GP Insights # 113, 3 August 2019
The 13 months long US-China Trade war has taken a new turn, after the recent meeting between US Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin with Chinese officials, in Shanghai on Wednesday. The negotiation ended with little cooperation between the two countries. After the meet, Donald Trump's tweets have brought back both countries to a pre-G20 phase. Trump's tweet on 'putting an additional tariff of 10 percent on the remaining $300 billion of goods and products' coming from China has created an atmosphere of tension.
The White House said that the two sides had discussed topics including "forced technology transfer, intellectual property rights, services, non-tariff barriers and agriculture". The negotiations led China to commit an increase in the purchase of US agricultural products. Further, President Trump tweet claimed that China failed to keep the promise to curb the sale of Fentanyl, which had led to the death of more than 16000 US citizens.
What is the background?
Since July 2018, the two sides have imposed tariffs on more than $300 billion of goods. Both had agreed on a truce to end the trade war at G-20 summit in Japan 2019. Late in June, the US President had eased some restrictions against US companies selling hi-tech gear to Chinese telecom giant Huawei. With no substantial outcomes from the trade dialogue in Shanghai in July and with Donald Trump's tweet, the global markets took a hit. The trade war has shown a visible impact on both country's farmers, workers and consumers, and has put the country's economies at stake. The back and forth imposition of tariffs have shown a decrease in the growth rate of 6.2% in the Chinese economy, second quarter of 2019, which is the lowest since 1992.
What does it mean?
Trump's additional tariff from 01 September on China will increase the chance of further retaliatory tariffs from China in US-China trade war. The trade war has shown its repercussion on markets. The trade war between the two has disrupted the global supply chains and has affected commodity prices. This is not only hampering China but has brought in high inflation on goods and has changed the purchasing power of the US citizens. The deal between the two powerful economies of the world is turning as a 'threat' for the global growth rate. The trade war is likely to continue since both the countries have failed to make any substantial progress in the trade dialogue. Also, Trump's actions may be an attempt to bring China according to his terms before the 2020 presidential election