ING: There's a chance Trump is playing a 'smart, strategic game' on trade
- Raoul Leering, head of international trade analysis at Dutch bank ING, said President Trump's Chinese trade gamble could pay off.
- Leering believes that by pursuing an aggressive strategy initially, Trump may be able strong arm smaller economies into giving the USA favourable trade terms.
LONDON - The escalating skirmish between the USA and China over trade might just end up to President Trump's benefit, according to Dutch bank ING.
Raoul Leering, head of international trade analysis at Dutch bank ING, argued that Trump's actions - imposing a total of around $50 billion worth of tariffs on more than 100 products coming from China - may rally other countries around him, benefiting US trade outside of China.
"Does President Trump really not understand that a trade war is a lose-lose situation or is he playing a smart strategic game?" Leering said in a note published on Wednesday. "There are indications the latter is the case."
Leering's argument is effectively that by pursuing an aggressive strategy initially, Trump may be able strong arm smaller economies into giving the USA favourable trade terms in future.
His note comes as global markets sell-off on fears that a full scale trade war may break out.
"Trump has exempted many trading partners of the US and given them the possibility of negotiating a deal that gives them an extension of the exemption. Trump wants these trade partners to moderate their exports to the US and stimulate their imports from the US."
Leering cited the example of South Korea, which has already agreed to a new trade deal with the USA in principle.
"South Korea has already complied with this demand and agreed to a voluntary export restraint for steel, a further opening of their market for American cars and a slower phasing out of the limits on exports of Korean pickup trucks to the US," Leering said.
The Trump administration has already touted the upcoming deal with South Korea (known as KORUS) as a major victory from Trump's recent trade crackdown, arguing it proves tough tariffs can produce results.
More countries could follow suit, helping Trump achieve exactly what he has set out to do, Leering said.
"It is very well possible that other countries will also give in to Trump. Trade partners such as Canada, Mexico, but also China, depend much more on American demand for their products than the other way around," he said.
"US demand for Mexican and Chinese products contributes respectively twenty and five times as much to their GDP as their demand for US products adds to US GDP. Also, Canada has much more to lose in a bilateral trade war with the US than the Americans."
Even China - which on Wednesday announced a series of retaliatory tariffs against the US, sending global markets into freefall - could very likely end up capitulating in the face of Trump's aggression.
"It is no coincidence that the Chinese have not yet set the date when these new tariffs will become effective. This means they still see room for extending the current negotiations.
"Given the relatively large dependency of the Chinese economy on American demand, it is likely that China will, in the end, cut its losses and be willing to give Trump something."
The strategy, Leering notes, is typical of Trump's style in office, in that it is high risk, but high reward.
"The American president is playing a dangerous game but a potentially rewarding one for the US," he said.
"If Trump succeeds in getting more favourable terms of trade from his trading partners, along with perhaps relief on his defence budget, he will emerge as the winner in the noisiest trade quarrel the world has seen in the last couple of decades."