"Trade wars are good, and easy to win." Donald Trump’s breezy tweet of last March may go down in history as the economic equivalent of a prediction in Britain, in August 1914, that the first world war would "all be over by Christmas". The US president’s initial tariffs, imposed on $50bn worth of Chinese exports in June, did not bring swift victory. Instead, they were met with Chinese retaliation. Now Trump is preparing to impose tariffs on a further $200bn worth of imports from China, which will probably be met, once again, by a tit-for-tat response from Beijing. The world is on the very brink of a major trade war between the US and China, and it is unlikely to end quickly. To date, markets have been oddly relaxed about all this. Perhaps they have assumed that a last-minute deal would be reached between the US and China? But that is far too complacent. Instead, there are political, economic and strategic reasons that are pushing the two sides towards prolonged confrontation. If both...

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