Outlook for US-China trade war – Nomura

Richard Koo, chief economist at Nomura Research Institut explained that the US needs to seriously consider what might lead China to move in a favorable direction.  

Key Quotes:

“US needs to consider what might prompt China to move in a favorable direction.”

“Possibly relevant in this regard is the fact that despite the severity of the ongoing trade war, President Trump continues to praise his Chinese counterpart, and President Xi remained largely hidden when China announced its retaliatory measures.”

“Regarding China’s move towards a more dictatorial regime, there are rumors within the country about the possibility of a “Chiang Ching-kuo scenario.” Chiang Ching-kuo, the son of Chiang Kai-shek, was a Nationalist Chinese leader who also served as director of the government’s feared secret police. After gaining absolute authority, he proceeded to sanction the existence of opposition parties and to promote democracy in Taiwan, making significant contributions to present-day Taiwan’s free and open society.”

” If the Xi administration ultimately heads in that direction, there will be no need for the US to criticize the nation, and the problem of different values will also resolve itself eventually. While the likelihood of a Chiang Ching-kuo scenario has diminished significantly as Mr. Xi strengthens his grip on power, the dramatic changes in the external environment over the last few months raise the possibility of a new policy approach from China.”

“We now have a highly unstable and even dangerous situation in which even a slight miscalculation by either side could bring about an entirely different and unfavorable outcome. However, I suspect the next few months are likely to see the two nations feeling each other out.”