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Earlier this week, China announced a 25% tariff on dozens of U.S. products, in retaliation for President Trump’s plan to tax more than 1300 Chinese products. The move drove the DOW into a sharp dive, until Trump publicly mocked the possibility of a trade war. According to the President, the status quo is the result of decades of botched economic negotiations led by previous U.S. administrations, which have now resulted in a huge import-export imbalance between the two countries.

Trump downplayed the possibility of further economic damage from his tariffs, stating: “When you’re already $500 Billion DOWN, you can’t lose!”

However, top economists are scared that the escalating tariffs are the opening round in an economic conflict with a huge potential to turn ugly. China has called for negotiations based on mutual respect and has denounced Trump’s statements as a unilateral use of coercion and condescension. President Xi Jinping’s fears of a stalled Chinese economy due to increased import taxes are understandable, given that nearly 20 percent of China’s economy is built on exports to the United States.

Some analysts are already predicting that unless the U.S. and China work harder to reach a compromise, the Chinese government may use more aggressive measures to make its point. The Asian superpower is currently helping America contain the international threat posed by North Korea, after that country’s leader confirmed possession of a small nuclear arsenal. U.S. allies in the region, including South Korea and Japan, have asked President Trump to cool down his war of words with the volatile Kim Jong Un, hoping to minimize the chances of a missile strike. However Chinese intervention has so far been the most important factor in keeping the situation under control, as almost 90% of North Korea’s trade goes through here.

China’s interest in cooling down the tensions in Southeast Asia may be waning. Instability in this region will only help Xi Jinping to build a local network along his newly reestablished silk road, which will soon reach nearly 65% of the world’s population. China may be willing to risk a limited military skirmish pitting North Korea against the United States, South Korea, and Japan, in exchange for stronger ties with Russia and India, who are both ideologically predisposed to resist American intervention in the area.

Political and economic analysts are watching President Trump’s response to the Chinese tariffs closely. He remains a wild card with an equal potential to come up with a last-minute deal to resume trade with China in return for more access to that country’s ports, or to take a hard line which could push the Chinese government against the wall. Billions of lives and trillions of dollars are resting on the resolution of this slowly simmering dispute.

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