A U.S.-China trade war can’t last for long, expert says. Here’s why

Carleton University professor Ian Lee joins CTV Your Morning to discuss the impacts of a trade war between the United States and China.

Donald Trump may be settling in for a trade war with China, but with hundreds of billions on the line, one Canadian business expert says it’s unlikely to last.

“These two countries account for 43 per cent of the global economies,” Carleton University business professor Ian Lee told CTV Your Morning Thursday. “They’re the two giants, and they are fighting it out. Right now, we’re witnessing history.”

Lee says this is a fight over who dominates the world economy for the rest of the 21st century, but in the meantime, a clash between such enormous markets could risk a global recession.

Those “catastrophic” stakes are exactly why a trade war can’t drag on for long, he says, invoking the wisdom of American economist Herbert Stein’s Law, which holds that if something cannot go on forever, it will stop.

“[As] contradictory as it sounds, I think that that is going to drive a deal,” he told CTV. “I’m not saying tomorrow morning, but … this is not going to go on for years and years into the future.”

The conflict with China comes in the wake of the American president’s latest flip-flop on global import tariffs. On Wednesday, Trump temporarily rolled back his “reciprocal” tariffs on dozens of foreign economies that he says have not retaliated against the United States, instituting a blanket 10 per cent import levy in their place.

Exceptions to that rule include Canada, where a 25 per cent tariff remains active on goods not compliant with the Canada-U.S.-Mexico Agreement (CUSMA) alongside other tariffs targeting energy, potash, autos, steel and aluminum; and China, where tariffs have grown to extreme heights.

“I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” Trump wrote in a social media post Wednesday afternoon. “At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable.”

China has laid its own tariffs of 84 per cent on U.S. imports.

Estimates from the U.S. federal government valued its trade relationship with China at more than C$800 billion last year, with a majority made up of Chinese exports to the United States.

Lee says new tariffs will soon bring major blows to both economies.

“China is far more dependent on the United States than the United States is dependent on China,” he said. “However … most of that stuff that China’s exporting is the stuff that ordinary consumers buy at Walmart, at Amazon, at Home Depot, at the dollar stores; and so, it’s going to show up in … higher prices on ordinary Americans.”

To Lee, the battle may come down to which country can keep its nerve. Trump is banking on China’s dependence on exports to the U.S., and China expects that the pricing squeeze on American consumers will pressure Trump to roll back his tariffs.

“It’s a game of chicken,” Lee said. “Who’s going to blink first?”

You can watch the full interview with Ian Lee in the video player at the top of this article.

With files from The Canadian Press