Trade tension between China and the United States is growing. Trump administration officials are increasingly expressing their criticism of China’s trade policies. China is sending Liu He, the country’s top economic policymaker, to Washington this week to smooth tensions between the two countries. Liu is making this trip before China’s congress conducts its annual meeting. Liu is expected to be named the next vice premier for financial and industrial policy for China at this meeting.
The Trump Administration and the Commerce Department both view steel and aluminum imports from countries like China as a national security threat. This is because China and a few other countries implement higher tariffs on their imports of American products than the U.S. imposes tariffs on the imports of products from these countries. President Trump and the Commerce Department are looking at ways to restrict these and other imports through higher tariffs. The Chinese government would prefer the status quo, but they are also ready for a trade confrontation.
In early February, the Chinese government sent its top diplomat Yang Jiechi to Washington to maintain the status quo and soothe the concerns in Washington. Nothing significant was accomplished with this visit. The Trump administration was already too focused on China’s military buildup and China’s growing trade surplus with the U.S. The large delegation Liu is expected to lead is an indication of Liu’s growing influence within the Chinese government. Experts believe Liu will eventually be the head of China’s central bank after the current central bank leader retires later this year.
In 2016 alone, the Chinese have imported $14 billion worth of soybeans from the United States, reports CNN Money in a recent article. Soybeans are just one example of the need for agricultural products in the Middle Kingdom. The large Chinese population of about 1.4 billion needs immense quantities of food.
Yet agricultural trade could be affected in negative ways. Last month, the Trump administration put tariffs on imported Chinese solar panels. Now, the White House is considering tariffs on imports of Chinese aluminum and steel. In response, the Chinese Commerce Ministry indicated that if this “affects China’s interests, we will take necessary measures to defend our rights.”
China is already investigating whether the Unites States is dumping sorghum, an agricultural product. When it comes to cultivation of sorghum, the American farmers are world leaders with 2016 production of 480 bushels.
Would the Chinese authorities give up on imports of American agricultural products when it comes to feeding the world’s largest population? This isn’t that likely. Still, it worries farmers, many of whom voted for Donald Trump.
Despite tough rhetoric, “nobody wants a trade war,” as William Zarit, chairman of the Chinese branch of the American Chamber of Commerce, has said.
What is likely is that the world’s two economies will both cooperate and trade with each other in the foreseeable future.
The White House, as well as previous administrations, have long been accusing China of unfair trade practices. And, to large degree, they were right. After steel and aluminum tariffs, there’s another issue: the trade secrets. Trump’s administration, CNN Money reports, has began an investigation about intellectual property theft by China.
There’s no doubt that copyrights are violated in China. American movies, academic textbooks, and music are widely copied. But now, the issue is even bigger. It comes to alleged high-tech theft. It’s not that American-made high-tech hasn’t been stolen before, but that it is being brought up with more stress now.
According to a report by Commission on the Theft of American Intellectual Property, America loses as much as $600 million a year because of intellectual property theft. Meanwhile, Chinese government wants the Middle Kingdom to transition from being a low cost manufacturer to high-tech innovative economy. For example, China is now working on developing electric cars and 5G mobile networks.
To becomes a high-tech economy, China needs a lot of know-how, so no wonder it is looking for it rather aggressively. Some foreign companies claim that they were forced to transfer their technologies in order to be able to operate in China.
The Trump administration can either complain with the World Trade Organization (WTO) or take a unilateral action. This can possibly lead to a trade war.
The Trump administration’s protectionist talks are a risk to the current bull market in stocks. According to MarketWatch, a recent report suggested that President Trump may seek withdrawal from North American Free Trade Ageement (NAFTA), a trading pact among the United States, Canada, and Mexico. A couple of months ago, Trump stated that the U.S. will not be taken advantage of anymore when it comes to trading in goods and services.
A couple of Canadian officials have admitted that Canada is becoming more convinced that the U.S. will seek to end NAFTA. But, if Trump wants to do it, it will not be that simple since the Congress needs to approve it.
Even an attempt to end NAFTA would bring great business uncertainty. After all, many American companies do business in Canada and Mexico. And this is cited as one of the major stock market risks in 2018. Already, Geopolitical Risk Indicator, run by Black Rock, is at its highest level since 2015.
If there’s a serious talk about ending NAFTA, it is likely to affect global trade in general. In the past, Donald Trump has criticized trading with China on multiple occasions. If there’s a trade clash between the United States and the Middle Kingdom, this is going to bring even more uncertainty to this bull market. With equities valued sky high, a major market correction could as well come this year.