A trade war between the U.S. and China

Despite the fact that this situation is in a different plane and has no direct relationship to the trade dispute between the US and China, it could adversely affect the outcome of the negotiations, is clearly not contributing to the desire of the Chinese side to compromise. The reaction of world markets for the arrest was more emotional than if it didn’t happen on the background of the much-anticipated progress in the dialogue between the two countries.

In themselves , the US is already operating a 10% duty for imports from China $250 billion In January was planned to rise to 25%, but now this step is delayed. Trump previously threatened to impose duties on all Chinese imports with a volume of $505 billion a year, if a trade agreement between the countries will not be signed. However, perhaps the most painful subject for the American side – the protection of intellectual property from Chinese competitors.

This is one of two key bilateral issues – along with the disparity in trade with China, exceeding $300 billion, While the country will not progress in the settlement of both issues, any progress in negotiations will cause only a time-limited burst of optimism.

Another fly in the ointment may be the story with the arrest of Huawei CFO Meng Wanzhou. 6 December it became known that she was detained in Canada on the request of the United States in connection with alleged violations of U.S. sanctions against Iran.

What’s next

In a positive scenario, the parties will enter a reasonable amount of fees, and will adjust the structure of mutual trade and will cease to spook the markets. This will require significant time, and most importantly – the desire of both countries to reach consensus. It is possible that the freeze period current trading conditions will be extended.

In a negative scenario, the US will impose 10-25 percent duties on all Chinese exports that, according to rough estimates, will slow the annual growth of China’s economy by 1.5-2 percentage points.

Obviously, China in this case will also continue to take mirror measures, including the imposition of duties on all imports from the United States, amounting to about $130 billion a year. While what duties are covered by American goods worth $60 billion based on the difference in the volume of exports to the Chinese side will probably have to use other restrictive measures. In this scenario, market sentiment will be negative.

On the other hand, it is unclear how it will affect the situation on the domestic production in the United States. As Chinese goods become more expensive for American buyers, would be the intensification of import substitution, which, however, will require additional resources.

Given that the us economy is already in a Mature phase of cyclical growth and unemployment in the country remains at a record low, the possibility of increasing production is limited. And this does not exclude the negative consequences of economic nature due to the acceleration of wage growth and, consequently, increasing costs, which in turn will provoke a rise in inflation.

Thus, despite significant positive developments, questions about the future trade relations between the US and China remains more than answers. Any of the scenarios examined are able to get a start in life.

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