Trump is an obvious fool.
If one wants to fight someone, it would be wise to access the weakness and strengths of the enemy before provoking the enemy. Only a fool would provoke first and think later, even more so in the case when it is not about an individual but a whole of the country can be severely affected by that.
These so called tariffs imposed by both countries on each other means nothing to either in real terms. All that is nothing but merely posturing. It would not disturb the economy of either country much. Both are aware of it too. The real issue is if this situation can escalate to such extent where both would really start hurting each other. And if that ever happens, US would be a greater loser by a fair margin.
There are three main reasons of that. First one is that US based MNCs have a huge investments in China. On the other hand, there is no Chinese co has manufacturing base in US. After a certain level, the tension between the two countries would start hurting China based US cos in one way or other. That would ultimately hurt US economy.
The second reason is that China is not a democracy like US. China can force its cos/citizens to suffer in the name of nation and nobody can raise a voice against it but that facility is not available to Trump. US people are not ready to suffer any negative consequences because of what Trump think is justice, even if he is right. Nobody cares about country but himself only. I am sorry to say that applies more in the case of US people.
The third reason is like China having such a nuke which US does not have. Over the last two decades, China used its all trading surplus with US in buying US bonds and bills. Right now, China is the biggest holder of US treasury bonds and bills. The second one is Japan. I am not aware of latest figures, but China alone owns more than 10% of US bonds and bills. In other words, we can say that China is the biggest US creditor, and you cannot mess with such a person.
If this tension escalates beyond a point, and China decides to sell its entire US paper, that would be an economic catastrophe not only for US but for the entire economic world. Even a hint of any such possibility has the potential of bringing stock markets and USD down to the tune of 10% in a single day. And, seeing the biggest holder coming to sell its stake, others holders will also not have any option but to sell their US paper holding in order to avoid losses.
It is not the case that China would not suffer in that case. Yes, of course, it would also suffer but as i said before, being almost a quasi dictatorship, it can withstand that suffering without much visible noise. And, we can easily imagine what will happen in the case of US.
Having said that, i hope and my assumption is also that things would not go to that point. Trump is just trying to play hardball but unfortunately he has chosen a wrong opponent for that. China is neither Mexico nor Canada, not even Russia.
with love,
sanjay