The US and Europe are complaining about over-capacity in China, which they say causes surging Chinese exports that damage their economies. China has dismissed these complaints, insisting that there is no over-capacity, only a well-earned improvement in Chinese export competitiveness. In recent weeks, we have seen the US impose swingeing tariffs on a range of Chinese goods. Even the more circumspect EU has launched investigations into Chinese subsidies for exports as a precursor to possible trade measures. China has vowed to retaliate against such moves.
The drums of a trade war are beating. Investors may be under-pricing how damaging the trade outcomes could be over the next year or two to the Asian region.
