The trade war between China and the United States continues to heat-up.
On June 18, U.S. Eastern Time, President Donald Trump stated through the White House that he was considering adding a 10% tariff to an additional $200 billion of Chinese goods. Trump said that he has instructed the U.S. Trade Representative (USTR) office to issue a list of the goods. If China still refuses to change its trade behavior, the United States will formally impose tariffs on this batch of Chinese goods after the legal process is completed. In addition, if China reapplies reciprocal measures, the U.S. will also consider taxing US$ 200 billion of Chinese goods.
Trump said that this move is a response to China's previously announced tax on the US$ 50 billion U.S. merchandise, and he stated that "unfortunately, China has determined that it will raise tariffs on $50 billion worth of United States exports. China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong". Trump's response is in line with his consistent negotiation style: using tougher reaction to respond to tough stand, and making extreme pressure to suppress his opponent, until he feels he is on the advantageous side.
Trump's tough response means that he hands back the issue to China. Objectively, if China and the U.S. launch the trade war, China's will have fewer trade advantages than that of the U.S., as China has a huge trade surplus with the U.S. According to the statistics of the U.S. Department of Commerce, in 2017 the U.S. import value of goods from China was US$ 50.5 billion, and the export value of goods to China was approximately US$ 130 billion; the trade deficit with China was approximately US$ 375.5 billion. This means that China's taxable U.S. goods worth only US$ 130 billion, while the U.S. can tax more than US$ 500 billion worth of Chinese goods. Even according to statistics from the Chinese Customs, China exported US$429.8 billion to the U.S. in 2017, while imported US$ 153.9 billion. The trade surplus between China and the U.S. was about US$ 275.8 billion. This shows that China does not have much advantage in this trade war.
The Chinese government is also aware of this issue. In the statement of the Chinese Ministry of Commerce's response, it is stated that "after launching the US$50 billion taxation list, the United States has intensified its efforts and threatened to formulate a US$200 billion taxation list. This type of extreme pressure and blackmailing deviated from the consensus reached by multiple negotiations between the two countries, and has caused great disappointment among the international community. If the United States loses its rationality and publishes the list, China will have to adopt a combination of quantitative and qualitative strong countermeasures", "no matter how the external environment changes, the Chinese side will adhere to the established norms, persist in focusing on its people, and firmly push forward reform and opening-up." It should be pointed out that the reference to "quantitative" and "qualitative" means that China's trade war with the United States is not confrontation of scale, and China will not use equivalent scale as the standard of its retaliation. This leaves room for the differences in the scale of mutual sanctions between China and the United States.
The mutual threat of the trade war between China and the U.S. has been steadily increasing, though the extent that it will develop in the future is still difficult to judge. This will depend on a series of complicated factors including the choice of the political and decision-making levels of the two countries. What is certain, however, is that the trade battles of the world's two largest economies will have a huge impact on the global economy; the sharp fall in the global capital markets in the past two days is exactly the direct response of the market.
After observing various situations, Anbound's chief researcher Chen Gong believes that China is now unlikely to resolve trade disputes with the United States through high-level negotiations. The main reasons are: (1) China has never conducted effective explanations of trade rationality in the United States. Therefore, it does not have effective public opinion basis in the U.S. (2) U.S. companies have experienced too many setbacks in the Chinese market in recent years, even McDonald's has withdrawn. Such scenario makes American companies unwilling to speak for China. (3) Trump has successfully politicized the trade between China and the U.S., and he is still doing that; the timing of negotiations remains immature. (4) The domestic situation, condition, and pressure in China are not suitable for negotiation; even buying time now is better than negotiating. (5) The Chinese authorities have not clearly understood the relationship between international trade disputes and the development trend of the world economy, therefore it does not comprehend well the major trends of China-U.S. trade disputes, and there is no clear judgment on the matter. Negotiations done at this time will not bear good results, and will be unable to resolve the trade disputes completely.
After studying the trade issues between China and the United States from the perspective of history and reality, the more objective view is that the current China-U.S. trade disputes are not the problems that can be resolved by anyone with mere negotiations. The seeds of trade disputes have long been planted, and the results we see now are bound to happen.
As Anbound has previously analyzed, China and the United States have entered the "era of trade war". In this era of trade war, China and the United States are not merely fighting a trade war, but a series of trade frictions. When a dispute is resolved, another one will arise; these are normal during the trade war.
As we have mentioned many times in the past, the market must be psychologically prepared for the era of trade wars. The fundamental reason why China and the U.S. have entered the era of trade war is that both countries have decided to compete for market space and the U.S. has redefined China's mega trend as a strategic adversary ("Market, Space and Global Market Warfare", Chan Kung, "Strategic Observations", Issue 586 March 6, 2018). For this pattern change, the Chinese market must make long-term strategic preparations, not just focusing on the short-term gains and losses.
Final Analysis Conclusion:
Trade disputes between China and the United States have now entered the new era of trade wars. The current trade war can neither be concluded in the short term, nor can it be achieved through merely one or two negotiations. The Chinese market must make long-term preparations for this.
