2/9 If true, this could be a very high-risk strategy. According to the WSJ, "With hiring slowing, manufacturing contracting and prices rising, many economists say the U.S. isn’t positioned to absorb another major trade fight with China."

3/9 But if you were to rewrite the sentence as: "With hiring slowing, domestic demand stagnant and prices declining, many economists say China isn’t positioned to absorb another major trade fight with US", it would no less true.

4/9 So which is better, to have excess supply or to have excess demand? The historical precedents are pretty clear: in a global trade conflict, the persistent surplus countries have always been more vulnerable to a contraction in trade than the persistent deficit countries.

5/9 One very obvious example, of course, is the very different impacts the global trade contraction during the 1930s had on the US, the world's leading trade surplus nation at the time, and the UK, one of the world's leading trade deficit nations.

6/9 With investment levels already so high, the only way China can get debt under control is to reduce investment growth, but if it wants to maintain current growth rates, it cannot do this without generating a surge in consumption growth, something it has found very difficult to

7/9 That is why I suspect that an escalation of global trade conflict is likely to be more difficult for China in the medium term, even if its ability to control the financial system and ignore short-term pain puts it in a stronger position in any short-term conflict.

8/9 All this suggests that the key to how the latest events are resolved depends on whether Washington believes that it is in a stronger position to weather a 1-2 year trade conflict than Beijing thinks it is, especially if it is successful in reducing its trade deficit.

9/9 My understanding is that at least some top officials in Washington believe the US is indeed in a stronger position, although ultimately what matters is if Trump believes it. I guess we will soon see how much the stock market drives Trump's policy decisions.

@michaelxpettis @WSJ “The historical precedents are pretty clear: in a global trade conflict, the persistent surplus countries have always been more vulnerable to a contraction in trade than the persistent deficit countries.” 👀

@michaelxpettis @WSJ We all know China is upping the stakes because it senses weakness in Trump. But there is absolutely no way the Wall Street Journal has access to 'people close to Beijing's decision-making process'. It's laughable to suggest members of the Politburo are talkijg to the WSJ

@michaelxpettis @WSJ A lot of word salad that doesn’t explain how US is to weather 1-2 year without rare earth minerals & related products. Spare a thought for the war machines!

@michaelxpettis @WSJ Perhaps overlooked are the persistent escalations, which become increasingly difficult to unwind.

@michaelxpettis @WSJ “According to the people close to Beijing’s decision-making process” ok they are taxi drivers

@michaelxpettis @WSJ I respectfully disagree with your conclusions. You have great understanding of economic theories, but very little about Chinese culture and common people, despite having spent many years in China.

@michaelxpettis @WSJ It is about supply chain war, not trade war.

@michaelxpettis @WSJ The WSJ? The rag with anti-US owners and an editor from City of London. The rag that will take down any post mentioning that basic fact. Trust them at your own peril.

@michaelxpettis @WSJ The most terrifying thing for the United States is the bursting of the AI ​​bubble and the stock market crash.

@michaelxpettis @WSJ In order to keep the peace, China would need to focus on its goals of common prosperity internally while diligently serving external markets to the best of its ability. As for the surplus labour force, they can be retooled in many ways. And deployed in other nations if reqd.

@michaelxpettis @WSJ They don’t do belief. They do calculation and planning.

@michaelxpettis @WSJ Alright so the Pettis take is in... And now do the exact opposite

@michaelxpettis @WSJ You have been wrong for so long that people can make good predictions by taking the opposing position.

@michaelxpettis @WSJ Taco

@michaelxpettis @WSJ TACO trade

@michaelxpettis @WSJ Never trust Wei Lingling’s scoop wrt China. She has no insider sources inside Chinese government. All she got are people who she claimed are close to decision making, aka external advisors (bankers and economists). But she never says how close those people are to policy makers.

@michaelxpettis @WSJ Here's how things have actually played out recently... Trump took a big stick and took a swing at China... China swung back and hit Mr. Golden Hair TACO with a stick of its own... Mr. TACO was stunned... Had this move stopped working? So he turned around and used the stick to