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Investing.com - The latest round of trade tensions between the U.S. and China is indicative of an emerging pattern of escalation and detente, according to analysts at Morgan Stanley.
In a note to clients, the analysts including Michael Zezas suggested that while the U.S. and China are seeking to secure their respective economic futures, neither seem eager for a "true split, at least not anytime soon."
"The economic costs would be staggering, and both sides know it," the analysts wrote. They added that Washington and Beijing are "calibrating their moves carefully to avoid tipping the balance."
These comments come after China moved to expand its controls over rare earth exports, minerals that are viewed as crucial components across a host of industries ranging from semiconductors to defense. The restrictions have sparked a fresh round of a trade fight between the U.S. and China, with U.S. President Donald Trump threatening to slap triple-digit tariffs on China in retaliation. However, recent statements have signaled a potential desire to ease the latest tensions.
"If you’ve been following the U.S.-China relationship this year, a pattern has emerged: A new round of tariffs or export controls, a flurry of headlines, and market tremors, followed by a search for the next uneasy equilibrium. The latest episode is no exception," the Morgan Stanley analysts said.
They flagged that while this is an "unsatisfying conclusion" for stock market bulls and bears alike, " a continued dynamic of rolling negotiations and truces is more likely than either a durable trade peace or a hard economic decoupling."
Along with the push-and-pull with Beijing, the White House has long been attempting to reinvigorate U.S. industry to try to lessen the country’s reliance on Chinese imports, the analysts said, arguing that this could underpin "key themes" such as the financing of artificial intelligence.
"[I]t’s clear to us that U.S. companies will be pushing further into AI development, where my colleagues have identified $2.9 trillion of data center financing needs over the next three years, about half of which will come from various credit markets. For credit investors, this presents an important opportunity," the analysts said.