The escalating American-Chinese trade war won’t harm the global economy or the stock market, and the US will win it, according to economist Mohamed El-Erian.
The chief economic advisor to European financial services giant Allianz, El-Erian said in a recent CNBC appearance that Beijing eventually will realize the “US will win this war.”
“As long as the US is willing to incur damage, which it is, then ultimately it makes sense for others to provide concession,” he said. “We’ve seen this with Mexico. We’ve seen this with Korea. We’re going to see it with Canada and China; we’ll see it down the road.”
President Donald Trump has slapped huge tariffs on China, which he castigates for stealing American jobs and intellectual property, and the Chinese have retaliated in kind. A trade war, the president has said, is “easy to win.”
Many have pointed out that the US has an advantage: It imports much more from China, thus making Beijing more vulnerable to onerous duties on their goods. China shipped $505 billion to America last year, and the US sent the Chinese just $130 billion.
At this point, the impact on Americans has been minimal, contained to the farming sector, such as soybean growers. The next round could end up jacking up prices to US consumers of items ranging from electronics to housewares to clothing.
Meanwhile, US investors have largely shrugged off any threat to stocks, although Chinese ones appear worried. Since the trade tiff began in earnest in June, the S&P 500 has risen some 7%. The Shanghai exchange, on the other hand, is off almost 10% since then.
The Sino-American conflict, El-Erian said, will “get worse before it gets better.” But he didn’t think that the problem will spread elsewhere. “All this rhetoric you hear from both sides,” he added, “it’s about the journey, not the destination. The destination, in my opinion, will not be global trade war.”