On July 25, the US President Donald Trump and the visiting European Commission President Jean-Claude Juncker reached an agreement to avoid trade war between Europe and the United States. After the meeting the EU official website issued a joint US-EU statement.

The statement stated that, first of all both the EU and the United States will work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. Both parties will also work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans. Secondly, both parties agreed to strengthen strategic cooperation with respect to energy. The European Union wants to import more liquefied natural gas (LNG) from the United States to diversify its energy supply. Thirdly, both parties agreed to launch a close dialogue on standards in order to ease trade, reduce bureaucratic obstacles, and slash costs. Fourthly, both sides agreed to join forces to protect American and European companies better from unfair global trade practices, and will work closely together with like-minded partners to reform the WTO and address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.

The agreement reached by US-EU trade negotiations has shocked China. On the level of public opinion, various media in China have reported about this, and multiple social media platforms had also discussed about this; at the professional level, Chinese experts and research institutions have begun to analyze the impact of this matter and assess its consequences; at the market level, the Chinese A shares and Hong Kong stocks plunged in July 26. All these show that the Chinese market is worried.

Indeed, the conclusion of the US-EU trade negotiations is not a trivial matter, as it will have major impact on the global trade pattern; some great changes appear to be emerging now. For example, the World Trade Organization (WTO) may be terminated. Once the US and the EU reach a free trade agreement, it will create a super free trade zone with half of the world's GDP and a population of 830 million. It involves the US$1 trillion bilateral trade between the United States and Europe, which will be the world's largest economic and trade partnership. Not long ago, the EU and Japan had just reached the EU-Japan Economic Partnership Agreement (EPA). The total population of Japan and Europe reach 600 million, and the comprehensive economy accounted for 30% of global GDP, involving 37% of global trade. If the US-EU Free Trade Area overlaps with the Japan-Europe Free Trade Area, global trade rules and trade order will change, and that will almost spell the end of the WTO.

The US-EU trade reconciliation will also have a non-negligible impact on China. A reasonable inference for the Chinese government and the market is that after the elimination of trade disputes between the United States and Europe, the EU will no longer be the target of the US trade wars. At the same time, the United States will free up its hands and concentrate on handling, China, its long-term strategic opponent. The United States is putting more pressure on China because of the elimination of trade friction concerns from the EU. Concerns at the social and market levels are gradually increasing and it is certain that this will form more pressures on China and influence its government's strategic decision.

However, the US-European trade reconciliation does not spell doom for China. As a major power with influence on the global economy and trade, and an important target country in global trade friction, China needs to calmly look at the new changes in global trade.

First of all, the US and the EU have neither reached any trade agreement, nor agreed on any new tariff; what they did was producing a joint statement. According to Anbound's chief researcher Chan Kung, this US-EU joint statement can only be regarded as a "high-end consensus", and it does not equal to "agreement". There is now some kind of panic in China; this is the result of the confusion between "high-end consensus" with an "agreement." The content of an agreement will actually involve a very wide range of trade rules, which cannot be resolved by a single statement. Until now, we have not seen such trade rules; what we have seen is merely the beginning of negotiations.

Secondly, even if the US and EU have reached an agreement it does not mean that they will eliminate structural trade contradictions. In fact, in the past when the United States sanctioned German cars, several German auto companies such as BMW proposed a trade agreement between the EU and the US, and German Chancellor Angela Merkel expressed her opinion at the time that this is acceptable. Chan Kung said in an interview with Anbound macro research team that even if the US and EU reach a trade agreement, the contradiction between the two would still exist. He questioned that the problems between the US and EU have yet to be resolved despite the two had signed the WTO agreement; therefore reaching an agreement does not mean competition will cease. For example, the US and the EU did not reach an agreement on the issue of automobile tariffs this time is a potential explosion point. Another problem is that the EU is a multinational organization; even if the EU has signed the agreement with the US, can the EU countries with different appealing interests accept it? Can companies in Italy, France and Germany accept it? It could be well that more countries would be withdrawing from the EU.

Thirdly, trade war is an inevitable result of space competition in the global market; China needs to calmly face this trend. The United States and the EU have just reached a high-end consensus, and the Chinese market is panicking; Chan Kung believes that the Chinese market does not have to be panicked at all. The Chinese market is now focusing on the US-China trade war, as if the world trade is just a matter between China and the United States. This is certainly a misunderstanding. In our strategic observation report published sometime ago, we warned that in the new stage of the prevalence of trade protectionism, the world will be in a new "market space war, and the key to such "war" is the competition in six aspects: (1) technology and intellectual property rights to win the dominant position; (2) trade and consumption space-boundary and its guarantee; (3) conflicts of political, cultural and moral ideology; (4) currency and financial capital benefits, safety and risk control; (5) legal system; (6) market alliance and regional cooperation. Chan Kung emphasized that these six aspects represent the framework of the world order; those who cross the boundary of these aspects would ignite a new cold war, and it may even be out of control to transform into a real hot war.

The changes in the world economic situation and the global trade frictions are intensifying. It is exactly the battle of market space under the framework of the aspects mentioned above. This is a worldwide "war" with its core lays in the influence of competitiveness and dominance. In other words, this is a war with among the powers. Anbound's scholars have pointed out that the strength of the EU and the US is stronger than that of China, therefore the future of non-ideological market space dispute, the main battles will be between the EU and the US; the dispute between the two will be the main axis of world competition and China will be in a secondary position.

Final Analysis Conclusion:

Facing the new changes in US-EU trade reconciliation, China should remain calm. In the market space competition under the wave of global trade protectionism, the dispute between the EU and the US, not the dispute between the US and China, is the main axis of world competition.