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”