US-China Trade War Enters Final Stage

Last Friday, May 3, the diplomatic cable from Beijing arrived in Washington with massive changes to a 150-page draft trade agreement between the US and China, that both countries, the world’s two largest economies, have been discussing for months. The talks follow a trade war between Washington and Beijing from the time Trump became President.

As said, some fundamental changes were made by the Chinese side in the draft agreement which angered the Americans, who have been accusing the Chinese of numerous actions, such as continuous theft of American intellectual property and trade secrets.

The first US official reaction to the Chinese edits was Trump’s twitter statement: "By the way, you see the tariffs we're doing? Because they broke the deal. They broke the deal," he tweeted on May 8. "So they're flying in, the vice premier tomorrow is flying in — good man — but they broke the deal. They can't do that, so they'll be paying."

The China’s Foreign Ministry spokesman, Geng Shuang, said on Wednesday that working out disagreements over trade was a “process of negotiation” and that China was not “avoiding problems.”

Last Chance and World Economy

Washington awaits Chinese negotiators, including Vice Premier Liu He, one of China’s top economic officials and a close confidant of the country’s president, Xi Jinping. Still many believe that differences are so wide between the states that an agreement is unlikely to be reached. As a sign of heightened tensions, Trump suggested that his government would impose higher tariffs on $200 billion worth of Chinese goods on Friday morning.

The almost total breakdown of the US-China negotiations sent shocks through the global stock markets, bonds and commodities this week. Companies that would be affected by a tariff increase on Friday span a range of industries, from seafood and fertilizers to handbags and copper alloys. Various US industry associations said on Wednesday that since there are uncertainties over whether there will be tariffs, numerous contingency plans are now being reviewed to salvage the companies from the worst.

Indeed, global uncertainty has already been in play as in China both the Shanghai composite and Shenzhen component declined more than 1.3% each by Thursday. The Shenzhen composite fell 1.033%, while Hong Kong's Hang Seng index was down 1.95%.

Japan's Nikkei 225 was lower by about 1% and the Topix index slipped 1.21%. Shares of automaker Honda Motor fell more than 4% despite the company forecasting a 6% increase in operating profit for the current fiscal year.

South Korea's Kospi shed 1.61% as shares of chipmaker SK Hynix plunged more than 4%.

This shows how vulnerable the global economy is to China-US tensions and how pivotal these two states are to the existing world order. Still, a partial breakdown of the trade negotiations is a sign of fundamental differences and deep mistrust between Washington and Beijing over how the world economy should run and how Eurasian geopolitics should play out. Even if an agreement is reached, it is likely that confrontations over other trade-related issues between the states will happen in the future.

By Emil Avdaliani

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09 May 2019 14:38