The USA and China - far from a trade war

Jun 19, 2018 10:51 AM|Marcin Lipka

“The risk of escalation in the trade dispute between the United States and China is causing a strong discount on the global stock market. Although more and more observers are calling the Washington-Beijing dispute a trade war. It seems that all the time it is just a clash between respectable powers,” writes Marcin Lipka, Conotoxia Senior Analyst

Marcin Lipka, główny analityk

The U.S. President recommended that a list be prepared of Chinese imported goods worth USD 200 billion. They are supposed to have 10% duty. This joined with a similar list of goods worth USD 50 billion brings us to half of the value of all imports from China. Has a trade war begun?

For the time being, these are just words

So far, duty has not been imposed. The critical date is 6th of July, two days after the widely celebrated Independence Day in the USA. Is it possible for the White House to announce the introduction of customs duty at this time, with the risk of clear deterioration in economic sentiment during the crucial campaign of the Republicans for the US Congress? This is unlikely to happen.

There is a chance that this is the next stage of negotiations for the White House. The American administration wants to show that they are fighting towards reducing trade deficit, especially between the USA and China. For this purpose, they use arguments about the necessity of intellectual protection in China as well as the modification of the already outdated principles established by Beijing. They also state that joint venture investments still require the participation of at least 51% of Chinese capital.

The Chinese are aware that the elements raised by Washington (intellectual property, joint venture) are important and controversial, also in contact with other developed countries. A surprise has already passed in Beijing that the majority of information is now formed by social media and traditional diplomacy has changed into kaleidoscopic-style multifaceted messages (a good example of this is the turns on the case of North Korea).

Nobody wants to lose and nobody will

Typically, few people are interested in the details of trade policy. However, when the subject is starting to be discussed quite widely, no one will want to lose in this prestigious dispute. And no one will.

In recent weeks, partial solutions to the conflict have already appeared, and they can be announced practically overnight. China has declared the increase of oil import from the US in order to reduce its trade deficit. The United States has welcomed the possibility of acceleration of a joint venture reform by Beijing.

President Donald Trump has also stressed several times that Xi Jinping is his "close friend", which means that the risk of a trade war may end with just one conversation between the leaders. After all, even serious disputes between friends can be resolved quickly.

An alternative scenario

Of course, it is possible to imagine a different course of events. July actually starts with the introduction of duty on most Chinese imports. Beijing responds with the imposition of restrictions on US goods and, for example, procedural impediments in the supply chain of US companies operating in China.

This, of course, will lead to significant deterioration in business sentiment worldwide, higher prices for consumers and even a risk of recession. The positive effect of lower taxes on the Americans and announcements of infrastructure investments will be destroyed. Then, nobody would be happy and everyone would lose. All this at the time of the elections for American Congress. Taking into account the two scenarios, the one of stabilising the conflict and both parties winning is still much more likely.

Jun 19, 2018 10:51 AM|Marcin Lipka

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