During the G20 summit, China and US agreed to re-start the trade talks. As the US trade war is slowing China’s growth, the collateral damage is now spreading in the US economy, while undermining global prospects.
Despite the White House’s efforts to lobby other countries against Huawei, President Trump also said that US companies can supply the technology giant, which the US, Department of Commerce blacklisted last month.
After Osaka, the negotiators face challenging obstacles, despite still another temporary timeout. Deep bilateral disagreements prevail about major structural issues.
But what’s the current economic impact of the new trade truce?
Limited short-term impact on China
In China, the most recent US tariff hikes on $200 billion of Chinese US exports is expected to penalize about 0.1% of China’s GDP growth in the coming year. That is enough to create significant concern, but not sufficient to cause substantial damage – yet.
Even if the US would impose 25% tariffs on all goods from China, the largest Chinese companies would likely adjust, thanks to their domestic focus.
As the US-based Standard & Poor’s has stressed, half of the rated Chinese companies are state-owned-enterprises (SOEs), which operate in sectors with limited US exposure.
Moreover, the vital property sector is also reliant on domestic demand.
Nevertheless, the secondary effects of a protracted and broader trade war could prove more challenging over time. In China, such a scenario could mean greater shifts in supply chains, currency volatility, eroding market confidence.
Despite Trump’s bravado, the US economy is far from immune to trade-war damage, however. In fact, the trade wars’ adverse impact is only beginning to bite in the US.
About the Author
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at India, China and America Institute (US), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
The original, shorter commentary was released by China Daily on July 1, 2019