US-China trade war nearing its end: New Year’s miracle for the global economy

A partial new US-China trade agreement will be signed on 15th January, US President Donald Trump said Tuesday, announcing that he will also then travel to China for continued talks. The trade war between the world's two largest economies has not only impacted business confidence and trade in their own regions but has trickled down to stifle economic progress elsewhere.

China

A partial new US-China trade agreement will be signed in the middle of this month, US President Donald Trump said Tuesday, announcing that he will also then travel to China for continued talks.

Trump’s tweet, sent moments before Wall Street opened for the year’s final trading day, set a calendar date for an event that had hung in uncertainty in recent weeks as details remained scant.

Washington and Beijing earlier last month announced a “Phase One” trade deal, de-escalating their nearly two-year trade war as Trump reduced or canceled some tariffs while Beijing promised to adopt trade reforms and buy more US farm exports.

The text has yet to be made public pending what US officials say is a largely technical review. “I will be signing our very large and comprehensive Phase One Trade Deal with China on January 15,” Trump tweeted.

“The ceremony will take place at the White House. High level representatives of China will be present.”

Read more: US-China trade deal & impacts on global economy

US and Chinese officials have said the agreement includes protections for intellectual property, food and farm goods, financial services and foreign exchange, and a provision for dispute resolution.

Under the new deal, China has committed to a minimum of $200 billion in increased purchases over the next two years from US manufacturers, farmers, energy producers and service providers, according to US Trade Representative Robert Lighthizer.

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On to Phase Two?

Trump said Tuesday he will travel to Beijing to continue negotiations “at a later date” — showing willingness to pursue talks that have acrimoniously broken down more than once and left both sides to salvage a partial deal.

While the detente put a stop to further deterioration in the trade war, it leaves many of the barriers erected so far in place.

Trump canceled plans to impose tariffs on $160 billion in Chinese merchandise in mid-December — including hot consumer items like mobile phones — but punishing US tariffs remain for about $250 billion in Chinese-made goods, including machinery and many electronic items.

The truce also offers Chinese President Xi Jinping breathing space as he faces a slowing economy and political trouble in Hong Kong

Word of the truce has driven a Wall Street rally this month and US stocks on Tuesday closed out the year with their best annual performances since 2013. The two economic powers have been locked in a bruising trade war since the first half of 2018 that has roiled the global economy and helped send the manufacturing sector into decline.

Observers say that in that time, the trade war may have ushered in a long-term de-coupling of trade relations between the world’s two largest economies. Americans have cut merchandise purchases from China substantially so far this year, while their appetite for Mexican goods has grown.

The yawning US goods deficit with China fell 14.7 percent in the 10 months through October of 2019 but rose 29 percent with Mexico, according to official US figures. What the two sides can accomplish in a potentially thornier “phase two” of negotiations — which could touch on Beijing’s sweeping market interventions and industrial subsidies — remains unclear.

Read more: US-China Trade War targets threaten Global Economy

Trump has repeatedly claimed the trade war’s burden fell squarely on China, while sparing the American economy. Economists say both sides have suffered. But the United States appears to have emerged from an earlier recession scare as Beijing has moved to reverse a worrisome slowdown.

Still, some economists and trade experts say Phase One was largely a victory for Beijing.

Scott Paul, president of the Alliance for American Manufacturing, which has largely favored Trump’s aggressive trade posture with China, said earlier that agreeing to remove tariffs amounted to “giving away much of our leverage, while kicking the can down the road on the most meaningful trade issues with China.”

The truce also offers Chinese President Xi Jinping breathing space as he faces a slowing economy and political trouble in Hong Kong.

Peter Navarro, White House director of trade and manufacturing policy, told CNBC on Tuesday that the Phase One agreement was only one plank in the Trump trade agenda, which encompasses other newly negotiated agreements in North America and Asia.

“Next year… we’re going to try to get something going with Great Britain, Vietnam, Europe and anybody else who wants to fairly trade with the United States,” he said.

what traders haven’t even begun to price in is the longer term, structural impact of this decoupling and its particular danger to individual companies.

Global Impact

The escalating trade war between the U.S. and China is rippling through the global economy, hurting confidence among U.S. small businesses, crimping trade among industrial giants in Asia and hitting export-oriented factories in Europe.

Economic confidence among small U.S. companies fell in August to the lowest level since November 2012, according to a monthly survey of more than 670 small companies conducted for The Wall Street Journal. The portion of respondents that expect the economy to worsen over the next 12 months rose to 40%, compared with 29% in July and 23% a year ago.

Japan, meanwhile, said that capital spending by the country’s manufacturers fell 6.9% in the April-June quarter, the first decline in two years, as companies grappled with a nearly double-digit decline in exports to China. South Korea said Sunday its exports to China fell 21.3% in August compared with the same month a year earlier, driving an overall 13.6% decline in exports.

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Both Japan and South Korea have said the tariff impact is particularly pronounced in high-tech parts and materials purchased by factories in China, such as Japanese auto parts and South Korean semiconductors. The Chinese factories use those products to manufacture finished goods, some of which are exported to the U.S.

The most knowing delegates at this year’s World Energy Congress continued to worry about the US-Chinese trade war. It has slowed growth and placed the biggest drag on oil prices. At the same time, however, they were shifting focus to the more momentous and generational event of decoupling.

They saw it in the Liquified Natural Gas contracts that the world’s fastest growing LNG exporter, the United States, wasn’t signing with the world’s fastest growing importer, China. They recognized it in the recent Chinese deal to take an equity stake in Russia’s Arctic LNG 2 project taken by China National Petroleum Corp (CNPC) and China National Offshore Oil Corp (CNOOC).

The tit-for-tat tariffs and accompanying Trump tweets have been driving markets all year, but what traders haven’t even begun to price in is the longer term, structural impact of this decoupling and its particular danger to individual companies.

GVS News Desk with additions from news agencies. 

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