Staving off a trade war

Breakthrough came when China decided to lower trade imbalance

For the last few weeks, it seemed that a trade war between China and the United States — the world’s two largest economies — was inevitable. Such a war between the two economic giants would have had repercussions on the whole world in some form or the other. The fact that Beijing and Washington have dramatically moved away from trade war posturing has given the world considerable relief - in addition to drawing fair comparisons with the fate of the grass in the fight between two elephants.

The breakthrough came when China decided to take measures to lower the trade imbalance by accepting the US demand to buy more goods and services following days of negotiations in Washington. The announcement means that the annual trade deficit with China will come down significantly. It is not clear though whether the move would lower the deficit by $200 billion as the United States had expected. One of the biggest benefits of this move, however, is expected to be in the area of growth and employment in the United States.

There are several issues left undecided or which have not been announced in the public domain at least. Both China and the US are silent on whether they would delay or revoke their tariff threats on billions of dollars worth of goods. The value of goods that the US purchases from China totalled $462 billion in 2016. Nearly 19 per cent of China’s exports go to the US. A tit-for-tat imposition of import tariffs would have been damaging for both countries.

Beijing sees the latest agreement as a perfect opportunity for the US to reduce its trade deficit and China to raise the quality of its imports. The success of the agreement lies in mutual understanding and compromise. Anything less than that would be unacceptable.

 

Published in The Express Tribune, May 21^st, 2018.

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