New developments in the China/US Trade war

The US and China kicked off a fresh round of discussions on May 1st. The talks were held between Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer. US Treasury Secretary Steven Mnuchin claimed that both the US and China held “productive” talks in Beijing. According to various sources, the two countries are nearing a deal which would negate some of the $250 billion in US tariffs on Chinese imports. The political journalism company Politico stated that both the US and China have agreed with regards to how the deal will be enforced. However, many details still remain unsolved. The next round of talks was to take place in Washington DC. According to White House Press Secretary Sarah Sanders, “The discussions remain focused toward making substantial progress on important structural issues and rebalancing the US – China trade relationship”.

This ongoing trade war between the two superpowers has damaged the economy as well as the current system that has governed cross border trade for many years.

Although there have been some slithers of optimism surrounding the talks, there has also been several sticking points.

History

The US has accused China of unfair practices and has imposed tariffs on approximately $250 billion worth of Chinese products. China fought back imposing tariffs of their own equalling approximately $110 billion on US imports.

The tariffs on Chinese products rose 10% – 25% since the start of the year. But as soon as December rolled around, both sides have agreed to halt their petty tariff war and instead agreed to work towards an agreement. President Trump explained that both countries agreed on “a lot of the most difficult points” but that “we have some ways to go”.

Obstacles

Some of the stumbling blocks that need to be overcome include enforcement, the protection of intellectual property and the speed at which tariffs will be rolled back. Although the kinks of enforcement are still being worked out, the US has long complained that China plagiarizes US intellectual property. The US also claims that China demonstrates preferential treatment toward domestic companies via subsidiaries and wants Beijing to spend more on US goods to help contract America’s trade deficit.

International reaction

The international community is weighing in on the trade war as well. IMF chief Gita Gopinath explained how the increase of tensions between Beijing and Washington was one reason for a “significantly weakened global expansion, especially in the second half of 2018.” The IMF slashed its growth forecast for 2019 by 0.2% points to 3.3%. The Organisation for Economic Cooperation and Development (OECD) weighed in saying that US and Chinese tariffs in 2018 have slowed economic growth in the world’s two largest economies.

So what does the future hold for US/ Chinese relations? Will Beijing and Washington ever be able to work through the issues? Whatever the result may be, it could affect Vestle indices (which are based on the performance of leading indices, shares, currencies and hundreds of other CFDs.

The trade war’s future is anyone’s guess. However, there is one thing that we do know: These two superpowers have a major impact on the world economy and the result of the talks could potentially affect commercial trade in virtually every major market worldwide.

 

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