China scholars urge Beijing to sign trade war truce with Donald Trump, but get ready for a prolonged conflict

Date: Wednesday, October 23, 2019
Source: South China Morning Post

  • A group of Beijing scholars expect a trade deal to be reached December 15, but foresee a prolonged battle between China and the United States

  • US tariffs have begun to take a toll on China, with the country’s headline gross domestic product (GDP) growth rate slowing to 6 per cent in the third quarter

China and the United States are expected to sign a temporary trade deal soon but the rivalry between the world’s two biggest economies will not end there, according to a group of Chinese scholars in Beijing.

The idea of long-term competition between the US and China is becoming the consensus view in Beijing, even after the two countries reached an interim agreement on what US President Donald Trump called a “substantial phase one deal” earlier this month. Trade negotiators are working on a text that Trump and President Xi Jinping could sign as early as the Asia-Pacific Economic Cooperation (Apec) summit in Chile next month.

Trump said on Monday that “the deal with China’s coming along very well,” adding China wanted to reach an agreement because “their supply chain is going down the tubes”.

Zhu Jianfang, chief economist with Citic Securities, expressed confidence Beijing and Washington were willing to sign a temporary deal.

“But in the mid-to-long term, reaching a deal doesn’t mean they have solved their problems,” Zhu said at a forum at Renmin University of China on Monday. “China and US are not going to stop competing.”

Yu Chunhai, a researcher at the university’s National Academy of Development and Strategy, said the US was prepared to use irregular measures to deal with trade issues as the country became more protectionist. He cited the blacklisting of Chinese telecom equipment maker Huawei as just one way Washington could restrict China’s access to US technology and its domestic market.

“The US has been raising tariffs [to gain leverage in trade talks],” Yu said. “But so far, when we look at US manufacturing and the overall economy, the effect of its tariff strategy hasn’t been that significant. Given that, the risk of using unconventional measures [against China] is higher.”US tariffs have begun to take a toll on China – the country’s headline gross domestic product (GDP) growth rate slowed to 6 per cent in the third quarter, the lower end of the government’s target for 2019.

Their impact on China next year “will be much greater than what we have seen this year, unless tariffs are altogether cancelled or refunded”, said Zhu, from Citic.

As part of the interim trade deal, the White House said China would increase purchases off some US farm products, make unspecified changes to its currency and intellectual property rules and open up access to its financial services markets. In return, the US would postpone a tariff increase on US$250 billion of Chinese goods from 25 per cent to 30 per cent set to take effect on October 15.

But if talks fail to produce progress by December 15, a new 15 per cent tariff on $US160 billion of Chinese imports will be imposed, meaning that virtually all Chinese goods – worth more than US$500 billion – would be subject to punitive duties.

China was motivated to reach an interim deal because of downward pressure from the trade war on its economy, while Trump wanted a “win” to support his re-election campaign, said Luo Zhiheng, chief macro researcher at Evergrande Research Institute, a think-tank affiliated with China’s major property developer.

But it will be difficult for the two countries to resolve all of their differences, Luo added, as trade negotiators were focusing on finding common ground on short-term issues, including reduction in the bilateral trade imbalance.

Mao Zhenhua, chairman at ratings agency China Cheng Xin Credit Management, said Beijing and Washington were on the same page for a small deal.

“There is an expectation from everyone that the two sides will reach an agreement – now seems to be the time,” said Mao, who is also an economics researcher at the Renmin University.

 

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