- Trade and finance are interconnected; in the absence of significant adjustment on the financial side, President Trump’s effort to reduce US trade deficit through tariffs is likely to be unsuccessful.
- The US is likely to remain mired in current account deficit/financial account surplus, due to: (1) its persistent fiscal deficit; (2) continued global demand for USTs, even amid recent tariffs; and (3) the Dollar’s preponderance in international claims.
- Absent a financial blow-up or a suitable, “Cuban Missile Crisis”-style off-ramp for Trump and Xi, the probable outcome would be further intensification of exports via third countries.
- Vietnam and Mexico’s role as the main conduit in China-US trade has spurred their growth, while trade diversion has benefited Indonesia mostly in certain labour-intensive industries.
