The United States is imposing 25% tariffs up to $50 billion of Chinese goods, which will take effect from 6th July; this will be the date when China retaliates against the United States on the same scale. Will the China-U.S. trade war explode in less than two weeks? Is it possible for the two countries to resolve the critical situation at the last moment? The world is watching.
Although both countries have already shown tough stands, it is not a trivial matter for the two largest economies in the world to start the trade war. Once the trade war has commenced, it would still be uncertain to determine the development of the extent and direction of the next trade war, and this is likely to cause great losses with trade-related parties paying high price.
The "warming-up" of the trade war between the two sides has already begun. The U.S. company SnapPower has filed an application with the U.S. International Trade Commission on June 20, accusing its socket cover plate patent right was infringed by Chinese companies and requesting the issuance of general exclusion and injunction orders. Six Chinese companies including Shenzhen Chaomingwei Electronics and Zhongshan Aipuhuade Lighting were listed as defendants. The Ministry of Commerce of China announced that the investigation authority ruled that dumping of imported styrene originating in the United States, South Korea, and Taiwan would take effect. Since June 23, anti-dumping duties have been levied on imported styrene from these three places, and the tax rates ranged from 3.8% to 55.7% for the period of 5 years.
The public opinions and information disclosed by the two countries show that both China and the U.S. have different views on the trade war and are divided into the Hawkish and the Pacifist fractions.
As the war is looming, the efforts of the two sides to promote mediation have not been interrupted. According to sources quoted by Bloomberg, some officials of the Council of Economic Advisers in the United States resumed dialogues with China before attempting to impose tariffs on China on July 6 to avoid a full-scale trade war between the two countries. It is understood that the officials from Council of Economic Advisers have recently liaised with former government officials and experts on Chinese affairs to study the possibility of holding high-level negotiations with China within the next two weeks. One of the ideas is to invite a senior Chinese leader familiar with U.S. affairs for meeting before the tariff measures take effect.
It is of course a good thing that if dialogues can stop the China-U.S. trade war. However, Anbound points out that China should be well-prepared for such complicated talks. There are many issues to consider: Are the conditions for the current talks between China and the United States mature? Can the official talks receive the desired results? If high-level official talks are held, yet fails to achieve the desired results of stopping the trade war, both sides would be very passive, especially for China that is on the defensive side.
First of all, the current political climate in China and the United States is not suitable for immediate government-level negotiations. President Trump has sent a strong signal and has put his bet on this China-U.S. trade war. The U.S. business officials continue to exert intimidation. At a recent U.S. Senate hearing, Commerce Secretary Wilbur Ross said, "what we have to do is create an environment where it's more painful for these parties that have these huge trade barriers, both tariff and non-tariff, got to make it more painful for them to keep those barriers than to get rid of them". Ross said President Trump has decided that the U.S. needs to take more actions than negotiations. The basic strategy of the U.S. is to exert sufficient pressures on those "wrongdoing" parties unless China suffers from what it is doing, otherwise the United States will not succeed. The U.S. hardline attitude will inevitably inspire a corresponding political attitude in China. In a tit-for-tat political atmosphere, it is not suitable for high-level formal talks between the two countries.
Second, judging from the negotiation strategy, the current high-level negotiations may not be appropriate and effective. So far, formal communications and negotiations between the two governments have been carried out for three rounds. However, the previous talks were basically ineffective and trade frictions have intensified. The U.S. government insisted on raising tariffs on Chinese products and triggered retaliation from the Chinese government. As a result, Trump directly pushed trade disputes to the highest level, leaving the two countries with minimal room for maneuver. At this time, it would be strategically risky if the two sides do not first predetermine some preconditions before engaging in a new round of formal negotiations.
Third, China must make it clear that the actual decision maker of the U.S. trade policy is Trump, not the U.S. Department of the Treasury or the Department of Commerce. Unless there is a prior and direct communication with Trump, the negotiation would not mean much; this is determined by the Trump administration's decision-making model. This is also precisely what Anbound is worried about. Our distrustful attitude is because of the U.S. government's decision is determined by a single person; the U.S. Department of Commerce, the Department of Treasury and the Council of Economic Advisers are unable to play a key role and China cannot expect to reach an agreement with them.
The stage for the trade war between China and the United States has been set. The limited trade war in the first round is likely to be difficult to avoid. Based on the above considerations of various subtle factors, we believe that the official inter-governmental talk, which might be held soon would not be the best option, and the talk would not necessarily achieve desired results. If necessary, it is suggested that China and the United States can utilize high-level private representatives to communicate. To put it plainly, now the two countries need informal talks, not formal official talks.
Final Analysis Conclusion:
At this moment where the trade war between China and the United States would begin soon, the current complicated situation makes it unsuitable for starting formal official talks; instead it is better if informal talks could be held.
