High time for a US-China trade deal

Posted on 22 October 2018

Source: The Star Online

 THIS big trade fight between the US and China sticks out like a sore thumb amidst upcoming trade talks and other deals struck recently.

These two powerhouses are locked in disagreement, disregarding the dire warnings and protests everywhere.


A ray of hope emerges from President Xi Jinping and President Donald Trump tentatively agreeing to meet, and possibly have a framework for negotiations, next month at the G20 leaders’ summit.

After a series of false starts, perhaps the pressure to come up with something concrete is greater this time.

China’s markets are roiled by margin calls, troubles at emerging markets and fears over the growing trade war.

US companies are complaining of high costs and loss of business; US markets are spooked by rising rates and trade tensions.

As other trade deals have been signed, or are being negotiated, the largest deal with China should not drag too long as negative effects are piling up.

Unlike before, very few are downplaying the impact of trade war; concerns are voiced from every corner; it is among the top risks cited.

To make matters worse, there is talk of a major clash at the World Trade Organisation between the US, China and the European Union over metal tariffs and intellectual property (IP).

Instead of trying to solve everything at once, step-by-step resolutions over agreed timeframes may be required, in the spirit of wanting to gradually lessen the sufferings out there.

It is unfair to make the whole world wait until the whole gamut of complaints are addressed.

It is no point championing individual causes and then have policies that cause other kinds of suffering.

A lot of things like supply chains and regional markets are linked to China in a big way as it is the second largest economy globally.

China may be confident of its strategies to ride out the slowdown, and grow its domestic technology, but it should not wait for more damage to spiral on, especially when it is still on its financial deleveraging path.

Certain hard US economic data bears watching; US existing home sales in September fell for the sixth straight month, the longest streak since 2016, while US retail sales registered the second straight month of weak spending.

“There are no winners in a trade war (which will lead to a global slowdown),’’ said Danny Wong, CEO, Areca Capital. “We have high hopes for a resolution.’’

Data is emerging on the ugly effects of this conflict.

A total of 202 US companies affected by tariffs, compiled by reason.com, have complained, among other things, of the need to cut jobs, difficulty in getting raw materials as larger companies have stocked up, having to turn down large orders or stretch completion periods for jobs due to unavailability of raw materials, and even the possibility of bankruptcy and liquidation due to escalating costs.

The number of Japanese firms impacted by the trade war has surged to a third from 3% in May, a Reuters survey showed.

Looking at three years ahead, 40% of the 482 companies surveyed spoke of disruption in supply chains and surge in prices of parts and raw materials.

There was a 9.7% drop in US imports from China following the initial US$34bil of tariffs.

“This suggests how big a drop in China’s exports to the US we can expect after tariffs are imposed, short of the front-loading effect,’’ said Pong Teng Siew, head of research, Inter-Pacific Securities.

This trade war with China involves several other points of contention besides its bulging trade surplus with the US, like restrictions on foreign companies in China, and claims on forced technology transfers and IP theft.

Political issues have also sprung up. Both sides have their versions, with China saying that it has been improving its IP laws and paid huge sums to the US for the use of IP, according to a commentary in Xinhua, the official news agency.

In the best interests of the world economy, the two should seek a truce, avoiding unfair trade practices and hostile confrontation, said Lee Heng Guie, executive director, Socio Economic Research Centre.

Trump and his team have launched talks with the EU, Britain and Japan, on which steel and aluminium tariffs have been slapped.

Trump has threatened to put tariffs on car imports in which Germany and Japan are big players.

Agreements with Canada and Mexico were finalised last month that among other things, focus on domestic production of cars and trucks.

The deal with South Korea, based on a revised US-South Korea Free Trade Agreement, removes some restrictions on US carmakers to exports their cars.

Columnist Yap Leng Kuen hopes the rest of us do not wait in vain.


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