No backing down for both sides in trade war

Nationalist sentiment is easily sparked in both countries. But any direct economic impact – on either the US or China – is hardly cataclysmic, certainly in the short term. The US economy is still powering along, with unemployment at a 50-year low and wages rising strongly.

Chinese President Xi Jinping will meet Donald Trump at the G20 meeting in Japan next month. AP

The trade fight will still hit the farm belt states – where Trump finds his strongest support – and raise consumer prices. The ripple effect of such geopolitical pushing and shoving between the two superpowers will also unsettle global markets and shake confidence that such tensions can be controlled.

The US and Chinese presidents are not due to meet again until the G20 in Japan at the end of June. Given the failure of protracted negotiations between officials, it seems unlikely to bet on any progress without another personal intervention by the leaders.

Erratic behaviour

With anxious markets trying to follow the thread of his erratic comments, alternatively aggressive then friendly, Trump said he was sure this meeting would be “fruitful”.

Yet even this previously familiar path with Trump’s “good friend, Xi” seems to have headed into a cul-de-sac with the extent of miscalculations now evident on both sides.

After an irritated Trump proceeded with his intention to further raise tariffs from 10 per cent to 25 per cent on $200 billion worth of Chinese goods last Friday, China announced a new round of tariffs on some $US60 billion ($86 billion) worth of US imports straight after the weekend. The new arrangements will take effect from June 1.

China’s Ministry of Finance said its tariffs would increase to 25 per cent on 2493 imported items, including LNG; by 20 per cent on a separate list of 1078 items; and 10 per cent on 974 other items.

The US administration promptly suggested a further $US300 billion worth of products from China could be next to face a 25 per cent rate.

There will be a public hearing next month on this prospect, according to the US Trade Representative’s Office.

Via the inevitable presidential tweet, Trump was warning Xi that China will be hurt very badly if it doesn’t make a deal.

“You had a great deal, almost completed, & you backed out!” he declared.

After the stock market fall became obvious, the US president insisted that Chinese retaliation couldn’t be “very substantial by comparison”.

That thesis will certainly be tested, not least by the renewed volatility on the stock market that Trump usually loves to use as a barometer of his success.

China does clearly want to make a deal, just not on terms where the US seems satisfied to declare victory. Xi Jinping won’t risk the perception in China that he has been humiliated into backing down by Trump’s tactics. Win-win is still the official Chinese motto.

‘Nobody left in China to do business with’

Yet it’s not as if the Trump administration is isolated in its determination to force substantial changes on Chinese practices. Influential Democrats, the business community, the national security establishment and many aggrieved workers believe China has manipulated the global trading system to its own advantage and to the disadvantage of the US.

The US, although previously very confident of being able to make a deal, remains deeply suspicious of China’s grander strategic and technology ambitions as a competitor to the US.

That’s one reason Trump reacted so antagonistically to the indications that China was not willing to change laws and enforcement procedures – as opposed to promises – in terms of stealing intellectual property, forced technology transfers and the extent of other subsidies and assistance. The US was also insistent the tariffs should stay in place until there was some practical evidence of China’s new approach.

In the latest report to Congress, the office of the Secretary of Defence focused on China’s determination to be “the pre-eminent power in the Indo-Pacific” while presenting “an economic challenge to nations that export high tech products”.

“Recognising that programs such as ‘Made in China 2025’ and OBOR [One Belt, One Road] have sparked concerns about China’s intentions, China’s leaders have softened their rhetoric when promoting these programs without altering the programs’ fundamental strategic goals,” the report said.

Figuring out the fundamental strategic goals of the US leader is far more problematic and painful – for allies and competitors alike.

“There will be nobody left in China to do business with,” Trump tweeted happily. “Very bad for China, very good for USA!” Of course.

Source link Finance News Australia

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