Yesterday experts of the United Nations issued a report saying that uncertainty in the prospect of trade dispute between China and the United States could have "massive" implications on the global economy unless it is resolved.
To my audience, this view should sound familiar. I’ve always maintained that the impact of a trade war extends far beyond the border of either country. A full-blown trade war would constitute a global disaster, a de facto global economic warfare.
On the same day, in an annual report to Congress, the USTR’s office concludes that negotiating new World Trade Organization rules to rein in China's unfair trade practices would be futile. The report says the US will proceed with pursuing an unilateral approach to hold China accountable. Trump will certainly echo the theme of the report in his State of the Union address.
When delivering his State of the Union address in front of Congress, Trump will appear more fitting for the office he holds. But decorous manners won’t do much to unite the Congress or the American people, who hold very divided views on immigration policies and diplomatic affairs concerning Afghanistan, Syria, China, North Korea, to name a few.
No one can deny that the US economy is booming, although the stock market remained flat on net in 2018. (On January 4, 2018, shortly after Trump signed the tax cuts into law, the Dow hit 25000 for the first time. However, the market tanked since late last fall and went below the 25000 number. In January, the Dow rose again on the heels of Fed’s announcement that interest rates are to be kept unchanged. On the same day, the Dow closed at his highest level since last December. ) GDP clocked more than 3% of growth last year, and January saw an additional 304k jobs added to the economy.
During Trump’s time in office, the economy has achieved feats most thought impossible. But trade hawks within the White House are frustrated by Trump’s eagerness to strike a deal with China, seeing it as caving in to Xi. According to a Bloomberg report, Lighthizer expects any US-China deal to take the mere form of “little more than a memorandum of understanding between Trump and Xi”, while binding treaties typically “run thousands of pages”.
Of course, Xi Jinping is under even greater pressure. Chinese debt is three times the size of its GDP. Xi’s pressure certainly has to do with the increasing ineffectiveness of China’s debt-led, investment-heavy growth policy. But more concerning is the general loss of confidence in the Frankenstein-like economic system which feeds on greed and exuberance. Many are also disillusioned by the increasing ideological rigidity.
A full-scale US-China trade war would further worsen China’s growth prospect. Political pressure is mounting on CCP. Xi Jinping will make concessions, painful ones nonetheless.
The deal that is expected to be cut by the March 1 deadline is at best a temporary truce. Competition between the two countries goes beyond the realm of trade or ideology. It’s a fight for global supremacy. The jury is still out on which side will win out in the end. We probably won’t see the result before the end of Trump’s first term. Trump might not even get a second term, unlike his counterpart who has scrapped the term limits.