Trade talk gets dirty | Hellenic Shipping News Worldwide

With the US presidential race gathering a head of steam ahead of the November 3 polling day, China and trade with the eastern powerhouse have become battlegrounds for the two lead candidates.

In remarks delivered last week at the 2020 Council for National Policy Meeting, President Donald Trump stated that, if re-elected, his party will “permanently end” the US’ reliance on China.

The Democratic Party nominee Joe Biden kept the rhetoric on China to a minimum in his acceptance speech at the Democratic National Convention. He simply stated that the US will “never again be at the mercy of China and other foreign countries, in order to protect our own people”. He was specifically referring to medical supplies and the protective equipment that the US needs. That was the only reference to China in his entire speech.

Just a few days after Trump’s incendiary comments, US trade representative Robert Lighthizer and secretary of the treasury Steven Mnuchin took part in a much lower profile, but equally as significant, regularly scheduled call with China’s vice premier Liu He to discuss implementation of the phase one agreement of the Economic and Trade Agreement between the two countries.

The United States and China signed the trade agreement in January after the extended tariff war between the two countries. Under the agreement, Beijing has committed to expanding its purchase of certain US goods and services by a combined $200bn over 2020/21 from 2017 levels.

The report of the telephone call said that “both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement”.

However, when asked by journalists whether the US would pull out of the trade deal, Trump kept his cards close to his chest, answering: We’ll see what happens.” His non-committal stance is premised on China falling very short of hitting the targets set under phase one of the agreement. Figures from non-profit think-tank the Peterson Institute for International Economics found that through to June 2020, China’s year-to-date total imports of covered products from the US were $40.2 billion, compared with a prorated year-to-date target of $86.3 billion. Over the same period, US exports to China of covered products were $33.1 billion, compared with a year-to-date target of $71.3 billion. Through the first six months of 2020, China’s purchases of all covered products were therefore only at 46% (US exports) or 47% (Chinese imports) of their year-to-date targets.

Cost of tariffs

Calculations from trade finance specialist and UK-headquartered Stenn Group have put the cost of the US-China trade war to UK firms at $3.93 million (approx. £3 million) each on average, while in the US, firms estimate the trade war will cost them $3.7 million each on average. Chinese firms have been harder hit with businesses there estimating that the tariffs will cost them $4.46 million each. The figures are based on a global study undertaken by Stenn of over 700 senior executives at medium-large sized firms in the UK, US and China.

The severity of business concern about the trade war is being worst felt in the US, according to Stenn, with 41% of firms very concerned, compared with just 24% in the UK and China. However, businesses across all three locations are reporting significant impact to industries, with higher operating costs, fewer orders, and less likelihood of trading internationally as a result of the trade war.

To insulate themselves from the effects of the trade war, businesses are said to be implementing a number of changes including raising prices, switching suppliers to outside of China, postponing orders and making impacts to recruitment.

“The US-China trade war has come at a huge cost to businesses and now the coronavirus has exacerbated the financial toll,” says Dr Kerstin Braun, president of Stenn Group. “Insolvencies will continue, particularly for firms that were already indebted prior to the crisis and unable to qualify for further loans.

“With tariffs still in place, Trump thinks he’s hitting China when it’s down, but he’s hurting US companies as well. It’s counterproductive.”

Fit for purpose?

Dr Braun adds that the phase one deal actually failed to cover the significant issues that prompted the trade war in the first place. This includes China’s preferential support of state-owned enterprises and technology transfer from American companies doing business there. Trump’s executive order against TikTok and WeChat is a sure sign of economic tensions between the U.S. and China, escalating the trade war.

“Purely protectionist policies – on both sides – will harm global companies,” Dr Braun continued. “Tech companies in both countries need to maximise their customer base in order to spread R&D costs widely. Only then will innovation become affordable and turn their products into market leaders.”

“No resolution will come until after the US presidential election in November,” concludes Dr Braun. “Any phase two deal will be long-awaited good news for global trade, which took a hit from the tariff war in 2019 to the tune of $420 billion in lost revenue for exporters. For businesses, it will help to provide some relief at a time when firms are seriously struggling to deal with the financial impact of Covid-19.”

While there will be no quick fix for those service providers reliant on US-China trade, the result of the US elections just under six weeks from now will give a clue as to which direction these two superpowers will likely head in.
Source: Baltic Exchange

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