Trade Wars 3.0

From Goldman Sachs Research, this is Allison Nathan. Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients. It seems like every day, the tensions and the rhetoric over trade around the world continue to heat up. From US China trade negotiations taking a sharp and unexpected turn for the worse over the last month. These China trade warriors are

reportedly backtrack on talks, and now the president tweets a few moments ago.

To the trade battles opening up on new fronts with president Trump's recent surprise threat to impose tariffs on Mexican goods if the migration crisis at the border continues.

Those tariffs are increasingly a weapon of choice. One already being used against China and the European Union, and now it seems against Mexico as well. Mexico

shouldn't allow millions of people to try and enter our country, and they could stop it very quickly. And I think they will. And if they won't, we're gonna put tariffs on.

Trade wars and the continuing impact they have on the global economy and markets are top of mind. Trade has clearly been a major part of president Trump's agenda, in line with his long held view, and I mean going back decades, that America has gotten a raw deal on trade. He first targeted Japan on these issues back in the nineteen eighties, and now his crosshairs have clearly shifted to China. Here he is giving the State of the Union address earlier this year.

One priority is paramount, reversing decades of calamitous trade policies so bad. We are now making it clear to China that after years of targeting our industries and stealing our intellectual property, the theft of American jobs and wealth has come to an end.

But while it's easy to pin the blame for the deteriorating relationship on Trump, not to mention China's president Xi Jinping who's also taken a much more aggressive approach to foreign policy, the reality is that the cracks started appearing well before both leaders entered the picture. But that's not to say both haven't done more than their fair share to exacerbate the problems. I spoke with Susan Shirk, chair of the twenty first century China program at UC San Diego, to understand how we got here. So the first question is, how has the relationship between The US and China evolved over the p

Well, The United States and China used to get along pretty well considering that they have very different political systems and that China is a rising power and The US is the the dominant power. So that was all going pretty well until the global financial crisis. And that exogenous shock, you might say, really, I think, led to a loss of respect for America's market democracy because the failures of our own system of financial regulation had caused the crisis. So loss of prestige for America inside China. And this is the second term of Hu Jintao's administration. This is not Xi Jinping. And so