The Sino-American trade conflict may be resolved soon

President Trump signs the Executive Order on “Maintaining American Leadership in Artificial Intelligence”. The race with China is getting hotter (White House photo, Public domain)

This newspaper for many months has been closely following the US-China trade conflict (if not at times a full trade war). The current negotiations in Washington D.C. are stuck at the same point as last summer. On August 27 our leading article said: “… Washington’s demands go beyond tariffs”. On October 18 we observed, “The Washington administration has already more or less ordered Beijing to perform unbelievable structural changes of American liking in the economy”. This article was entitled “US-China trade war: Washington now wants control of the renminbi-yuan

Shortly afterwards, on 26 October last year, Steven Mnuchin, the US Treasury Secretary said “We have been clear with the Chinese that we need to have structural changes, that we need a reciprocal trading relationship and we should be able to increase our exports by hundreds of billions of dollars”. The structural changes the Americans want to go so deep in the structures of the Chinese economy, up to the point they could send the most populous economy of the globe many decades back.

An overall trade contract

As things stand now, the only way the two sides can meet each other is a package of many individual agreements (call them MOUs that President Trump doesn’t like or name it an overall contract as he prefers). In any case, they will contain concrete yearly volumes of exports/imports between the two sides. Understandably, according to Mnuchin’s demands, China is to accept to import more American agricultural and energy products to the tune of tens or even hundreds of billions of dollars.

On top of that, the Chinese authorities may be willing to offer more reassurances about intellectual property protection and technological transfer issues. As for the dollar/renminbi-yuan parity it will most probably be connected to the relative pricing of the goods to be exchanged. Under this light, the very structures of the Chinese economy will not change much, not because it is difficult but because it is impossible. The Beijing government won’t change a system which proved to be utterly successful both for the many and more so for the elites.

Everybody wants a deal

The truth is that both sides have critical national interests to come to terms. As a result, in both countries there are strong internal pressures in favour of a deal. Colossal American companies have immensely invested in China both in production and marketing.

So, huge sectors, like the tech industry, largely depend on an agreement being concluded rather sooner than later. Already, the two great economies are paying a dear price because of the trade skirmishes. On top of that, the US – China confrontation is haunting not only the entire South-East Asia and North America, but has by now negatively affected global economic growth prospects.

The capital markets

The downbeat financial spillovers from the Sino-American confrontation have touched all and every capital market. Undoubtedly, then, the repercussions on the American and the Chinese stock exchanges will be devastating, in case the ongoing negotiations in Washington fail to produce a viable solution. So, both parties will do their best to conclude a deal, having shown the will towards this direction.

Last Saturday, the ‘America First’ President said he is willing to extend the 1st March deadline. This time limit was set also by him in January as the date for more than doubling tariffs on hundreds of billions of Chinese goods, exported to the US. Now, seemingly, this may never happen. This deferment by the White House means two things. Firstly, that the sides appear resolute to reach a deal and, secondly, that there will be time for the rapprochement to mature and pompously culminate at a Trump-Xi meeting to be fixed before long.

All, in all, there is every indication the Sino-American trade conflict may be resolved soon. Last Friday in Wall Street, the Dow Jones Industrial index surpassed again the 26,000 benchmark; investors must know something more than the rest of us. White smoke from Washington will mean hefty gains for the New York banking sharks, provocatively favoured by Trump from the very first day of his Presidency. It’s not sure what it will mean for Europe.

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