Cease fire in the Sino-American trade war?
After a year of mutual threats and ever-increasing import taxations on various goods and services, both China and the USA seem to have understood that war comes at a price. Casualties are on both sides, due to a very interdepending ecosystem. The Chinese produce many car parts used by American car manufacturers, but at the same time, the Chinese depend on the US for essential produce, such as soy.
In addition, for the American president, popularity is a measure of success and an unhappy agricultural sector, initially supportive of the administration, can cause a lot of damage. For Xi, the omnipresent news of an economic “slowdown” (of about 0.4%), although limited and anticipated, creates an atmosphere in which is more difficult to roll out ambitious programs, such as “Made in China 2025”.
Global markets have suffered as well due to the waste of time that is the Sino-American trade war. Asian economies depend to large extend on big bro China’s success and are not willing to give up on an increasing GDP. One can only imagine the number of backroom talks between China and its surrounding economies to get it sorted.
As a result, the Trump administration and the Chinese have installed a 90 day breathing period to resume talks. The objective? Find a settlement that not only solves the immediate issues (import taxes and trade balance), but also more essential topics such as market access and intellectual property rights.
And this might be the main obstacle for a successful outcome. Due to the nature of both players, the game looks much way too much like an arm wrestling contest. Both parties are more keen to come home with short term deals than with long term agreements. The Americans want to re-establish whatever is necessary to counter a declining stock market and the Chinese need cheaper access to the American market. In reality, neither is really interested in long term, profound agreements on the core issues. As has been so often the case in negotiations between the 2 world powers, it’s about pain killers, not about cures.
The Americans are already proudly displaying the trophies; the US statements after the first talks read that (China has pledged to order) "a substantial amount of agricultural, energy, manufactured goods, and other products and services from the United States."
On China’s side, the following was published: “China is sincere about properly resolving trade frictions on the basis of mutual respect, equality, mutual benefit and reciprocity,” which even for the most seasoned political journalist doesn’t mean much more then “we’ll try to make a short term deal.”
Back to square one?
Even without a crystal ball, it’s clear what the outcome will be. At best, acceptable tariffs for the industry and a boost of mutual trade that hopefully will balance out for the missed opportunities in 2018. What it won’t be, is a sustainable deal that will last beyond the 2020 US elections when, regardless of what side of the American political spectrum will win, 2 world leaders will prepare themselves for again a nice game of arm wrestling.