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The latest round of tit-for-tat tariffs by the United States and China has intensified the ongoing global debate about whether the world is facing a mere trade skirmish or heading rapidly toward a full-blown trade war.Either accidentally or by design, U.S. President Donald Trump's administration may have paved the way for a "Reagan moment" for the international trade regime.Today, a trade war would damage all economies. But the U.S., which is relatively less dependent on foreign markets, possesses deeper domestic markets, and is generally more economically resilient than other countries, would do better than most others in a contracting world economy. Already, Chinese financial markets have suffered, while those in the U.S. have held their own.The Trump administration will need to avoid actually pushing other countries (especially China) too hard too soon, thereby threatening the entire global economy with a possible recession and markets with disorderly declines.Let us not forget that China holds a massive volume of U.S. Treasury bonds which, if pushed too hard, it could use to try to destabilize the U.S. government bond market, which is essential to the health of the global financial system.
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