(Greenwich Merchant Bank): The US has always had longstanding issues with China, but this became more pronounced under the Trump Administration that alleged China of unfair trading practices and intellectual property theft. In turn, there is a perception in China that the US is trying to impede its ascent as a global economic power. Thus, the trite conclusion that the trade war between the US and China is a struggle for economic dominance.
As a backdrop, the US-China trade war officially kicked off in July 2018 when the US declared its plans to impose a 10.0% tariff on USD200.0bn worth of Chinese imports in order to reduce the US trade deficit with China. Prior to the Phase-One Trade Deal on January 15, 2020, the trade war had lingered for about eighteen (18) months, as the two (2) world largest economies engaged in retaliatory tariff measures with over USD360.0bn and USD110.0bn tariffs imposed by the US and China respectively on Chinese products including machineries and solar panels, and US goods including soybeans and airplanes. Whilst the tariffs created a trade diversion effect as other trading partners exploited the opportunity to increase their exports to these countries.
Beyond the imposition of tariffs, the US also included about twenty-eight (28) Chinese entities comprising of eight (8) artificial intelligence technology companies and twenty (20) government entities on an entity list (requiring US suppliers to obtain a special licence to continue selling to them) due to their alleged involvement in human rights abuses against Uighurs and other predominantly Muslim minorities in Xinjiang province.
On January 15, 2020, the two (2) countries at loggerheads extended olive branch as President Trump and Chinese Vice Premier Liu He, signed the Phase-One-Trade-Deal wherein the US agreed to cut back and suspend some of its tariffs on Chinese Goods, in exchange for Chinese undertaking to purchase more of American energy and agricultural goods and services by at least USD200.0bn over the next two (2) years; address the complaints about intellectual property practices by eliminating undue pressure for foreign companies to transfer technology; and refrain from competitive currency devaluations, amongst others. However, due to the breakout of the COVID-19 pandemic, some of the undertakings in the January pact went unfulfilled.
China’s Foreign Minister Wang Yi on January 22, 2021, made a peace overture by appealing to the Biden-Harris Administration to stop the suppression of Chinese technology companies, remove trade tariffs, support international Chinese students, and remove restrictions on cultural groups and media outlets in America. According to him, all of these will help towards restoring US-China cooperation that was deficient in the Trump Administration.
Despite the US and China consensus on climate change and global economic recovery in the wake of the pandemic, there lies a huge mass of uncertainty surrounding the forging of the US-China trade relations in the near term. This is further supported by the recent phone call of about two (2) hours between the leaders of both countries on February 10, 2021, wherein President Biden expressed his fundamental concerns about Beijing’s coercive and unfair economic practices and human rights abuse in Xinjiang.
While we await the Biden Administration explicit approach on the existing US tariff strategy, we believe that the foremost focus of both economies will be on revitalising economic growth, as this should eventually lessen hardlines between both countries.