Failure to Resolve U.S.-China Trade Dispute Could Lead to a Global Recession

January 29, 2019 by HJ Mai
From left, China's President Xi Jinping and U.S. President Donald Trump shake hands on November 9, 2017, during a meeting outside the Great Hall of the People in Beijing. (Artyom Ivanov/Tass/Abaca Press/TNS)

Cabinet-level delegations from the U.S. and China will meet in Washington, D.C. starting Wednesday for a pivotal round of negotiations to resolve the ongoing trade dispute between the world’s two largest economies.

The U.S. and China have been embroiled in a trade war since last summer, when President Donald Trump imposed punitive tariffs of 25 percent on $50 billion worth of Chinese goods – particularly machinery and technology-related products – in an attempt to reduce Washington’s trade deficit with Beijing.

Since then, the two countries have exchanged several rounds of tariffs, levying duties on hundreds of billions of dollars worth of goods.

At the G20 Summit in Argentina in December, Trump and Chinese President Xi Jinping agreed to a 90-day truce in their tariff war to negotiate a new trade agreement. This 90-day period is set to end on March 1.

Should both sides fail to reach an agreement before the March 1 deadline, tariffs on $200 billion worth of Chinese goods would increase from 10 percent to 25 percent.

“This big trade dispute has injected a fair amount of uncertainty into investment planning and into profitability of companies in the United States and in China, and in many other countries that rely on those markets,” Keith Maskus, economics professor at the University of Colorado Boulder, told The Well News. “So consequently, this is an element that seems to be tipping the global economy into slower growth and ultimately into recession.”

Despite the potential danger for a global recession, U.S. Commerce Secretary Wilbur Ross told CNBC last week that the two sides remain “miles and miles” apart from each other.

The small chance for any sort of agreement suffered yet another blow on Monday, when the U.S. Department of Justice charged Chinese telecom giant Huawei with 13 felonies, including fraud. In a separate case, the world’s biggest supplier of network gear has also been charged with stealing trade secrets from T-Mobile.

It’s a charge that reflects one of the core issues of the U.S.-China trade dispute: intellectual property theft.

IP theft, forced-technology transfer and industrial espionage are integral parts of China’s industrial policy structure that has allowed the country to become a global competitor in many technology and production sectors over the last 20 to 30 years, Maskus said.

The Trump administration has repeatedly called on Beijing to eliminate these unfair trade practices and compete on a level playing field.

However, a November report by the Office of the U.S. Trade Representative stated that China showed no sign of ceasing its policy and practice of carrying out and supporting cyber-enabled theft and intrusions into the commercial networks of U.S. companies.

The Chinese delegation, which is led by Vice Premier Liu He, plans to offer a big increase in purchases of U.S. farm products and energy, but will fight demands for significant structural changes, the Wall Street Journal reported.

“I don’t think there’s any chance that the United States will get a strong enforceable commitment by the Chinese government to stop these practices,”Maskus said. “Those practices are so ingrained into Chinese industrial policy.”

At the moment, the best outcome would be an agreement in which the Chinese government commits to transforming its policies over a specific period of time, while allowing the U.S. to monitor the progress, Muskus said.

“During that period of time, which could be several years, the tariffs will be held in abeyance,” he added.

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