Euphoria has been replaced by pragmatism. Less than 96 hours after United States President Donald Trump announced a 90-day trade war truce after a dinner date with China’s head of state Xi Jinping in Buenos Aires, cracks and confusion have started to appear.
Initial optimism of a new round of talks has turned into pessimism with the White House struggling to explain the details of the deal while Beijing has officially reverted to simple platitudes.
The positive sentiment reflected in international markets earlier this week appears to have evaporated and has been replaced by an atmosphere of uncertainty.
Concerns about the vitality of the global economy, including the US, has only added to the gloom after an update by the International Monetary Fund at the end of last month.
“China has long advocated the use of talks to resolve trade disputes with the US, but it is also confident of tackling any challenges in the event of the disputes not being amicably settled,” Mei Xinyu, a researcher at the Ministry of Commerce’s International Trade and Economic Cooperation Institute, wrote in an opinion piece for the leading state-run English language newspaper, the China Daily, on Wednesday.
“The [economic] shadow looming over the US is likely to prompt Washington to resort to more trade protectionist measures, which will make it even more difficult for it to agree to a final deal between China and the US in the coming 90 days,” Mei added. “In the future, therefore, China should prepare to negotiate trade deals, as well as deal with ‘trade conflicts’ with the US.”
The official statement from the Ministry of Commerce was certainly more upbeat but lacking in substance.
“We are confident about the implementation [from the meeting],” an unnamed spokesperson said.
“In 90 days, economic and trade teams of both sides will actively push forward the consultation following [a] clear timeline and [a] roadmap,” the official Xinhua agency reported without providing more details.
Major issues at the heart of the dispute are intellectual property violations, cyber theft and Beijing’s state-backed economic model.
Solving these problems will probably take delicate diplomacy and more than 90 days.
So far, the State Council, China’s de facto cabinet, has made the first move by announcing plans to crack down on IP infringements.
“This is an unprecedented regulation on IP violation in terms of the scope of the ministries and severity of the punishment,” Xu Xinming, a researcher at the Center for Intellectual Property Studies at China University of Political Science and Law, said. “[This offers] a security net of IP protection.”
Still, overnight there were mixed signals coming out of Washington just three days after Trump trumpeted an “incredible” deal, despite conflicting accounts from American and Chinese officials. These included an announcement that Beijing would remove tariffs on imported US cars, which has yet to be confirmed by Beijing.
He further muddied the waters on Tuesday when he warned on Twitter that “I am a Tariff Man.” “When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so,” he said.
Trump also hinted that the 90-day ceasefire could be extended, sowing more seeds of doubt on Wall Street.
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
After the Dow Jones shed 3%, major markets in Asia wobbled on Wednesday with Japan’s Nikkei 225 edging down 0.53% while South Korea’s Kospi fell 0.62% and Hong Kong’s Hang Seng dropped 1.6%.
In Shanghai, the composite index closed 0.61% lower while Shenzhen ended the day 0.48% down.
“It doesn’t seem like anything was actually agreed to at the [G20] dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality,” JPMorgan Chase stated in a trading note, which was reported by Reuters.
In exchange for putting on hold increased tariffs on Chinese imports worth $250 billion on January 1, Beijing is reported to have promised to buy more US agricultural goods, as well as energy and industrial related products.
This, in turn, would help trim the US trade deficit with the world’s second-largest economy which stood at whopping $258.15 billion for the first 10 months of the year compared to $222.98 billion during the same period in 2017.
But while that might ease trade tensions in the months ahead, dealing with China’s ambitions to become a technological superpower will prove daunting.
“The current trade war between the United States and China is not about trade,” Yukon Huang, a senior fellow at the Carnegie Endowment and author of Cracking the China Conundrum: Why Conventional Economic Wisdom Is Wrong, said in the summer.
“This war is about protecting the technological edge that has made the United States the world’s dominant economic power,” the former World Bank director for China added.
Finding a solution to that conundrum will continue long after the 90-day trade war truce has been consigned to history.