19 July 2019
Trade imbalances between the United States and China will persist for a long time. Photo: Reuters
Trade imbalances between the United States and China will persist for a long time. Photo: Reuters

US-China trade war to fuel reforms, new alliances

US-China trade war officially kicked off on July 6, but several hours later, the Office of the US Trade Representative announced guidelines on how to secure exemptions from the tariffs. Companies have a period of 90 days to file a request and the exemption will be valid for one year.

Does this mean that the administration of US President Donald Trump is softening its stance? It’s hard to tell, but no matter what, economic growth in China and globally will be affected by the ongoing trade conflict and the rising uncertainty.

The trade war between the world’s two largest economies is expected to reduce China’s overall exports by 1.3 to 2.7 percent, and the nation’s GDP growth rate by 0.2 to 0.5 percentage points.

It will also put additional pressure on the renminbi. China’s current accounts surplus has been shrinking over the last two years, and the decline has accelerated in the first four months of this year. If its trade surplus with the United States continues to narrow, the Chinese currency is expected to further weaken.

The Ministry of Commerce said 59 percent of the products subject to US tariffs are produced by foreign companies, and as such, the tariffs are going to hurt foreign companies, including US firms, that operate in China.

Undoubtedly, the trade imbalances between the US and China will persist for a long time.

I believe the US would keep pushing China to adopt a series of structural reforms, such as lowering trade barriers, expanding imports and enhancing the protection of intellectual property rights.

Meanwhile, China is pressing ahead with negotiations for the establishment of the Regional Comprehensive Economic Partnership, a proposed free trade agreement with countries in the Asia-Pacific, in a bid to further open up its economy.

China is also likely to speed up the development of strategically important new industries to reduce its dependence on high-tech imports from the US.

The full article appeared in the Hong Kong Economic Journal on July 9

Translation by Julie Zhu

[Chinese version 中文版]

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Senior investment banker

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