China-US Trade truce offers just brief window of opportunity

By Mei Xinyu Source:Global Times Published: 2018/12/5 23:28:40

Trade truce offers just brief window of opportunity

Illustration: Luo Xuan/GT

The trade truce struck by China and the US earlier this month has temporarily prevented the two countries from heading toward a new cold war. Multiple results were achieved in such fields as trade, international politics and security.

China and the US agreed to a cease-fire in the trade war. But the trade conflict has been suspended, not ended. Although the top leaders of the two countries reached a consensus on halting new tariffs for 90 days, they didn't remove the tariffs that have already been imposed.

The official statement from the Chinese side said that the two teams will speed up talks and work toward scrapping all tariffs imposed this year, pushing bilateral economic and trade relations back to the normal track to achieve a win-win situation. Nevertheless, according to the White House statement, if a deal cannot be reached during later negotiations on specific issues within 90 days, the US may still start to impose new tariffs.

During this meeting, China successfully adhered to its principles in resolving trade disputes. There are three bottom lines that China should not compromise.

First, China intends to ease trade imbalances by means of expanding imports rather than reducing exports.

Second, China did not set a direct goal of "cutting its trade surplus with the US by $200 billion" as proposed by the US side.

Third, China did not see its "Made in China 2025" program suffocated as it safeguarded the right to pursue industrial upgrading and self-development.

Even according to the interpretations in the White House statement, the consensus reached by both sides was to reduce trade imbalances by expanding China's import, as such an approach is more in line with objective economic rules.

Specifically, the US mentioned that China is willing to approve the merger deal between US-based chipmaker Qualcomm and NXP, which previously failed to get approval by Chinese regulators.

Despite approvals from eight jurisdictions, including the US, the EU and South Korea, Qualcomm's proposed takeover of NXP waited for regulatory approval from China for nearly two years. By expressing its willingness to approve the deal, China implicitly showed its extraterritorial jurisdiction over many international trade transactions through such channels as cross-border merger and acquisition anti-monopoly reviews.

The trade war has greatly stimulated China's investment and production of high-tech alternatives to imported products. But the time window provided by the trade war won't last indefinitely, so relevant enterprises and local governments need to seize the opportunity to commence production and obtain market share before the window closes.

In general, the trade truce is good news for China, the US and even the world, giving global stock markets breathing room to stabilize.

Nevertheless, it doesn't mean the China-US trade war has ended. China should still prepare for some extreme scenarios, like the combined impact of US tariffs on all Chinese exports and a US economic recession.

That is because many of the US claims are in violation of objective economic rules. Its attempt to solve its own economic problems by inflicting penalties on other economies is bound to lead to conflict with China. For example, the US trade deficit basically has something to do with its low national savings rate.

China's savings rate was always higher than that of the US in every year between 1980 and 2017. The differences ranged from 10 to 19.9 percentage points in 15 years to 20 to 29.9 percentage points in 14 years, and the gaps exceeded 30 percentage points in eight years.

With such differences, it is impossible for the US to eliminate its trade deficit in the foreseeable future no matter how much China expands its imports from the US.

The problem is further exacerbated by the excessive expansion of US military spending and social welfare.

According to the US statement, the US may still impose new tariffs on Chinese exports if both parties fail to reach a consensus in their negotiations. Also, we cannot rule out the possibility that the Trump administration may once again go back on its promises.

The following factors are likely to increase the probability of failure.

With the looming shadow of economic slowdown and financial crisis, the US government is very likely to further resort to trade protectionism once such crises occur.

Moreover, Trump's political enemies will make use of the trade war to find fault with Trump. After the 2018 midterm election, Trump is expected to face pressure from the House of Representatives, which will be controlled by the Democratic Party, with its trade policy likely to be attacked.

For a long time, negotiating while at "war" will be the normal state of China-US relations, and we need to get used to this new reality.

The author is a research fellow with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

Newspaper headline: Trade truce offers just brief window of opportunity


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