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LAST WORDS: Is the Trade War between China and USA really over?
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Is the Trade War between China and USA really over?

By Dina

BT 201901 Last 01中美贸易战真的结束了吗?

2018年12月1日在阿根廷布宜诺斯艾利斯举行的20国集团(G20)第十三次会议以意想不到的非常积极的结果落幕。 根据最新的新闻稿,中国国家主席习近平和美国总统唐纳德特朗普已经决定停止贸易战,这场战争威胁到世界经济增长并最近破坏了金融市场的稳定。

习主席强调,中国和美国都意识到它们在世界经济中的重要作用,它们之间的合作是促进国际繁荣与和平的唯一途径。 在今年早些时候的贸易战升级之后,这是两国的第一次会晤。 双方已同意努力在接下来的90天内加强谈判,并停止进一步提高关税,希望在不久的将来取消今年征收的额外关税。 两位总统的这一举动可能阻止了正在进行的贸易战的进一步升级。 现在,一切都取决于中美谈判团队,他们应该进行复杂的讨论。鉴于这两个国家的假期很快就会到来,团队实际上只有更少的时间可以利用。

BT 201901 Last 02The thirteenth meeting of the Group of 20 (G20) which was held in Buenos Aires, Argentina, on December 1st 2018, ended with some unexpected and very positive news. According to the latest press releases, Chinese president Xi Jinping and American president Donald Trump have decided to cease a trade war, which threatened to the world’s economic growth and destabilized financial markets lately.

President Xi underlined that both China and US are aware of their important roles in the world economy and that cooperation between them is the only way to foster international prosperity and peace. This was the first meeting of the two, after the escalation of the trade war earlier this year. Both sides have agreed to make efforts in order to intensify their negotiations in the following 90 days, and to stop further tariff increases, hoping that additional tariffs imposed this year will be abolished in the near future. This move of the two presidents has probably prevented further escalation of the ongoing trade war. Now, everything is up to Chinese and American negotiating teams, which are supposed to engage in complex discussions. In that short time span, it is expected from both sides to implement the census reached in Buenos Aires. Given the fact that holidays are coming soon in both countries, teams actually have even less time at their disposal.

What Could Have Caused the Changes?

The ceasefire has certainly come as a surprise, given the friction between China and US over the past months. Why would two economic giants suddenly hit pause on a trade war? It seems that past months have shown to the both sides that trade wars have no winners. But, the agreement of the two presidents is surely a short-term victory for both sides.

On the one side, possible reasons for the change, of course for Trump, could be the pressure of American large companies that were negatively affected by his politics and the growing deficit. Companies that are threatened to lay off workers, or even shut down operations in the US and some other parts of the world.

In the column chart below published by the US Census Bureau, the negative effects of the trade war on the US can be observed, which might have made America think twice. Chart depicts US trade deficit with China for the five-year period, from 2013 to 2018. As it can be seen, both US exports and imports declined in 2018, when the war escalated. US imports from China plummeted 41% from $505.47 billion in 2017 to $296,56 billion in 2018. The same happened with US exports to China, which dropped from $129 billion in 2017 to $74,28 billion in 2018, which is nearly 43% decline in percentage terms. These could be the possible reasons why Trump decided to be more flexible in his attitude.

On the other side, China was always consistent in its claim that it does not want a trade war, but that it does not mean it will not protect its core interests. China promised to always work in the best interest of its nation and economy. Past eight months have proven its trustworthiness in this regard, especially when countermeasures by raising tariffs on American vehicles were introduced.

BT 201901 Last 03
President of the United States of America, Donald Trump

What Else Did Jinping And Trump Agree?

According to the State Councilor Wang Yi, China promised to import more agricultural, industrial and energy products from the United States, in accordance with market demand, aiming to gradually smooth imbalances in two-way trade. He also stated that China will take US concerns regarding intellectual rights and technological cooperation into consideration in the process of further opening-up. Americans promised to cancel the planned increase of tariffs from 10 to 25 percent for thousands of Chinese high-tech products, which was planned for January 1st 2019. Tariffs already drove up the prices of many Chinese products including: solar panels, TVs, cars, electronics and even clothes.

Based on what Vice-Minister of Commerce Wang Shouwen told reporters, they will insist that Americans remove tariffs on other goods as well, without being specific about the time span. In addition, China and the US also reached a consensus regarding the opioid Fentanyl, and the president Xi Jinping promised to put the Fentanyl on the list of controlled substances and adjust regulations.

BT 201901 Last 04What to Expect After the Three-Month Period?

In Buenos Aires, Trump was still focused on “America first”, while Xi Jinping was emphasizing the importance of cooperation and compromise. It is hard to estimate the possible outcome of their meeting. The first sign of improvement was rise in stock prices in both markets, which was marked on the first business day after the meeting. Given the complexity of issues, this deadline might seem short to make changes.

Some Chinese export manufacturers are afraid that the United States might further escalate trade war in case negotiations fail. There is reasonable fear that failure might especially negatively affect Chinese auto industry, which relies heavily on the US market. Exporters were able to cushion the effects of tariffs to some extent. However, doing so in the long term and especially if higher tariffs are introduced by Americans, would probably make them go out of business. Therefore, some of them are beginning to consider moving their operations into other Asian countries.

Since the increase of tariffs is cancelled for the beginning of 2019, exporters could wait to see how the events will develop further before taking any drastic measures. Another potential problem for China is that foreign investors might reexamine their decisions to rely on Chinese factories given the circumstances, regardless of the low labor prices. Some business analysts are skeptical that the trade war has really ended. According to them, failure to reach the deal is a possible chance for markets of developing countries to benefit from tensions with the US, and it is possible that both Chinese and American companies will begin to explore their options there. Such moves could deeply impact entire world economy and shift its course.

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