Twists, turns and gasps of sheer horror. The year-long trade war between the United States and China is starting to resemble a John Carpenter gore-fest.
In the past six months, the fallout out from rising tensions rippling through Washington and Beijing has slashed global growth. Already the specter of recession is starting to loom large over major economies.
At times, the rhetoric has been shrill and confrontational. In between, there have been moments of calm with more than a hint of pragmatism.
Still, fears persist that the conflict could drag on into 2020 or election year for US President Donald Trump.
Senior officials inside China’s government have made it clear that they are in for the long-haul while offering tantalizing morsels of compromise.
“It is likely that they can solve the problems … I would say that the possibility is 60% [to] 70%,” Huo Jianguo, the vice-chairman of the China Society for World Trade Organization Studies, said during a panel discussion at the China Development Forum in Beijing last week.
“Both [sides] are willing to talk. A breakthrough could be made if both sides show a bit of flexibility,” he pointed out, adding that a deal could be done in the next six months or early 2020.
Sticking plaster
Hue’s words certainly carry weight as the Beijing-based think tank is closely linked to the Ministry of Commerce. But even if an agreement was thrashed out, it is unlikely that it would last much longer than a sticking plaster.
Insiders involved in the Trump administration have highlighted China’s predatory practices during the past 20 years. American companies, they feel, are being entangled in excessive red tape when doing business in the world’s second-largest economy.
What is required is a “level playing field” and “a fair, balanced reciprocal agreement.”
Yet other issues remain. Forced technology transfer and perceived cybersecurity concerns have broadened the range of Washington grievances, encompassing President Xi Jinping’s high-tech blueprint the Made in China 2025 policy, or what is now known as Intelligent Plus.
Talks scheduled for early next month in Washington are unlikely to solve these problems.
“It’s difficult at this stage to see how there can be a deal or at least a good deal,” Julian Evans-Pritchard, a senior China economist at Capital Economics, said. “Since talks broke down back in May, the position of both sides has hardened and there have been other complications, namely the Huawei ban and Hong Kong [pro-democracy] protests, which have made it even more difficult to bridge the gap.”
So the economic pain continues.
On September 1, the US imposed 15% tariffs on Chinese imports worth US$125 billion. Another round of duties on products worth more $160 billion is due to come into force on December 15. In addition, the existing 25% tax on goods worth $250 billion will rise to 30% on October 1.
Beijing has retaliated by targeting US exports worth $120 billion.
“A deal of this size and scope and central global importance, I don’t think 18 months is a very long time,” Larry Kudlow, the White House economic adviser, told a media briefing last week. “The stakes are so high, we have to get it right, and if that takes a decade, so be it,” he added, drawing parallels to the Cold War with the old Soviet Union.
Factory activity
Shockwaves, in the meantime, continue to reverberate through Xi’s state-run economy with the tremors being felt across the globe.
On Sunday, data showed that China’s exports fell 1% in August compared to the same period in 2018, while goods and products destined for the US plunged 16% year-on-year. Imports from America slumped 22.4%.
Further evidence of the downturn came on Tuesday when official figures revealed that factory-gate prices shrank at the sharpest pace since 2016. Fuelled by a weakness in raw material costs, the producer price index, or PPI, dropped 0.8% in August compared to the same period last year.
Earlier, numbers released by the National Bureau of Statistics highlighted a slowdown in China’s factory activity, which was squeezed in August for the fourth month in a row. The Purchasing Managers’ Index, or PMI, fell to 49.5 compared to 49.7 last month amid sluggish domestic demand. A figure below the 50-point mark signals a contraction.
Back in July, industrial output plummeted to its lowest level in 17 years, while retail sales suffered as shoppers started to feel the pinch.
The US economy is also showing signs of stress as Washington and Beijing dig in.
“Everything will be on the table,” Kudlow said, referring to the talks in October. “You can rest assured, for example, the absolute key structural issues – the IP [intellectial property] theft, the forced transfer of technology, the cyberspace, the clouds, financial services, all of that will be on the table – agriculture purchases, industrial purchases, energy purchases, getting tariff and non-tariff barriers down.”
Expect rhetorical blood on the table in Washington and cue the spooky music from Carpenter’s horror classic Halloween.