U.S.-China trade war or Trump-Xi Jinping conflict?


The United States (U.S.) and China trade war has been ongoing for over a year and there still does not seem to be any light at the end of the tunnel. Various analysts consider this as being one of the biggest threats to the global economy. As a matter of fact, in a poll conducted by Reuters, approximately 80% of over 60 economists have neutral to pessimistic views on the outcome of this war by end of 2020.

U.S. and China were each other’s top trading partners in 2018, with the two countries sharing over $650 billion in trade between them. The progression of this trade war has resulted in Mexico and Canada surpassing China as the U.S.’ primary trading partners. A study by research firm Rhodium Group also shows that investments between the two countries fell to the lowest six-month level in five years, while foreign direct investment and venture-capital deals stood at $13 billion in the period – a decline of 49% from the first two quarters of 2018.

The U.S. President’s policies are aimed at discouraging Americans to import Chinese goods by making various products more expensive. China retaliated and introduced its own set of tariffs on U.S. goods. Eric Fishwick, chief economist at CLSA, told CNBC that China has managed to limit its imports from the U.S. more than the U.S. has managed to do from China. He did add, however, that trade between the two has slowed down in a relatively greater magnitude than the respective countries’ trade flows with other parts of the world such as Europe.

The greatest trigger of the trade war was the fact that the U.S. runs the largest trade deficit with China. This was in fact what Donald Trump used as a justification in addressing the first round of tariffs. However, trade experts, executives and officials in both countries firmly believe that the conflict between these two superpowers has now turned into a political and ideological battle that goes beyond tariffs.

U.S. and China resumed negotiations talks earlier this week, but a definitive solution to the impasse still seems unlikely. This negative outlook is reinforced by the fact that negligible progress has been registered since discussions broke down in May. Furthermore, the last four months have been characterised by broken promises and public insults from both parties. The Chinese government seems reluctant to budge from its current stance, which is contrary to the U.S. demands to fundamentally change the way the economy is led and managed. William Reinsch, a former senior Commerce Department and Centre for Strategic and International Studies official, believes that both countries are now locked in this uncomfortable situation which is not easy to resolve.

Despite that most of Donald Trump’s policies and management of the U.S. economy have been highly divisive and failed to gather consensus, this has not been the case with his tough stance on China. This means that, should he fail to be re-elected to power in November 2020, it is unlikely that his successor will repair the China relationship. In a debate on September 12, presidential candidates have in fact used terms like theft and corruption when referring to Chinese trade practices.

Even though Trump is facing deteriorating economic figures, the vast majority of political stakeholders are sticking to his stance on China. On the other hand, the initiation of the trade war by U.S. president, is giving the leader of the China’s Communist Party, Xi Jinping, some short-term political mileage by allowing him to blame the White House for the slowdown in the economy. Albeit seemingly dodging a recession, primarily due to currency devaluation and easing in domestic policy, China’s August Industrial Output stood at 4.4% year-on-year, or 0.8% less than the estimated figure of 5.2% and down from the 4.8% level registered in July.

The diatribe between Trump and Xi Jinping slightly softened half way through the month, following a tweet by Trump announcing that, “as a gesture of good will”, the introduction of new tariffs scheduled for October 1 was delayed by two weeks due to the Chinese festivities on that day. This followed the release of a list of 16 U.S. imports that China opted to exempt from tariffs from their end. However, this dialectical respect was short lived, as on Tuesday September 17, Donald Trump reiterated that the intention of his administration was to strike a deal with China before the next presidential election. Should this not materialise, he said that the terms forced on China would be harsher and “far worse than what it is right now”.

From his end, President Xi Jinping did not comment on the trade war directly during a visit at a coal mining machinery factory also on September 17. He evaded the topic by focusing more on the manufacturing industry in China – saying that this is now the largest in the world and that they intend on moving forward to change the industry via innovation.

Global markets and economies alike are currently caught in crossfire among interest rate decisions, Brexit issues and trade war implications. The latter are being exacerbated by the personal political interests of two of the most powerful politicians in the world – a situation which is heightening volatility and which alters the mood of market makers as it unfolds.


David Baldacchino, MSc Wealth Management (Edinburgh), B.Com (Hons) Banking and Finance (Melit.), DipFA, is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]