How to avert a Sino-American trade war before anyone gets hurt

US President Donald Trump's new National Economic Council director Larry Kudlow was quite busy last Wednesday as he tried to calm markets that seemed to be spooked by fears over an approaching costly trade war between the United States and China, after the Trump administration threatened earlier on Tuesday to impose US$50 billion in tariffs on China.

Against the backdrop of escalating US tensions with Beijing, which retaliated by issuing a list of tariffs against US$50 billion in American goods, Mr Kudlow was hoping to tamp down growing anxieties among business executives and investors over a showdown between the world's two largest economies that had the potential to derail the current recovery. Mr Kudlow - joined by Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross - insisted that the Trump administration's threats to impose tariffs on Chinese imports were just, well, threats, or a bargaining position. They would help bring the Chinese to the negotiating table and lead to talks that were bound to end up with a deal, and make it likely that the threatened tariffs would not go into effect.

"I understand the stock market's anxiety," Mr Kudlow said on Wednesday, after the tough rhetoric on both sides sent the markets reeling. "But on the other hand, don't overreact," added the economic adviser, a former television news commentator who, before joining the White House, was known for his pro-free trade positions. Indeed, the White House's "no-trade-war" strategy, trying to convince the markets to expect a long period of negotiations between Beijing and Washington that could fall short of an all-out trade war, seemed to work on Wednesday, when the Dow Industrial rose 230 points.