Trade War Bullish for Dollar, Bearish for Economy & Markets

Unless the sides step back from their latest moves, a full on trade war between the U.S. and China is underway. It's widely believed Obama stated the row with a ruling against Chinese tires in order to please union members, who are needed for the healthcare fight. China responded with an investigation of poultry and autos.
Here's the FT take; here's Bloomberg.

Markets can react in any number of ways in the short-run, but when this news is digested I believe it will be dollar positive. The United States is still a trade deficit nation and a drop in world trade will hurt the surplus nations more than the deficit nations. The supply of dollars in the global economy will slow and this will help the dollar for a time being. Of course, in the very long-run, it is negative for the dollar because it accelerates the final stage of removing the U.S. dollar as a reserve currency.

For the economy, more bad news for union workers and everyone else too. This will trigger lower stock prices and perhaps another round of deleveraging, which should also be bullish for the dollar.