Please see below key recent developments concerning trade:
- The US can eliminate its trade deficit or run the world’s dominant currency - but not both, argued Quartz, as America provides the rest of the world with liquidity and a safe place to store assets.
- Trade between the US and China is the most unbalanced it’s been in decades, warned GZEROMedia. In key industries, Chinese firms have matched or even surpassed their US competitors. The Chinese government is also dead set on dominating industries that it sees as crucial to winning the future, like advanced manufacturing and artificial intelligence. For many in the US government, China’s growing technology prowess doesn’t just undermine American industry, it’s a threat to national security.
- The EIU expects the ongoing trade dispute between China and the US to escalate further in 2018, threatening the strong global economic performance seen recently. The dispute, which intensified in late March 2018, has the potential to cause significant economic pain to both sides. Despite ongoing negotiations, the positions of the two parties are entrenched, and the EIU expects bilateral economic tensions to persist, resulting in some of the tariffs proposed by the two countries coming into effect.
The US-China trade dispute is set to worsen in the coming months. The Economist Intelligence Unit expects both sides to enact a second round of tariff increases that will affect a total of around US$80bn in bilateral trade. However, a threatened third round of tariffs is less likely to be introduced. This means that the dispute will stop short of mutating into an outright "trade war" that would have damaging, spillover effects for the global economy. Nevertheless, bilateral economic tensions will persist, and will increasingly shift to non-tariff barriers.
- China’s vulnerability on trade is not what it was. In 2006, Chinese trade amounted to 65.2 percent of GDP. In 2016, that number had fallen to just 37 percent. That’s still higher than the US (27 percent), but China now has less reason to shy away from a trade fight if its government feels it must persuade Trump that trade wars aren’t “easy to win.”
Shaping Tomorrow highlighted fears of a global trade war that are rattling stock markets around the world after President Trump threatened to impose tariffs on China and Xi threatened to respond in kind.
Sources: EIU, GZEROMedia, Shaping Tomorrow