After the US and China increased tariffs on each other on September 1st 2019, both sides agreed to continue their trade talks in October. This pattern has been in place since the first tariffs were applied, followed by talks and more tariffs. It has not produced any positive results and the distrust between both parties has only increased. According to China’s Ministry of Commerce, Vice Premier Liu He agreed during a phone call earlier this morning to meet US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in October. The USTR confirmed that trade talks are scheduled for October in Washington, but no date has been specified as of yet.
Expectations are that the talks will no bring the US and China any closer to resolving the trade war which was started by US President Donald Trump. Distrust has only grown and neither side wants to look weak in front of their home base. China is know to take the long-term view and has shown signs that it may want to wait out the US election and count on its own domestic economy. Zhou Xiaoming, former official with the Chinese Ministry of Commerce, added “Neither China nor the US want to be blamed by the rest of world for escalating the trade war and damaging the world economy. But the talks don’t mean the two sides will inch closer or that their stances soften.”
US, China Agree to Reopen Trade Talks
Prior to next month’s meeting, which was originally supposed to take place in September, lower levels officials from both sides will lay the groundwork. After both sides increased tariffs on September 1st 2019, the US plans another round on October 1st 2019 before both sides have vowed to implement more tariffs on December 15th 2019. With the US sticking to Trump’s tariff strategy, the chances for a positive outcome in October are practically non-existent. Trump has misread how China will react and often misinterpreted the response to his tactics.
While the US and China have agreed to reopen trade talks, this appears to more of a formality. Chua Hak Bin, Economist at Maybank Kim Eng Research, stated “No one is holding their breath. Investors are slowly coming to terms that a trade deal is increasingly remote, with both sides talking tough and preparing for a long battle.” Trump’s pressure campaign has largely backfired and while he continues to claim that China is losing the trade war and eager to cut a deal with him, economic data paints a different picture. Both sides have been negatively impacted by the trade war which had ripple effects across the global supply chains, but China appears to be better prepared for a long trade war than the US is.
Trump Warns China Against Delaying Trade Talks
Trump has warned China against delaying trade talks and waiting for the the result of next years US presidential election. He tweeted “We are doing very well in our negotiations with China. While I am sure they would love to be dealing with a new administration so they could continue their practice of 'ripoff USA' (USD 600 B/year), 16 months plus is a long time to be hemorrhaging jobs and companies on a long-shot…” He further added “Think what happens to China when I win. Deal would get much tougher! In the meantime, China's Supply Chain will crumble and businesses, jobs and money will be gone!” Trump also accused China of interfering with next years election by betting on Democrats to oust him.
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Will New Talks Help Diffuse The US-China Trade War?
Given Trump’s insistence that any trade deal needs to be good for the US and bad for China and his refusal to negotiate a 50-50 trade deal, it is unlikely that October’s trade talks will diffuse the escalating trade war. The fact that the US plans more tariffs on October 1st 2019 creates a negative atmosphere to trade talks. China has repeatedly stated that it wants to resolve the issues in a fair and calm manner, but Trump has rejected any approach which doesn’t paint the US as a victor in the trade war. Investors should get used to the idea of this trade war to last much longer than is currently priced into financial markets.
Gita Gopinath, Chief Economist at the IMF, added “If these tensions continue and global growth were to, say, slow even at a faster pace than we think, then that could change financial market sentiment, that could change business confidence and that can slow down the global economy.” The US wants China to accept the May 2019 draft agreement which called for broad changes to the Chinese economy and requires changes in Chinese law. It is unlikely that China will walk back from their previous stance and soften the tone in favor of Trump. Officials have therefore been confused on what to actually discuss during trade talks, with neither side likely to cave.
Trump’s overall anger is not limited to China alone. After warning China against a slow approach to trade talks in the hope of another President to negotiate with next year, he has also lashed out at the EU. Trump tweeted “For all of the 'geniuses' out there, many who have been in other administrations and 'taken to the cleaners' by China, that want me to get together with the EU and others to go after China trade practices remember, the EU and all treat us very unfairly on trade also. Will change!” He then lashed out at his own central bank by tweeting “Germany, and so many other countries, have negative interest rates, 'they get paid for loaning money', and our Federal Reserve fails to act! Remember, these are also our weak currency competitors!”
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