Playing Chicken with Trade

Remember James Dean?

Public Domain. Source: Wikimedia

In “Rebel Without a Cause,” James Dean and a teenage rival play a game of chicken, racing two stolen cars towards a cliff. Both plan to jump out at the last moment. But the other guy’s jacket gets caught in his car door, and he goes over the cliff with his car.

Sometimes trade negotiations seem like a game of chicken. Both sides want concessions. Neither side wants a trade war – raising prices for their own consumers and suffering deadweight losses in their respective economies. But that’s the path we seem to be on, as the current Administration imposes a 25% tariff on $34 billion of Chinese machinery and other goods, and the Chinese threaten to impose similar-sized tariffs on US farm products and vehicles.

The US Administration has promised to escalate the war if the Chinese impose their tariffs, which no doubt will lead the Chinese to escalate their response. It’s important to note that we have real issues with China, with their spying and forced technology transfer and pirated media and software. The US and China have a massive trade imbalance. We need to address these issues, and not just hope that they’ll go away.

US Trade in Goods with China. Illustration: Wikideas1. Source: Wikipedia

But addressing them through threats and brinksmanship is fraught with risk. If you play chicken, there’s always a chance that something will go wrong, leading to tragic results. Let’s hope it doesn’t come to that.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-07-10T07:24:43+00:00July 10th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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