U.S.-China Tensions: What Could Happen Next?

Ariana Salvatore, Morgan Stanley's U.S. public policy strategist, discusses the re-escalation of U.S.-China trade tensions, specifically China's stricter export controls on rare earths and the U.S. response of proposed 100% tariffs on Chinese exports. She outlines four potential scenarios for how these tensions could play out, with the base case being a return to the status quo following rhetorical escalation, maintaining an equilibrium of "chips for rare earths." The analysis also considers downside scenarios of temporary or durable escalation and an upside scenario of quick de-escalation, concluding with the economic implications for China's GDP growth and market volatility.