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TIANJIN, China — The last several months of tit-for-tat tariffs between the U.S. and China may only be the beginning of a prolonged economic conflict.
Stock markets in both countries have climbed this week despite fresh tariff announcements.
Analysts said the duties were not as severe as traders expected, and there is still hope of reconciliation. But reality may prove otherwise as the world’s two largest economies, each coming from a vastly different culture, pursue its own development.
“Now we need to think about whether this current trade war will turn into an economic cold war,” said Jing Ulrich, managing director and vice chairman of Asia Pacific at J.P. Morgan Chase.
“China will not change its domestic policy because of external pressure,” she said Thursday, during a panel discussion at the World Economic Forum conference in Tianjin.
“The problem is in the technological sphere [where both] China and the U.S. want to lead. China, of course, is already a trailblazer in many areas,” Ulrich said.
Beijing is in the middle of a years-long effort to transition the country towards relying on consumption for growth, rather than manufacturing. The government has also launched a “Made in China 2025” program to encourage domestic technological innovation.
“I see China as five years ahead of the U.S. when it comes to the extent to which digitalization is integrated into this economy,” Arun Sundararajan, professor at New York University’s Stern School of Business, said during the same panel discussion Thursday.
However, he said, the U.S. is still ahead of China on research and development in artificial intelligence. He also noted that Japan surpasses both countries in industrial robotics.
The Trump administration has said it is targeting the “Made in China 2025” plan, among other complaints against the Asian giant. The latest round of tariffs on $200 billion worth of Chinese imports to the U.S. will initially take effect Sept. 24 at a 10 percent rate, before rising to 25 percent on Jan. 1. Beijing is planning counter-tariffs on $60 billion worth of U.S. imports at 10 percent and 5 percent.
On Wednesday, J.P. Morgan analysts said in a report they expect the tariffs to hit China’s gross domestic product growth by 0.6 percentage points. Such a slowdown would add to existing negative pressure on the economy due to Beijing’s efforts to reduce reliance on debt, and transition towards consumption-driven growth.
“It won’t be easy,” Ulrich said. “The road will be bumpy.”