The trade tension between China and the US

The trade tension between China and the US is escalating that while the US imposes tariffs on all Chinese imports, the Chinese government announces that it will raise tariffs on $60bn in American goods. Although the US raised tariffs first and the counter action from the Chinese side should not be a surprise, the US president was unhappy about the Chinese tariff hike that he tweeted "China should not retaliate-will only get worse".

The increasing trade tension has dragged down the global market performance, implying the trade tension is expected by the market to have significantly negative impacts on the global economy at least in the short term. Trade is not a zero sum game that trade can help to improve the efficiency of resource allocation; the increasing trade tension between these two major economies will worsen the global resource allocation and affect the world economic outputs, this will likely lead to a cost-push inflation. A cost-push inflation will affect ordinary people's living standard and even cause a social instability; in addition, China and the US are the biggest two economies on the earth, this means there will be no exception that all economies will be affected by the trade tension. Furthermore, because of the scales of these two economies, it is difficult to find alternatives, China and the US are the two major markets that no economy can ignore.

What will happen next? I personally do not think that the trade tension can be resolved in the short term, the world economy will be affected by this and there may not be immediate significant result for this quarter but as the time passes, the consequence will become more significant.