The Fog Of (Trade) War

Markets had priced in a short skirmish. Now they’re bracing for a drawn-out fight

- Cristina Lindblad

Wall Street’s pundit class sprung dutifully into action as the tariff fight between the U.S. and China suddenly escalated this month, dashing off pages upon pages of investment advice peppered with metaphors and anecdotes intended to help clients wrap their heads—and their portfolios—around the new state of play of the global economy.

For three analysts from Jefferies, this meant unleashing the 1970s earworm Suicide Is Painless in a note to clients. The theme song for M*A*S*H, the movie turned sitcom about wisecracking American doctors in the Korean War, had found its way into the analysts’ heads after the People’s Daily and other Chinese state-run media ran a commentary piece that evoked comparisons to the simultaneous peace talks and battles between U.S. and Chinese-backed forces during that conflict. The unsigned article was headlined, “If You Want to Talk, We Can Talk. If You Want to Fight, We Will Fight.”

What type of trade war the U.S. declared on China has been the topic of much debate ever since negotiations to resolve the standoff started in the spring of 2018. Would it be short and with limited casualties like the Falklands War? Or longer and bloodier like the Korean conflict? Stock markets got off to a roaring start this year as a consensus grew that this was a short spat that would be resolved quickly. But that hope has been shredded as tit-for-tat escalation in tariffs is causing a massive repricing in equity, bond, currency, and commodity markets.