Published: Wed, May 08, 2019
Markets | By Otis Pena

How trade tensions with China are affecting Alabama

How trade tensions with China are affecting Alabama

Mnuchin said Monday that the stock market reaction was not affecting USA decisions on the trade talks.

As speculation abounds for whether Donald Trump views Joe Biden as the biggest threat to his re-election, the president is blaming the ex-veep for the complications he's facing from trade negotiations with China.

US President Donald Trump has claimed that China was seeking to U-turn on the trade deal struck between the two countries in the hope that it could renegotiate with a Democratic president following the 2020 election. China is sending Vice Premier Liu He, its lead negotiator for the U.S.

The swift deterioration in negotiations between the world's two largest economies has jolted global financial markets, which had been increasingly betting that a deal would be reached soon.

The US trade representative, Robert Lighthizer, has been insisting that China make changes to its domestic laws in order to prove it would not renege on the deal. However, China's retaliatory tariffs on U.S. agricultural and food products threaten to reduce the U.S. agricultural trade surplus in fiscal year 2019 to the lowest level since 2007, partly because of "significant declines in projected exports to China", according to the U.S. Department of Agriculture's Economic Research Service. "I think they're preparing the market for the worst-case scenario but a trade deal is probably going to happen", said Peter Cardillo, chief market economist at Spartan Capital Securities.

Thousands of Chinese products - including fruit, vegetables and manufactured goods - would be affected by a decision to raise tariffs, while the USA has indicated that it would also be prepared to target the $325b of imports that are not now subject to higher duties. "But guess what, they're not, they're not competition for us".

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The world's two largest economies have already raised tariffs on hundreds of billions of dollars of each other's goods in their dispute over US complaints about Chinese technology ambitions.

Oxford Economics warned that escalating the tariffs to the remaining Chinese goods, which would be expected to spark further retaliation from Beijing, would cut 0.3 percentage points off USA growth. We can make China's life much harder economically than they can make ours. He also threatened to impose an extra 25% levy on another $325 billion of Chinese goods "shortly".

The deal is a top priority for both Trump and Xi, who pledged during a December meeting in Buenos Aires to reach a comprehensive trade agreement that would end the escalating tit-for-tat trade war Trump started a year ago with his shock tariffs on $200 billion in Chinese imports. China's imports from the USA fell almost 26pc while exports to the United States fell just over 13pc.

Investors may have taken for granted that the US-China trade dispute would be resolved. "But for now ... come Friday there will be tariffs in place", Lighthizer said.

A fresh trade war between Washington and Beijing does not bode well for India, especially in the current global economic environment, and the prospect of a sharp spike in crude oil prices.

At one point, there were reports that China's team would pull out of talks, but they were later dismissed by the Ministry of Foreign Affairs on Monday.

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