Is a US-China trade deal nearing fruition?
After almost a year of firing salvos of sanctions at each other, a deal could be made
It appears that trade talks between the two largest economies of the world are progressing well and a deal could well be within reach. If it comes to pass, the world will collectively breathe a sigh of relief.
But first, how did we get here?
Let’s rewind a little bit
During the 2016 elections, US President Donald Trump’s stated promised to reduce the country’s trade deficit, which stood at a staggering $621 billion in 2018. But the country has been running a trade deficit since the 1980s. Why so? The answer lies in consumerism and the rapid shift of US-based manufacturing outside to cheaper locales. Without a doubt, the US has its largest trade deficit with China followed by the European Union.
Trump has been pushing to bring down its trade deficit with all the countries, especially the behemoth China. He wants increased domestic production to boost industries as well as to create more jobs.
However, the US also has other issues with China. The Americans accuse (rightly) China of following unfair trade practices and breaching US companies’ intellectual property for quite some time now.
Despite global and even domestic protest, the US government imposed a 10% tariff on $200 billion worth of Chinese exports in the month of September 2018. These tariffs, which were primarily imposed on clothing, shoes, and electronics, came after the US was already in the process of implementing steel and aluminum tariffs.
A day later, as China saw a looming threat to its exports, it slapped retaliatory tariffs on $60 billion worth of US goods. Sparking off the trade war.
So, what is a trade war?
It is essentially a result of protectionism or tariff imposition. A tariff is imposed to protect a country’s domestic industries from cheaper foreign alternatives.
Let’s say country A imposes a tariff on country B, which then fires back and sets off a tit-for-tat response. This is what is known as a trade war. A tariff in the short-term may work by making products cheaper for local consumers and thereby increasing output and employment.
However, over time, tariffs may stoke inflation and cost jobs globally. They also affect non-participating countries as well.
Rounds and rounds of meetings
There have been multiple rounds of negotiations between the two countries starting November 2018. While they have centered around reaching a deal about the trade disputes, nothing of substance has emerged from these meetings.
On December 1, 2018, during the G-20 summit, things shook up a bit when Trump agreed to delay a proposed increase in tariff rate from 10% to 25% on $200 billion Chinese goods. US President Donald Trump and his Chinese counterpart Xi Jinping charted a course to reach a deal in 90 days.
Even with the March 1, 2019 deadline approaching, no satisfactory conclusion regarding the deal was reached and this deadline kept on extending.
Where are things headed now?
The latest meet on May 1 has hinted at a move towards nearing a deal and this has sent out a positive sentiment globally. While negotiators have urged that the US keep in place some of the tariffs as a way to check on compliance by China to the agreed terms, Beijing wants a complete removal.
However, many speculate that the deal will fail to address one of the key issues of Beijing’s state support to its domestic companies.
What is certainly clear, however, is that this trade war is taking a toll, on both the US and China. As for the rest of us? We can only wait and watch.
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