Stephen S. Roach: After the US-China Trade War

Mr. Roach is a sharp guy with a vast knowledge of Asia, one of the reasons MS kept him around as chairman of Morgan Stanley Asia. However....when the U.S. retaliated against China for China's trade practices Mr. Roach seemed to have lost a half-step, focusing on the next quarter rather than the next quarter-century (as the pension/insurance crowd is fond of saying, if not doing) and was too dovish in his estimation of the effects of U.S. tariffs on the Chinese economy.

Because of that we haven't linked to him since July 2017 after years of visiting him for his thoughts on possible futures.*
But now he's back to doing what he does so well, getting his audience to think about the picture on the horizon rather than the one immediately in front of one's nose..
From Project Syndicate, November 25:

Trade truce or not, a protracted Cold War-like conflict between the United States and China has already begun. That should worry the US, which, unlike China, is devoid of a long-term strategic framework.

NEW HAVEN – For the last two years, the conflict between the United States and China has dominated the economic and financial-market debate – with good reason. After threats and accusations that long predate US President Donald Trump’s election, rhetoric has given way to action. Over the past 17 months, the world’s two largest economies have become embroiled in the most serious tariff war since the early 1930s. And the weaponization of US trade policy to target perceived company-specific threats such as Huawei has broadened the front in this battle.

I am as guilty as anyone of fixating on every twist and turn of this epic struggle between the world’s two economic heavyweights. From the start, it has been a political conflict fought with economic weapons and is likely to remain so for the foreseeable future. What that means, of course, is that the economic and financial-market outlook basically hinges on the political dynamic between the United States and China.

In that vein, the so-called phase one “skinny” trade deal announced with great fanfare on October 11 may be an important political signal. While the deal, if ever consummated, will have next to no material economic impact, it provides a strong hint that Trump has finally had enough of this trade war. Consumed by domestic political concerns – especially impeachment and the looming 2020 election – it is in Trump’s interest to declare victory and attempt to capitalize on it to counter his problems at home.

China, for its part, would also like nothing more than to end the trade war. Politics is obviously very different in a one-party state, but the Chinese leadership is not about to capitulate on its core principles of sovereignty and its aspirational mid-century goals of rejuvenation, growth, and development. At the same time, there can be no mistaking downward pressures on the economy. But with Chinese policymakers determined to stay the course of their three-year deleveraging campaign – an important self-inflicted source of the current slowdown – they should be all the more eager to address the trade-related pressures brought about by the conflict with the US.Consequently, the political calculus of both countries is coming into closer alignment, with each looking for some face-saving truce. There is always a risk that other complications will arise — recent events in Hong Kong and revelations of developments in China’s Xinjiang Province come to mind.

But, at least for the time being, the politics of the trade war are now pointing more toward de-escalation rather than a renewed ratcheting up of tensions.If that is the case, and if a phase one accord is reached, it behooves us to ponder what the world will look like after the trade war. Several possibilities are at the top of my list: deglobalization, decoupling, and trade diversion.

Deglobalization is unlikely. Like the first wave of globalization that ended ignominiously between World War I and the Great Depression, the current wave has generated a mounting backlash. Populism is rearing its ugly head around the world, and tensions over income and wealth inequality – aggravated by fears that technological innovations such as artificial intelligence will undermine job security – are dominating the political discourse. Yet the climactic event that underscored the demise of the first wave of globalization was a 60% collapse in world trade in the early 1930s. Notwithstanding the current political dysfunction, the odds of a similar outcome today are extremely low....MORE

*OTOH, here's an immediate-term call from Wednesday September 3, 2008:
Morgan Stanley's Roach Says Slump Has Only Just Begun

Very timely.
Perhaps not as insistent as Albert Edwards:
On September 5, 2008 we posted "Meltdown"-Société Générale" which linked to Albert's research note of a couple days earlier:

***Alert****Economic and equity market meltdown imminent****Alert***

but a good call: 

On September 7, 2008 Fannie Mae and Freddie Mac were placed into conservatorship.
On September 14, 2008 Merrill Lynch agreed to be acquired by Bank of America to avoid a Reg. T shut-down when markets re-opened.
On September 15 Lehman filed their bankruptcy petition.
On September 16 AIG became a 79.9% subsidiary of the U.S. Treasury.

Within 10 more days the Nation's largest thrift, WaMu was seized and five days later Wachovia gobbled up.

Good times, good times.