GP Insights # 36, 12 May 2019
For what has been months of careful negotiations between China and the United States, the ‘trade talks’ seem to have ended with no deals or outcome on 11 May 2019. During this week there was a lot of commotion when Trump threatened to raise tariffs by 10 May, this because the US accuses China of backtracking on the previously agreed commitments. This came when the Chinese delegation was preparing itself to visit the US for negotiations, they chose to go nevertheless. The Chinese delegation, including Vice Premier Liu He, was greeted by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. The optimism remained during the negotiations, and despite the absence of a deal, there seems to be an agreement that the two parties would meet again in Beijing soon.
What is the background?
Since last year, the two sides have imposed tariffs on more than $360 billion in two-way trade. The visible impacts have been on US agricultural exports to China and have been weighing on both countries' manufacturing sectors. In April, Trump bragged that the US and China were on the verge of an “epic” deal. On 9 May, The International Monetary Fund repeated its warning that the trade battle between the world's top economies was a "threat" to global growth, and called for a rapid resolution. However, an additional 25 per cent of tariffs have been imposed on 250 billion dollars’ worth of China’s goods on 10 May 2019.
What does it mean?
Trump’s additional tariffs will raise prices for consumers and may hurt manufacturers and others in the US who rely on parts made in China. Apple was the first to report an impact on its manufacturing and announced their loses. China’s retaliatory tariffs have already squeezed US exporters and Beijing will introduce countermeasures. Domestic politics will play a major role now, especially for Trump because he seems to want to use US-China Trade Dispute as his successes, Xi Jinping’s letter to Trump has eased the markets for now. Negotiations may resume in the forthcoming months, but there is no clarity from both the parties