The trade dispute between the U.S. and China recently took another dimension. President Trump asked his administration to consider the case of a 10% tariff on USD200bn worth of products, should the Chinese government retaliate to the first wave of protectionist measures (25% tariff on USD50bn of imports, to be effective on 6 July). The U.S. government is convinced that there is nothing to lose in a trade war with China. In 2017, the U.S. economy registered a USD375bn deficit with China on the basis of USD130bn of exports being more than offset by USD506bn of imports. These numbers suggest that China could not even match the U.S. total nominal amount of targeted imports. However, looking at past strategies of the Chinese government, options to retaliate are diverse: implementing non-tariff measures (environmental, technical norms for safety and nationals security reasons, red tape), limiting U.S. FDI, tightening the procurement policy, restricting the access to China’s markets for U.S. financial institutions, developing third party sanctions on countries producing in the U.S., boycotting U.S. brands in the consumer market, reducing U.S. Treasuries purchases.

We still consider that a scenario of a trade war will be avoided but the probability of an intermediate situation characterized by a significant blow to global trade and growth has now increased. Whatever the conclusion of ongoing transactions, President Trump’s era has already produced radical changes, as mirrored by the significant progress of the EU in promoting further integration (banking union, Euro¬zone budget, military cooperation) or recent improvements in the economic dialogue between China and Japan. Trade diversion and defensive coordination are now at work everywhere in the world.