The US-China trade deal has cooled down before the storm
The markets breathed a sigh of relief after the signing of the “first phase” agreement between Washington and Beijing last Wednesday. But this deal is only a truce in a battle that is likely to resume after the November elections.
In his article published by the Washington Post, the author, Henry Olsen, said that both countries have good reasons for calling for an end to the trade war temporarily.
Chinese growth has slowed dramatically to its lowest level in nearly thirty years, and car sales have fallen more than 8% over the past year, along with a decrease of 3% in 2018.
It is likely that the threat of US President Donald Trump to impose more tariffs on Chinese imports in mid-December last year would have posed many problems for the Chinese economy, which relies mainly on exports if implemented.
The writer pointed out that Trump has his own reasons for stopping the trade war. During this year, presidential elections will be held, and the trade war has harmed farmers and manufacturers who depend on Chinese raw materials.
This truce gives these producers an opportunity to grow, and this truce can also help Trump’s re-election for a second term.
The needs of both parties
The writer mentioned that the terms of the trade agreement meet the needs of both parties in the short term, as it requires a reduction in the rates of customs duties already imposed on some Chinese imports.
Meanwhile, the United States gets Chinese promises to buy up to \$ 200 billion in American goods.
These promises were purely economic in nature, as they included agreements to purchase more agricultural and energy products, services and manufactured goods.
As a result, both sides will be able to escape the burden of economic pressures imposed by their trade war.
No solution for good
On the other hand, this deal does not solve any of the issues underlying the war, and China will continue to support its industries and practices such as intellectual property theft, according to the author.
On the other hand, US companies will continue to depend on exports or imports from China. Indeed, Trump’s insistence that China increase the volume of its purchases of US products makes more producers count on sales controlled by the Chinese government.
If sales targets are met, this could give China more power and influence in any future conflict between the two countries.
And it will have more US companies to use as leverage on Congress and the White House.
And the outcome of this year’s presidential election remains crucial to the future of US-China relations, as the winner will influence decisions on these key issues.
If Trump is defeated, the writer notes, his successor will likely ignore these issues, which will result in the United States achieving short-term gains and long-term damage.
On the other hand, the Chinese government showed no sign of taking some reform measures regarding its political orientations, as it remained committed to its military plans that threaten Asian democracies, according to the writer.
What will China do?
The writer indicated that the next president, who will realize the negative repercussions of this agreement, will accelerate the reduction of US support for the Chinese system by re-imposing tariffs, and build alliances with other countries subject to the Chinese threat that provide alternative markets for American producers who will inevitably be affected by the transformation in American relations. Chinese.
The author believes that China will try to prevent this from happening, and will use the increase in corporate profits in order to dismantle the coalition forces by attracting countries like Germany and Britain and pushing them to enhance trade relations with them.
And if the United States remains steadfast toward its practices, even a successful Chinese counterattack cannot offset the tremendous gains it gets from trade exchanges with the world’s largest consumer economy, according to the author.
This, in turn, will inevitably slow the growth of the Chinese economy – according to the author – but every drop of one percentage point that the Chinese economy will witness will delay the time when China can challenge the United States for global hegemony.
Therefore, the agreement – says the writer – that was concluded on Wednesday might be the calm before the storm.
Source: The Washington Post