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US-China Trade Talks Yield Minimal Progress

US-China Trade Talks Yield Minimal Progress

(23 August 2018 - China) Efforts to deescalate the US and China trade war failed following minimal progress made between the governments trade delegations over two days of negotiations on US$16 billion worth of each country’s goods. 

The two days of talks led by U.S. Treasury Undersecretary for International Affairs David Malpass and Vice Commerce Minister Wang Shouwen marked the first major interaction between the two sides since June. Chinese officials are reported to have suggested that further negotiations will be delayed until after the upcoming US mid-term elections in November. A new round of tariffs could come as soon as early September, but there is no guarantee that will be the last or combined with other retaliatory measures.

The Trump administration is preparing a far larger implementation of tariffs covering 6,000 Chinese products with an annual import value of US$200 billion. That move and the anticipated retaliation from China would mark the largest escalation up to this point and begin affecting the US consumer market more directly. Business groups expressed hope that the meeting would mark the start of serious negotiations over Chinese trade and economic policy changes demanded by US President Donald Trump. Washington’s latest tariffs apply to 279 product categories, including semiconductors, plastics, chemicals and railway equipment, that the Office of the US Trade Representative has said benefit from Beijing’s “Made in China 2025” industrial plan to make China competitive in high-tech industries. China’s list of 333 U.S. product categories hit with duties includes coal, copper scrap, fuel, steel products, buses and medical equipment. Tariffs are starting to negatively impact costs for businesses and consumers in the US and China, forcing corporates to adjust their supply chain management and product pricing. Many US companies are turning to other countries in order to reduce their reliance on China. Angst about the impact of Mr Trump’s protectionism has been steadily rising across the SME segment in the US economy especially, where a wide range of businesses have come to rely on global supply chains to keep prices low and support profitability.

The International Monetary Fund (IMF) and central banks have stepped up warnings that the confrontation could hurt the global recovery. The IMF is maintaining its central forecast that the world economy will grow 3.9 percent in 2018 and 2019 but has warned that an escalation in the tensions could depress growth in the medium term. Meanwhile, the European Central Bank has warned that a tit-for-tat battle over sanctions between the US and China could undermine growth in the euro area and leave US tariffs at their highest level for half a century. China has other policy tools to support growth, and the recent depreciation in the RMB will soften the effects of tariffs on its exporters. Barry Eichengreen, a professor at Berkeley, warned last month that “the standard economic models are notoriously bad at capturing the macroeconomic effects of uncertainty, which trade wars create with a vengeance.”

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