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2019-04-01

China-U.S. Trade War (Survey)



If there is one factor that has kept the global economy in suspense for most of 2018 and thus far this year, it is of course the escalating trade tensions between the world’s two largest economies: China and the United States. In what appears to have been a positive development, the U.S. declared a truce on new trade tariffs for 90 days in early December, paving the way for both countries to start a new round of trade negotiations. Citing substantial progress in bilateral talks, U.S. President Donald Trump announced on 24 February that new tariffs would be postponed indefinitely. Since then, there has been rising optimism that both countries are close to sealing a trade agreement that would put an end to the Sino-American trade war. However, in reality, how close are we to a comprehensive agreement that would remove one of the key downside risks to the global economy? Which of the U.S. demands will be met? How can the deal be enforced? These are the pivotal questions we wish to shed some light on with this Special Survey on the China-U.S. trade war.

Along with the trumpeted reduction of the massive U.S. trade deficit with China (around USD 320 billion in 2018), the U.S. administration is seeking to gain further concessions from the Asian giant via a comprehensive trade deal. A reduction in the trade gap between the two countries, the strengthening of intellectual property rights and greater market access for U.S. companies are seen as the most likely action points to be rubber-stamped in the deal. However, tackling more controversial points such as forced technology transfer and state subsidies is less likely given that they are central to upgrading China’s manufacturing industry and the country’s economic development model more broadly.

“Forced tech transfer and espionage are controversial and China would likely not accept including specific details about these type of activities in a trade deal document. China will likely focus more on the first two items as the key structural offer in any negotiation.” 
- Shaun Roache, Chief Economist APAC at S&P Global Ratings

Despite speculation that both countries are close to striking a trade deal, a majority of the analysts surveyed consider that the upcoming agreement will not be conclusive. Instead, analysts contemplate an interim agreement as the most likely outcome of recent trade talks. Against this backdrop, there is still a significant chance that there is an escalation in trade tariffs before an agreement is reached. On average, there is around a one-third possibility that both countries implement new punitive measures.