Thursday, September 05, 2019

Trump Government Needs to Change Course and Stop the Trade War with China
By Li Hong
Global Times
2019/9/5 23:03:40

Following a ferocious rhetorical spat between Washington and Beijing over the past two months, the world's two major powers have agreed to hold high-level trade talks in the US in early October. The world has been watching aghast, concerned that the unprecedented-scale trade war will cause a global recession in 2020.

"Both sides agreed that they should work together and take practical actions to create good conditions for consultations," China's Ministry of Commerce said in a statement.

It won't be easy for the two powers to come to good terms and sign a deal if the US government refuses to give up its bullying tactics during the upcoming negotiations.

What is urgently needed for a successful round of talks is sincerity and faithfulness - willingness to make due compromises to reciprocate the opposite side's offering.

Playing tricks or gimmicks, or gambling through outlandish, noisy Twitter-storms will hardly lead to a breakthrough in talks, but will instead expose brashness and desperation.

More than a dozen rounds of talks in the past 16 months have shown that placing maximum pressure on China - by raising tariffs on incrementally bigger tranches of Chinese imports, or ensnarling ZTE, Huawei and other Chinese high-tech corporations into the trade tussle - will be met with unblinking tit-for-tat retaliations.

If the White House truly wants the coming negotiations, which will involve a series of video conferences and face-to-face talks, to achieve tangible or substantive progress, it needs to rethink its previous anti-China posture and shun China hawks and China cynics like the White House's trade advisor Peter Navarro. People like Navarro have steadfastly ill-advised the Trump administration to take an antagonistic path when it comes to China.

Obviously, economic confrontations with China won't do the US, or the current Trump government, any good. Any thought to decouple the US economy from China's will be fiercely opposed by American multinational companies, because any decoupling attempt from China's huge market will hurt the fundamentals of their country.

Increasingly, China's economy is fired by domestic consumption power, and the country's 500 million middle-class urbanites are supporting its organic economic growth.

The buying power of the Chinese is never to be neglected - this is best demonstrated by their penchant for quality German- and Japanese-made cars, and their patriotic consumption of Huawei smartphones in the wake of the Trump administration's vicious attack on the Chinese company.

Recent manufacturing activity statistics in China and the US point to diverging trends. Despite the massive tariffs imposed on Chinese goods by Washington, China's August Purchasing Managers' Index (PMI) rose to 50.4, while the same index for the US, by the Institute for Supply Management (ISM), tumbled to 49.1, indicating American manufacturers' rising jitters over a precipitous economic downturn. 

Additionally, there are growing signs of distress for American companies and consumers due to the escalations of the trade war, which Trump initiated and has continually intensified since mid-2018. It's known universally that high tariffs cripple shipments of normal trade, destroy supply chains upon which all manufacturers rely, and make people's lives harder as tariffs translate to higher commodity prices.

It is no wonder that investors have been spooked, as the risks of a US recession are now greatly elevated - some even claim that the downturn has likely already begun.

In the past three weeks, the yield of 10-year US Treasuries fell lower than that of 1-year Treasury notes numerous times. The inverted yield curve of bonds doesn't bode well for the US economy, as economists believe it will induce a recession. Meanwhile, American consumers' confidence is dropping fast. Although US unemployment remains low, it is deemed a "lagging" indicator and when the economy worsens, the unemployment rate will climb.

In summary, the trade war is a drag on the US and Washington will never win such a conflict with China. Time, now, is seemingly on China's side. The headwinds that have been battering the Chinese and the global economy are washing up on US shores and forcing the Trump administration to change its course.

The author is an editor with the Global Times. bizopinion@globaltimes.com.cn

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