese regime to agree to ending its intellectual property theft and forced technology transfers, which have vexed US businesses.

While all sides will suffer in an ongoing trade tiff, the economist noted that the US seems to be in a superior position, especially regarding stocks—which traditionally function as a gauge of how investors regard the future.

Despite two weeks of falling prices, the S&P 500 still is ahead 14% this year. The Shanghai Composite, on the other hand, has dropped about 10% in 2019. Both sides have raised tariffs on each other and talks now appear stalled.

Those betting on an American trade war win have pointed out that the US has an advantage: It imports far more from China, than the US ships to the Chinese.

To be sure, El-Erian doesn’t forecast a Chinese defeat as a slam-dunk. And the stand-off likely will continue for some time, he said. The largest odds favor a short-term Sino-American trade pact, at 65%, he maintained. A “Reagan moment” commanded just 15% and a full-bore trade war, 20%.

Certainly, the China of the 21st century has a far bigger economic footprint than did the Soviet Union of the 1980s. Beijing’s threat to the US is economic, not military, the reverse of the Cold War landscape.

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