Published: Mon, May 13, 2019
Markets | By Otis Pena

Tense future for US-China ties, with or without trade deal

Tense future for US-China ties, with or without trade deal

Washington wants Beijing to tighten its intellectual property protections, cut its subsidies to state-owned firms and reduce the yawning trade deficit; China wants an end to tariffs as part of a "balanced" deal. Kim Parlee speaks with Fotios Raptis, Senior Economist, TD Bank Group.

On Saturday, Trump suggested that China could be waiting to see if he wins reelection next year, but said Beijing would be "much worse" off during a second term of his in the White House.

There are many other sources of tension ripe for flare-ups: US military aid to self-ruled Taiwan, Chinese territorial claims in the disputed South China Sea, US criticism of Beijing's Belt and Road global infrastructure programme, and US security warnings against Chinese telecom champion Huawei.

Meanwhile, in the United States, there remains broad, bipartisan consensus that President Donald Trump is doing the right thing by pushing back against a rising and aggressive China which has been accommodated for too long by Washington.

The US raised tariffs on US$200 billion (S$273 billion) worth of Chinese imports, from 10 per cent to 25 per cent last Friday.

"I think that China felt they were being beaten so badly in the recent negotiation that they may as well wait around for the next election, 2020, to see if they could get lucky & have a Democrat win - in which case they would continue to rip-off the U.S. for $500 Billion a year", Trump said in a tweet on Saturday.

Larry Kudlow, the president's economic adviser, said the problem was that China tried to backtrack two weeks ago, but there are "probably really good" chances that Mr. Trump and Mr. Xi will meet at the G20 summit.

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Beijing has vowed to respond to the latest USA tariffs, but has announced no details yet.

"Uh, fair enough", he said.

Kudlow agreed with Wallace, contradicting Trump's characterization of tariffs. One study released this week said that as companies which import steel absorb the cost of tariffs by passing it on to their customers, American consumers and businesses are paying $900,000 a year for every job created or saved by the United States action.

Beijing retaliated for previous tariff hikes by raising duties on US$110 billion of American imports.

The toughening stances on both sides in their trade war showed that the two powers are ready to play hardball to protect their national interests.

Vietnam is emerging as a major beneficiary of the trade war, with a string of American companies operating in China seeing the nation as the top choice for relocation.

"But if it is tariffs on goods coming into the country, the Chinese aren't paying", he said, eventually eliciting a "No" from Kudlow.

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