US-China trade wars?

US-China trade wars?
The Secretary of the US Treasury, Steve Mnuchin has confirmed that top officials from the United States and China have been holding regular meetings in a bid to avoid a ..

The Secretary of the US Treasury, Steve Mnuchin has confirmed that top officials from the United States and China have been holding regular meetings in a bid to avoid a trade war between the two countries.

Liu He, who is rumoured to be the next appointee for Vice Premier in China is part of these discussions.

Background

The United States and China are two of the largest economies in the world. Both countries consider the other as a partner in trade and an adversary in geopolitics. Diplomatic relations between US and China was first established in 1844 with the Treaty of Wanghia. This agreement allowed the US to trade in Chinese ports. After the Qing Dynasty was overthrown, in 1911, the US recognized the legitimacy of the Republic of China (ROC) government.

The U.S.–China Strategic and Economic Dialogue was created in 2009. Every year, high level representatives from both nations open up dialogue to improve economic partnership. In 2017, the meetings that occurred were reported as being “tense”. Upon conclusion, the two countries cancelled a joint press conference and did not release a statement. They also did not release a plan of action.

US President Donald Trump has previously been a critic of China. He blamed the country for loss of jobs within the US and has often criticized the US trade deficit with China. China's trade surplus with the United States widened in 2017 while total foreign trade volume maintained rapid growth.

Experts have begun sounding the alarm about an impending trade war between US and China. Former chief executive of Hong Kong Tung Chee-hwa recently said that a trade war must be avoided. “In such a big relationship, there is bound to be disagreement, but rash action on either side will only create the environment for a very serious trade war, which is not good for any country. Patient discussion and negotiation, particularly considering the long-term prospects of the relationship, will be very important,” he said.

Analysis

In February 2018, it was reported that Chinese President Xi Jinping will be appointing Liu He as the Vice Premier overseeing China’s economy. Analysts note that Liu He will become one of the most powerful Vice Premiers that China has seen in the past two decades. He is a celebrated economist and politician who was inducted into the powerful Politburo in 2017. He has been advising the Chinese President on economic matters for many years now.

According to reports, top officials from the US and the Chinese administration are currently holding “active” talks to ensure that the two countries do not end up in a trade war. The goal is to boost US exports to China to make sure it becomes fair and equitable. Treasury Secretary Steve Mnuchin has confirmed the reports and has noted that Liu He is among the key members part of the ongoing discussions.

“We’re in active discussions with [China] about our trade issues,” Mnuchin confirmed at a US Chamber of Commerce event in Washington. “The president has been very clear from his first meeting with President Xi that we have a large trade imbalance. Our objective is to shrink that imbalance. … Our desire is to increase exports to shrink that,” the treasury secretary said. He added, “On a high level, [the Chinese] understand that and they want to do that. Our objective is not to get into a trade war.”

China’s foreign ministry confirmed this week that Liu He will be in the US until March 3 to discuss trade tension between the two countries. However, it has also stated that details of these meetings will not be disclosed to the public. The government only noted that the talks will focus “on China-US relations and the two countries’ economic and trade cooperation” according to ministry spokesman Lu Kang.

In January 2018, it was announced that the US will be imposing 30% tariffs, or border taxes, on imported solar panels. At the time Trump said, “This could very well be just one step of many.” He added that steel and aluminum were also on Washington’s list. China is the world’s largest producer of solar panels. “The U.S.’s decision ... is an abuse of trade remedy measures, and China expresses strong dissatisfaction regarding this,” Wang Hejun, the head of the commerce ministry’s Trade Remedy and Investigation Bureau, said in a statement. Steep import tariffs have also been imposed on washing machines.

“Last year, we thought nothing would happen, but now China should not have any illusion about it. If the U.S is using Section 201 to hit you, they will hit hard,” said Zhang Yi, chief economist at Capital Securities in Beijing.

Assessment

Our assessment is that strategic trade war between China and the US would affect the world. As China strives to increase its global footprint, the US, under the leadership of Trump, has a reduced surface area. Liu He is set to become one of the most powerful players in China. His actions will dictate the economic future of China and his presence at these meetings indicate the gravity of the concerns within Beijing. 

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