Bank of America Merrill Lynch Global Research discusses the ongoing US-China trade tensions.
"So what will happen next? By taking a broad historical perspective of clashes between rising powers and established powers, we can easily conclude that the ongoing trade war between the US and China has been a relatively small scale conflict for the time being.
The Harvard Thucydides Trap Project championed by Professor Allison has identified 16 instances where established powers were challenged by rising powers in the last 500 years and concluded that war emerged in 12 of these occasions. On our end, we have extended this analysis to look at the trade issues involved in various cases and concluded that some kind of trade conflict was present rather consistently throughout the history of conflict between ruling powers and rising powers," BofAML notes.
"The main reason why the trade war could keep going for some time is Washington's leverage over Beijing, coupled with the respective concerns and pride of the actors involved. China needs to keep expanding its machinery and manufactured goods exports to pay for its commodity imports, but US policy is now poised to make it more difficult. Meanwhile, China's service exports as a share of its GDP are unlikely to increase much, given the US push against Chinese telecommunications giants. As such, China is in a bit of a bind at the moment, as a return to autarky is not really an option. While pride is often the enemy of rational thinking, in our view the more logical course of action for Beijing would be to keep supporting the development of its domestic market and, if possible, continue to seek allies through its Belt and Road Initiative," BofAML adds.