China Trade: From 'Grand Bargain' towards trade war?

Posted June 22, 2018

Renegotiating the North American Free Trade Agreement, which Trump called a "disaster" for the United States, was a goal he had set out during his election campaign.

Gregory Daco, the chief USA economist at Oxford Economics, estimated that Trump's newest tariff threat, on $200 billion of Chinese goods, would shave 0.3 to 0.4 percentage points off gross domestic product.

"If you read the previous statement by President Trump on the $50 billion of tariffs, he made it clear that he viewed Chinese responses to our actions not just limited to tariffs", Navarro said.

The standoff, mostly over China's sharp-elbowed drive to supplant USA technological dominance, threatens to tip "the USA and China into a downward spiral like the world hasn't seen since the trade war that plunged us deeper in in the Great Depression and into the Second World War", warned Matt Gold, professor of worldwide trade law at the Fordham Law School and a former USA trade official. "Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong", Trump said in a statement. Chips from non-Chinese wafer fabs sold to American companies that pass through those facilities likely would not be hit. In other words, the economic conflict between China and the USA can potentially go beyond tariffs and directly disrupt the global economy. "If someone incites a trade war, we will firmly safeguard our legitimate interests".

However, many market watchers believe there is still room for compromise, suspecting Trump's announcement was a negotiating tactic to wring faster concessions from Beijing. US officials argue that this program unfairly discriminates against USA and other foreign companies operating in China.

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Chinese regulators also are considering a tariff hike on an additional 114 products including medical equipment and energy products, the Finance Ministry said.

U.S. President Donald Trump is accusing Canadians of buying goods in the U.S. and smuggling them home across the border because of tariffs, while pledging that Canada will no longer "take advantage" of the U.S.

China's heavily regulated economy also gives the ruling Communist Party additional options for retaliation by withholding approval for business activity.

Gary C. Evans, chief executive of shale producer Energy Hunter Resources, called the tariffs "a lot of saber rattling" that will not hurt exports of USA crude oil or liquefied natural gas, the latter a fuel that China has not included on its list of products facing a tariff. Other companies say the approval process for licenses has slowed down.

Stock markets have fallen around the world in the wake of President Trump's latest tariffs threat to China.

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Trump insists that China has been unfairly benefiting from a trade imbalance with the United States for years.

Companies also are watching the fate of ZTE Corp.

The impact likely would be temporary as US oil becomes less attractive to Chinese buyers.

In commodity markets, Brent crude futures fell to a six-week low of US$72.45 a barrel today after reports that top suppliers Saudi Arabia and Russian Federation would likely agree to increase production at the June 22 Opec meeting in Vienna. Many US trading partners reacted by raising their own tariffs, which contributed to shutting down global trade.

In the separate dispute about steel and aluminium tariffs, he also has to contend with the politically targeted retaliation that other countries such as Mexico, Canada and the European Union have in hand, meant to hit important states in the mid-term elections.

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