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Trade tensions between the U.S. and China have been building over the
course of 2018. These tensions have escalated over the last month, but while risks
are rising, economic disruptions have remained minimal. We continue to believe the
final economic impact of current trade tensions won’t be insignificant, but will be
small relative to the short- to intermediate-term positive impact of deficit-financed
fiscal stimulus, business-friendly changes in the tax code, and deregulation. We do
remain concerned with Trump administration efforts to simultaneously shift terms of
trade with all major trading partners: China, the European Union, Canada, Mexico, and,
to a lesser extent, Japan, who together accounted for over two-thirds of total U.S.
trade. While all of these negotiations are important, trade relations between the U.S.
and China — the world’s two largest economies — remain the focus. Despite trade
tensions, both countries remain highly motivated to avoid an all-out trade war and,
despite ongoing debates about the most efficient means to achieve U.S. trade goals,
some shift in trade relations with China was necessary and general movement toward
fair trade, if achieved, could benefit both the U.S. and the global economy.



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