US-China Trade Resolution Becoming A Major Turning Point For Global Business

  • Jan 15, 2020 GMT
  • Team Kalkine
US-China Trade Resolution Becoming A Major Turning Point For Global Business
An overview of the Trade War

In a significant turn of events, in the month of July 2018, US President Donald Trump, after months of threats, imposed tariffs on worth US $550 billion on Chinese goods. This was a major U-turn by the current US government, on various deals that had been agreed with the Chinese regime by previous administrations. In response to this, the Chinese government too imposed tariffs on worth US $185 billion of US Goods. This brought the trade between two of the largest economies in the world to a standstill.

A large number of multinational corporations on both sides, such as the likes of Apple Inc an US conglomerate, which had its assembly and production units in China for the Asian market and Huawei, the Chinese giant smartphone manufacturer, which at that time was one of the largest selling company in the United States, were affected by this conflict.

Not just the US and Chinese companies, other economies were also deeply impacted by this trade conflict. Still on the path of recovery from the global recession, all the major economies such as the United Kingdom, France and Germany all passively got into this dispute, as the conflict between United States’ threats to the allies on partnering up with China versus China’s promise of bringing new technology to the respective countries was a major pushback.

The demands from the Trump administration mainly included that China should improve and make its trading practices fair, by changing economic policies, and it also accused Chinese companies such as Huawei of stealing data and other intellectual property from the United States of America. This all came into light, post a historically high trade deficit being highlighted with China by the current US government.

Impacts of the Trade War on other countries

In addition to the problems surrounding Brexit and its implications for the United Kingdom as well as the other parts of the European Union, a major economic downturn was inflicted by the trade dispute between the US and China. Primarily, this was caused by the US asking its allies such as the United Kingdom and France to not indulge in any trading activities with China or to impose high tariffs on goods being exported to the country. A number of statements also emerged not to allow Chinese companies such as Huawei and Xiaomi bring any technology into their countries, as they allegedly stole Intellectual property and violated data rights of individuals.

The large size of the US and Chinese economies ensured that a lot was coming. Together they comprised just about two-fifths of the total Gross Domestic Product (GDP) of the world. Most monetary and economic experts have raised the alert primarily led by the Organization for Economic Cooperation and Development (OECD), which in May 2019 cautioned that the risks associated with the dispute between the United States and its ally nations are now contrarily influencing development and worldwide business investments, which, it projected, would ascend by only 1.7 per cent in 2019 and 2020. Its somewhere around half from the 2017-2018 period, when the investments were reported to have increased by 3.5 per cent, showing a clear movement above the recessionary period. The breakdown in the US-China trade in the middle of 2019, was at the time, having a huge negative impact on the securities exchanges, not just in the US, but also in the UK and Germany. The acceleration of tariffs on $200 billion of US imports from China, and $60 billion of Chinese imports from the United States, with dangers of more to evolve from the two sides, which could possibly upset worldwide development.

What will change after phase one of the trade truce gets implemented?

On 15th January 2020, it was reported that phase one of the trade deal between the United States of America and China had been signed. This came following an announcement the previous day, by both parties that terms for the phase one of the truce had been reached, albeit, a proceeding with a fight over technology and innovation will undoubtedly keep relations between the two superpowers tense.

As a part of the deal, various experts have commented that China has consented to import, more than two years, US $200 billion of US items over the levels of the year 2017, just prior to the US Government turned hostile to their Chinese Counterparts. Trump has more than once touted the trade settlement as an aid for American farmers, saying China will purchase US $40 billion to US $50 billion in agricultural products. US farmers were impacted the most by this trade war between the two countries, prominently due to the duties on soybeans which saw exports to China fall to a meagre US $3 billion from more than US$12 billion reported in the year 2017. The Trump administration during the phase of last two years of trade war paid an amount of US $28 billion in help to farmers.

Though, this move had also been considered to be highly political on both ends, especially on the US front, as Donald Trump braces for re-election in the month of November 2020 and in response to him being Impeached by the US House of representatives.

The deal, however, missed the mark regarding the purpose of completely ending this trade dispute that had prolonged for approximately two years, hurting trust in the two nations and disturbing business environment of the entire global economy. The trade truce is still expected to leave a bulk of tariffs forced on US $360 billion of Chinese items by the United States of America and yields scarcely any Chinese concessions on key parts of the country’s economic model that have frustrated the United States the most, from the utilisation of domestic subsidies to promoting theft and fraud of intellectual property.

Conclusion

Even though this phase one trade truce between China and the US marks a positive start to the year, it is also important to understand that this will not give a complete respite to the global economy. Primarily because of the fact that a hefty volume of trade tariffs by both countries will still be in place after this, which will keep having an impact on the global economy. It is also being driven by the tension between the United States and Iran on the military front, while the uncertainties around Brexit is still lingering.

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