There are lots of jokes about the ‘90 days of Janworry.’ After the crazy expenditure of your holiday season, new years’ bills can make January feel torturous and endless. For those learning how to trade overseas, there was an additional element – the China-US trade war. The deadline for raising US-China tariffs from 10% to 25% was January 1st 2019. It has come to pass, and business teams around the world are wondering … what next?
On December 2nd2018, both sides agreed to a limited truce, promising not to add any more tariffs until they could sit down and talk. The temporary arrangement was planned for 90 days, until March 1st 2019. As part of the deal, China agreed to buy more energy-related items and agricultural products from the US. She also committed to curbing Fentanyl distribution. This is key, because the synthetic China-sourced chemical plays a big role in the US opioid epidemic.
December 14th saw a further show of goodwill from China. She agreed to resume her use of soy products purchased from the US. The US is China’s biggest soy source, and China had halted all US soy purchases in July 2018 as a direct response to China-facing tariffs. For her part, China had imposed a 25% tax on 144 US auto products and 67 US auto parts. Cars imported from US will still face a 15% tariff though. Said truce was brokered at G20 in Buenos Aires.
Into The New Year
From January 7th to January 9th, Sino-US talks began in earnest. The talks were held in Beijing to work out an agreeable deal, and according to Jack Ma Yun, CEO of Alibaba, their underlying focus was to iron out new trade rules that work better for US, China, EU, UK, and other trading nations around the world. Many of these nations have expressed displeasure at WTO trade regulations as they currently stand.
The talks were intended to last two days, and were attended by vice-ministers / deputy-secretaries from both nations. They were extended by a day to cover unfinished areas, and featured an unexpected cameo by Liu He, a respected Chinese economist. The talks were divided into ‘trade’ (which focused on imbalance) and ‘structure’ (which dealt with tech, IP, and tax). Meanwhile, Hainan’s Business Leaders Advisory Council is focused more on mobile payments.
Jack Ma Yun and his fellow board members feel making steps in Hainan’s ‘globalisation’ will give China a bigger role in formulating global trade policy, which will strengthen the Yuan and turn it into a truly international currency. That way, bigger nations will lose the ability to push China around, as done in this on-going trade war. Naturally, the opinion of US pundits begs to differ. For example, they’re sure that while a deal will be signed soon, it won’t stop the trade war.The trade surplus is just too big to bridge.
Meanwhile, across the sea …
Over in China, President Xi got his term limits extendedto complete Made in China 2025. While President Xi is still very publicly committed to ‘becoming independent from western technology’, there’s a call for the Chinese economy to pay more attention to market forces. Experts are sure Xi will retain his focus on public projects and state investment.
In the past, China purportedly turned a blind eye to advances in tech, assuming the approach of ‘benign neglect’. But in recent times, they have tightened internet censorship and technology oversight. It curbed tech company freedoms in the financial services space, and even detained a scientist who claimed to have successfully engineered genetically altered babies. It’s believed China will continue to tighten its hold on tech, keeping development within its borders.
Back in August 2018, US congress passed the Foreign Investment Risk Review Modernisation Act, and this is intended (and believed) to eventually normaliseUS-China investment, restoring it to previous levels. However, given all the above matters, China’s economy is likely to slow down as a result of the trade war. She has a lot more to lose than the US, and she knows it, which is partly why she’s striving so hard to reduce external reliance on the west.
Writer Martin Wolf has a theory that China will follow the precedent set by 1980s Japan, facing “rapid debt accumulation and ultra-high investment.” Huawei, a Chinese company currently undisputed as the world’s largest telco manufacturer, is seen as a cyber-security threat to US interests. It had planned a 5G launch in certain markets (including the US), but the trade war is likely to prevent that. Still, China has a knack for international innovation, so they’re likely to find a way around it. So whether the US wants to or not, her trade war with China is likely to leave her in a name of techie-catch-up.