U.S. President continues to threaten imposition of more tariffs
October 23, 2018 Category Foreign trade, Weekly
U.S. President Donald Trump threatened to impose another round of tariffs on China and claimed that Chinese meddling in U.S. politics was a “bigger problem” than Russian involvement in the 2016 election. In an interview with CBS’s “60 Minutes” he also compared China’s stock-market losses since the tariffs were first imposed to those in 1929 at the start of the Great Depression in the U.S. “I want them to negotiate a fair deal with us. I want them to open their markets like our markets are open,” Trump said in the interview, while adding that more tariffs “might” be in the mix. So far, the U.S. has imposed three rounds of tariffs on Chinese imports totaling USD250 billion, prompting China to retaliate against American products. Trump has previously threatened to hit virtually all Chinese imports with duties.
The U.S.-China trade war’s worst effects will be felt over the long-term and could slow China’s ability to continue the strong pace of development it has enjoyed in recent decades, according to the International Monetary Fund’s former Representative in Hong Kong. Shaun Roche, currently Chief Asia-Pacific Economist at Standard & Poor’s Global Ratings, said analysts tended to overestimate the short-term impacts of the conflict while underestimating its long-term effects. Speaking on the sidelines of the International Monetary Fund’s annual meetings in Bali, Roche said the short-term economic “headwind” for the Chinese economy created by the tariffs could be “easily offset” by a loosening of monetary policy and depreciation of the yuan exchange rate. It would be more difficult for the Chinese government to offset “the restrictions put on Chinese firms regarding their investment in the U.S., and other matters that slow the technology transfer from the U.S, Europe and Japan into China”, he said. Roche warned the slowing of technology transfer may undermine the whole basis of how China had grown in past decades – adapting and innovating based on foreign technologies – which could significantly erode its growth potential in the future. Still, Roche believes there are plenty of things the Chinese government can do to resolve the trade conflict and avoid the long-term negative consequences.
Chinese government officials are referring to “competitive neutrality” as a new catchphrase to defend the country’s state-owned firms at a time when the United States and the European Union are complaining that they distort competition. Chinese officials argue that there could be a level playing field between state, private and foreign firms in China. However, China’s major trading partners are not convinced. The idea of “competitive neutrality” is promoted by the Paris-based Organization for Economic Cooperation and Development (OECD). It involves companies of different ownerships being able to compete fairly through improved transparency in policies, to ensure equitable treatment in areas such as subsidies, taxes, trade instruments such as tariffs, and other support mechanisms, and reforming them where they unnecessarily distort competition, the South China Morning Post reports. About 80% of the Chinese companies in the top 500 global companies ranking are SOEs.
China has no interest in depreciating its currency as a tool, People’s Bank of China (PBOC) Governor Yi Gang said. “We have considerable space for using monetary policy tools, including interest rates and reserve requirement ratios. These tools are available to deal with uncertainties.”
President Xi Jinping reaffirmed China’s stance on supporting free trade and economic globalization while meeting in Beijing with a British delegation led by Stephen Perry, Chairman of The 48 Group Club, a British organization composed of company leaders promoting Britain-China trade. The 48 Group Club now has more than 500 members.
The Trump administration avoided a major escalation in the trade war with China after the Treasury Department said in a report that Beijing was not intentionally devaluing its currency. Still, Treasury Secretary Steven Mnuchin sent a warning about the lack of transparency and the relative weakness of China’s currency, the renminbi. “Those pose major challenges to achieving fairer and more balanced trade, and we will continue to monitor and review China’s currency practices, including through ongoing discussions with the People’s Bank of China,” he said.
The U.S. China trade war has so far not affected China’s investments abroad. China’s non-financial outbound direct investment totaled USD82.02 billion in the first nine months of this year, up 5.1% from a year earlier. China directly invested in 4,597 overseas companies in 155 countries and regions throughout the world in the first nine months, according to the Ministry of Commerce (MOFCOM). Cross-border mergers and acquisitions (M&As) also posted steady development, with 265 M&As by Chinese companies completed year-to-date and the total actual transactions reaching USD43.3 billion.
The People’s Daily argued in a commentary that the trade conflict would have little impact on the nation’s current or future prospects. The country’s rise did not depend on the U.S., and China was a “super large” country that could thrive on its own. Readers were urged not to lose faith in the country’s prospects.
Chinese President Xi Jinping and U.S. President Donald Trump have tentatively agreed to meet on November 29, prior to the G20 leaders’ summit in Buenos Aires, Argentina.
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