China and the United States have signed a partial trade agreement. However, this does not mean that trade-related issues will not affect the global economy. The USA-China tension will continue to exist. The second phase is likely to be more complex than the first one that resulted in a deal this Wednesday at Washington. Ongoing conflicts like Brexit and the European Union’s own trade dispute with the United States can potentially complicate matters.
WHAT IS THIS TRADE DEAL?
President Trump hopes to reduce tariffs, to export agricultural products and to curb down on the theft of intellectual property.
While officials seem hopeful, expert analysts are more sceptical. Thus, this leads to questions if China will ever agree to reduce its role in the country’s economy. Even after the reduction in tariffs, about 66%of all Chinese exports to the US would still be covered by tariffs. Thus, this might also lead to retaliatory tariffs on US exports to China.
Therefore, this can have particularly grave consequences on technology, argues the former Federal Reserve chair, Janet Yellen. There is a risk of a slowdown in the development of 5G, artificial intelligence etc. Then, there is the fight over Huawei, a global supplier of telecom equipment.
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WHAT IS THE COST OF A USA-CHINA RIFT?
Given that both countries have large political and financial capital, any tension between them will surely have a ripple effect on the world. Secondly, Trump has also argued for greater tariffs placed on other countries as well. For example, he wants to punish France for its imposition of the digital tax. This is because the tax affects American companies like Facebook. Also, German automobile companies like Daimler and Volkswagen have seen the same threats. Therefore it is essential for the US to maintain its trade relations with the EU as it is the largest trade relation in the world.
Further, with the UK stuck in brokering a Brexit deal, there is uncertainty over future trade between the two countries. Thus, this too will affect GDP growth. If the UK stays close with Brussels, it fizzles its ability of a deal with the US. Even the UK cannot afford tariffs otherwise its auto industry risks collapse.
Therefore, it needs to be a priority not just for the Trump administration but for governments around the world to focus on agreements that reduce the ripple effect of tariffs.
Since both these countries hold immense power, there is also a need for agreements to de-escalate the USA-China conflict.