Washington & Beijing are out with knives

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US President Donald Trump is a troubled man right from the day he took the oath of office. However these days he must be feeling more heat on the allegations of sexual assault against Supreme Court nominee Brett Kavanaugh. So he will milk any victory to full effect. At present the trade war which he has intensified with China holds out hope for him. He could follow through with tariffs on every Chinese import and say that his unwavering approach deserves praise. Washington and Beijing are pitched in a stand-off that threatens to undo four decades of steadfast bilateral diplomacy. The two nations have been engaged in a mounting trade war, which has so far seen them launch fiery rounds of tit-for-tat sanctions on exports between the countries.

Tensions between Washington and Beijing continue to escalate, with Trump threatening to impose further tariffs of $267 billion on Chinese products. China hit back at the US, plying $50billion on US goods and threatening to impose another $60billion if tensions between the two nations do not subside. In 2017, China imported $130billion worth of US goods while the US brought in a total of $506 billion Chinese imports. China’s exports to the US accounted for 19 percent of all its overseas shipments last year.
Businesses have already expressed concerns over tariffs. 

A day after Washington activated tariffs, China’s commerce minister Wang Shouwen said very clearly that it was impossible to hold trade talks with the United States while Washington is imposing tariffs that are like “holding a knife to someone’s throat”. China is right while saying that negotiations can be done only if the two sides treat each other equally and with respect. No doubt, the snowballing trade spat will harm both economies and even global growth, with Fitch Ratings cutting its growth estimates for China and the world for 2019.

With economic growth slowing and more countries reacting defensively to China’s trade and industrial policies, some in Beijing are questioning whether Xi’s policies might not end up undermining development objectives. Considering the challenges both leaders are facing, they’d be foolish not to give concessions a chance.Trump may not seek to draw much blood from Xi since he knows well that both the leaders are standing on a sticky wickets.If Beijing blinks, victory is easier to claim for Trump, but that’s unlikely to happen. An official has gone on record to say that “China will earnestly reduce taxes and burdens for companies and strive to optimise the business environment.”

US investor and economist Mark Mobious, a founding partner at Mobious Capital Partner, has warned that confrontation could go deeper, as talks between trade negotiators have failed to reach any clear outcome. He said that “(China is) going to be tough to begin with and they are not going to give in easily, because you’re talking about a $300million trade deficits in China’s favor. But I would say, maybe after six months they will come to some agreement and that will be done. But in the meantime, there will a lot of blood on the streets.” 

As if it was not enough, tensions took a new high when US asserted its right to sail warships past disputed islands in the South China Sea. A guided-missile destroyer, USS Decatur sailed within 12 nautical miles (13.8 miles on land) of reefs near the Spratly Islands in the South China Sea.China has asserted ownership of the Spratly islands. US says that its Forces operate in the Indo-Pacific region on a daily basis, including the South China Sea and all operations are designed in accordance with international law and demonstrate that the United States will fly, sail and operate wherever international law allows. The official said these operations “challenge excessive maritime claims and demonstrate our commitment to uphold the rights, freedoms, and uses of the sea and airspace guaranteed to all nations under international law.” China has engaged in an ongoing dispute with the US over territorial control in the South China Sea. In 2015, the US began deploying military warships and aircraft to the region, in a bid to dismiss China’s territorial claims.

The latest news that has just come in is that Beijing has announced that it will lower tariffs on 1,585 products and the policy will take effect on November 1, and it will bring overall tariffs level down to 7.5% from 9.8% last year. The goods covered include textile products, metals, minerals, machinery and electrical equipment, most of which have been the target of US tariffs. Good news for Donald Trump as China is beginning to blink.

US President Donald Trump has also accused China, in his typical style, of meddling in elections with the intention of harming him personally because “They do not want me, or us, to win because I am the first President ever to challenge China on trade.” Surely, both sides have to take a step forward, together.

About the author: IE&M Team
IE&M Team
Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

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