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Is China-U.S. Trade About to Get Back on Track?

July 1, 2019

Is China-U.S. Trade About to Get Back on Track?

EDITOR'S NOTE:  U.S. President Donald Trump and China's President Xi Jinping hit pause on the US-China trade war during a 29 June meeting at the G20 summit in Japan.
 
The two world leaders agreed not to impose new levies on U.S. and Chinese goods.

President Trump also said he would allow U.S. companies to continue to sell to the Chinese tech giant Huawei, in a move seen as a significant concession. 
 
President Trump confirmed that the U.S. would not be adding tariffs on $300 billion worth of Chinese imports. He also said he would continue to negotiate with Beijing "for the time being".

In return, China would buy a “tremendous” amount of U.S. goods to reduce the trade deficit, President Trump said. Washington would give China a list of the goods it wants to sell, the U.S. president said at a press conference later in the day.

A Chinese official said Beijing welcomed Trump’s promise to ease the ban on Huawei, but hoped that he would “walk his talk,” according to the South China Morning Post.

The resumption of talks and pressing the pause button on more tariffs will be seen in the short term as positive for business and investments in both countries. 

Global business leaders of all sizes keep an eye on upcoming Trump-Xi talks

The U.S.-China trade war is about to get serious.  Sure, many would say it’s already had serious impact on the economies of both countries. 

Tariffs imposed on China have ushered volatilityinto the U.S. stock market, hurt farmers in rural America, and pushed big investors to bulk up on cash. According to Brookings researchers, tariffs will cost the average American household $831 this year, farmers have suffered more than $1 billion in lost exports, and farm foreclosures in the Midwest are spiking. 

Chinese purchasing patterns are shifting away from the U.S. And there are reports of global companies moving their Chinese-based divisions to nearby Taiwan. China’s exports to the US were down by about $15 billion, compared with the same period last year, although that’s less than 0.1 per cent of China’s 2018 GDP. 

So far, leaders from both countries have believed their economic health is robust enough to absorb negative effects and increasing political frictions. 

But two things are about to change the face of the U.S.-China trade dispute. 

  1. President Trump and Chinese leader Xi Jinping are expected to meet at the Group of 20 summit in Japan later this week.
  2. A four- to six-week buffer, which excluded tariffs on goods that were already in transit, is about to come to an end. 

Trump-Xi Head to a G20 Meeting 

Talks between the United States and China broke down in May, prompting President Donald Trump to impose a $200 billion increase in tariffs on Chinese goods. China and the U.S. have been engaged in a trade war through increasing tariffs since this time in 2018. Business leaders in the U.S. and China as well as Europe, Japan and much of the developing world are standing on the sidelines hoping that the two world leaders are able to restart trade negotiations.

Xi will travel to Japan on Thursday and is expected to meet Trump on the sidelines of the G20 summit in Osaka, a gathering of leading and emerging economies, which takes place on Friday and Saturday.

“China-U.S. trade war: So far, leaders from both countries have believed their economic health is robust enough to absorb negative effects and increasing political frictions.”– Click to tweet

On Saturday, People’s Daily, the mouthpiece of China’s Communist Party said in a commentary that the trade war between China and the US could be resolved only through “equal conversation”.

Writing for the South China Morning Post this week, Tom Holland advised global business leaders not to hold their breath for a deal this week. Robust economies in each country may allow them to ride out worsening trade tensions and support growth in the near term. 

Yet, when the two men met in December 2018, also at a G20 summit, President Trump decided two delay imposing additional tariffs on China for 90 days in order for trade discussions to continue. 

25% List 3 Tariffs about to Dock

In the meantime, the 25 percent tariffs on Chinese goods that the Trump administration announced in May are about to kick in in a larger way. 

“A four- to six-week buffer, which excluded tariffs on goods that were already in transit, is about to come to an end.”– Click to tweet

On May 10, 2019, the Office of the US Trade Representative (USTR) increased tariffs on $200 billion worth of Chinese imports to 25% (from 10%). The tariffs spared China-origin goods already en route (or soon to be en route) to the U.S. The List 3 category of goods begins to impact consumer goods– and the average Amazon seller.  

Wait and See 

Economic pundits urge both parties to take this week’s meeting seriously so they can make way for true negotiations. 

Economic pundits urge both parties to take this week’s meeting seriously so they can make way for true negotiations.”– Click to tweet

Yet, the truth is that China has very little leverage in a trade war with the United States, wrote Salvatore Babones, from the Centre for Independent Studies in Sydney, Australia. In ForeignPolicy.com, Babones said, “Given Beijing’s bluster, it can be easy to forget that China is still a relatively poor country with a GDP per capita less than one-sixth the U.S. level.” 

The simple fact is, Babones concluded, that China needs the United States more than the United States needs China. “In itself, that’s no reason to start a trade war. But if the trade war really does heat up, there’s little doubt who will win.”

U.S. Trade Representative Robert Lighthizer seems to have that same opinion. Lighthizer said during a congressional hearing last week, “If we can resolve these issues in a way that improves this relationship, preserves the competitive advantage of the United States, we have an obligation to do that."

The U.S. is "ready to engage" with China, Lighthizer said, while noting that he wants to make sure that a perceived imbalance between the two countries is addressed.

As the two teams of negotiators ready for Trump and Xi to meet, farmers, workers, investors, pensioners, and business owners around the world have their fingers crossed, hoping for some progress. 

Join us Tuesday, July 9th at 9:00 am PST for a webinar on How Will the US-China Trade War Change Everything? with Dr. Jonas Gamso, Thunderbird School of Global Management and Todd Cornell, Cultur668, and moderator Doug Bruhnke, Global Chamber.  Click here to learn more and register.

 

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