Trump Declares (Temporary) Detente in Trade War

As the G20 summit in Argentina drew to a close, all eyes were on the dinner that US President Donald Trump held with Chinese President Xi Jinping, along with some of the closest advisers to both leaders. The last two months have been a rocky road for the US economy with stocks cooling off in a major way beginning in October while November ended with General Motors readying the process to close four major factories in the US while cutting thousands of jobs in the process. Ford later stated that it is preparing to make a similar announcement.

While China announced that its exports to the US had actually expanded over the first three quarters of 2018 in spite of the trade war, new statistics further indicate that under Trump’s trade war, China’s trading surplus with the US has grown to its widest level since 2015.

When taken in totality, this means that the trade war has thus far been a failure across the board. The trade war was supposed to decease the American trade deficit with China but instead it has widely increased it. The trade war was supposed to convince more US manufactures to open up more domestic factories but instead General Motors and Ford are closing factories and cutting jobs. Lastly, while the trade war always hinted at sacrificing US agricultural exports so that industrial jobs would increase – while the US agricultural industry has indeed suffered greatly due to the trade war, the industrial sector hasn’t fared all that better over all.

It is against this background that many felt that the time was right for Donald Trump to put an end to the trade war he initiated against China. For China’s part, policy makers in Beijing want to do with the US what they want to do and are increasingly doing with Japan, Korea, the ASEAN bloc of nations, the EU bloc of nations, Russia and multiple nations across Latin America including G20 host Argentina. China wants mutual openness in trade that will emphasise China’s drive to open its substantial domestic economy to more imports than at any time in modern history.

To that effect, this year Shanghai hosted the first ever China International Import Expo (CIIE) where producers and manufacturers from throughout the world came to show off their goods before eager Chinese businessmen and ordinary consumers alike. Prior to Trump even being elected President, Xi Jinping announced a long term strategy to open up domestic markets to increased free trade and to new levels of foreign direct investment (FDI). This year, China was the world’s largest recipient of FDI while the CIIE is a milestone in China’s welcoming of foreign goods to its shelves, streets and kitchens.

Yet in many of these key developments in the Chinese import sector, the United States was left behind. This happened in spite of many American luxury items ranging from Cadillacs to iPhones being popular among Chinese consumers. The irony of the trade war is that at the very moment that China’s market place opened its doors to the world, US policies forced China to impose reciprocal tariffs on goods that would have otherwise been welcomed into China in a more streamlined fashion than at any prior time in modern history.

With Trump not keen to admit the lose-lose situation his trade war has ushered in, (though one in which US companies, US workers and US consumers are suffering the most) at the conclusion of his meeting with President Xi, it was announced that Trump will refrain from increasing existing tariffs on Chinese goods or imposing new tariffs on Chinese goods after the 1st of January while also opening a 90 day negotiating window in which Trump claims he hopes the trade war can subside so long as China opens its markets to more US goods – something that China has wanted to do all along.

This is not therefore an end to the trade war but it is at least a temporary detente which ideally will result in an agreement to end the trade war after 90 days of intense dialogue. That being said, Donald Trump is an unpredictable leader and he could revert back to increasing tariffs on China after the 90 day negotiation window.

If Trump does however revert to his old habits, as the statistics have already made clear, such a move will only hurt those in the US. Based on these statistics, one would hope that Trump will embrace a genuine win-win mentality with China that would benefit his nation greatly.

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