Published on: May 26, 2020

The current state of the China-US trade war

Industry Blogs

The phase one trade deal between China and the United States is still on track. This was confirmed after trade negotiators from both countries talked on the phone on the 8th of May. Both parties vowed to uphold their end of the bargain in the phase one trade deal. This is the first contact between negotiators since the deal was signed in January.

The trade deal includes concessions from the US to cut tariffs on Chinese imports. In return, China vowed to buy more of American farm, energy and manufactured goods and address complaints about intellectual property practices. The deal was proposed to ease tensions in the ongoing trade war, which was initiated by US President Donald Trump by setting tariffs and other trade barriers on China. The tariffs came after accusations that Beijing was supposedly conducting unfair trade practices. The trade war has been ongoing since the first tariffs in July of 2018.

By committing to the trade deal, China agreed to increase purchases of US products and services by $200 billion over the next 2 years.

The reassurances come at a time of high tension between the US and China. President Trump has accused China of inadequately handling the coronavirus outbreak. According to Mr Trump, China failed to prevent the pandemic that left global economies in distress and caused more than 99,000 deaths in the US. In recent weeks, Trump has emphasized the importance of Beijing upholding the phase one trade deal.

Washington officials have not only threatened to break the trade deal but have also suggested other economic measures, ranging from export controls to investment curbs and crackdowns on integrated supply chains.

Despite the claims that Beijing will follow through with their commitment to import US goods and services, there are analysts who suspect that China does not have the capability to do so. The COVID-19 outbreak has caused a domestic drop in consumer demand in China. In April, demand has only been running at 50-55% of normal levels. On top of that, companies are not expecting demand to return to normal in the second half of the year.

Washington is aware of the possibility that Beijing cannot uphold its end of the bargain. If this happens, they can break the truce and impose other tariffs. However, with more than 33 million unemployed Americans at the end of April, analysts expect the US economy to freefall in the upcoming months. Therefore, breaking the trade deal might not be in the best interests of the country.

Another aspect influencing Washington’s attitude towards the trade deal is the upcoming presidential elections in November. “The White House will evaluate every major policy decision through the lens of whether it is an asset or liability for the president’s re-election,” said Steve Olson, senior fellow at the Hinrich Foundation, a pro-trade think tank, and former USTR trade negotiator.

In the US, China has received a lot of media coverage in the last few weeks. US officials have continuously criticized Beijing’s handling of the virus outbreak. As a result, mistrust of China is at high levels as shown by recent pollings. Thereby, Improving relations with China might be considered a political liability. Washington might instead take a more antagonistic stance toward Beijing.

Analysts can only speculate how the economies will change at the hand of the COVID-19 outbreak. But a few things are known to both the US and China. The US is the ruling economic superpower, while China is number two. Washington will do everything it can to protect its position. Both countries are navigating the geopolitical stage to assure they come out on top. And whether the virus outbreak will be a turning point for the global powers is to be seen.