The 2018 G20 Summit took place in Buenos Aires, Argentina this past weekend with world leaders from the United States, China, and 18 other nations meeting to discuss current and future world problems. The summit focused on creating guidelines for improving infrastructure development projects, developing sustainable food sources, adapting to employment disruptions from technological advancement, and promoting economic gender equality. Not specifically on the agenda: the trade war between the United States and China.
What began with a campaign promise in 2016 has now become an international affair of murky investigations, fiery rhetoric, and volley after volley of tariffs. The most recent development came in September, when the US placed a 10% tax – with plans to raise it to 25% by the end of the year – on $200 billion of Chinese goods. China responded the next day by placing a 10% tax on $60 billion of American goods. In a long run of tit for tat tariffs, there has been little indication that either President Donald Trump or President Xi Jinping plan on slowing down.
However, an end may be on the horizon following an agreement between the two to put a hold on the trade war and allow time for negotiations regarding trade disputes. While existing tariffs remain intact, any plans to further escalate or retaliate have been delayed 90 days. If the US and China fail to reach an agreement within that time, the US will raise the tax on the $200 billion of Chinese goods to 25% (as planned) and China will retaliate in a similar manner.
News of the postponement resulted in global market gains. Indexes in Hong Kong and Shanghai went up more than 2.5% while stocks in Paris, London, and Frankfurt were all up by more than 2%. Back in the US, the DOW went up 2%.
Still, American investors remain wary. There is little reason to believe that this brief period of negotiations will somehow resolve the prolonged conflict, which has been weighing heavily on the American stock market. After reaching a year-to-date peak in late September, US stocks fell drastically over the span of two months, wiping most gains made in 2018.
This recent drop in stock prices has made investors anxious, making the hiatus in the trade war a welcome one. While a solution is not guaranteed, heading to the negotiating table is a step in the right direction for the US and China. The temporary truce is an indication that both Trump and Xi recognize the struggles of their domestic economies.
From the American perspective, it is time the trade war slows down. While consumers have yet to start feeling tangible impacts of the trade war, specific industries are beginning to suffer. The American manufacturing industry – the same one that President Trump has focused most of his sparse attention on – is weakening. The US ISM manufacturing index fell to a 12-month low in July as global export orders have dropped to 24-month lows.
China knows about American struggles, giving them leverage over the US in the coming talks. However, Trump’s decision to have Robert Lighthizer, an American trade envoy who has been pushing for more tariffs to build leverage over Beijing, is an indication that the US will walk away from talks if China is uncooperative.
The trade war likely is going to continue after the end of the 90-day period. There is little to indicate something has changed in the American or Chinese approach to the trade war. Each side is still trying to bully the other into submission. Until the two nations finally recognize the global repercussions of the mounting tariffs, the trade war will continue. In the meantime, grab a bowl of popcorn and watch as the talks unfold: it’s sure to be an adventure.
Be sure to check out our CULTURE section for more content!