Much ado about nothing? Trump announces partial agreement in trade dispute with China

China and the United States seem to be heading for a partial solution to the trade dispute. The talks between the two countries, which resumed last week, have at least brought a first success. However, in the past two years, in which the conflict gradually escalated, an agreement had often come within reach. But it failed time and again because of unacceptable or hardly realizable demands on both sides and ultimately also because of the volatility of Donald Trump. This cannot be ruled out this time either.

According to the US President, the core of the partial agreement is the willingness of the Chinese to purchase American agricultural products worth between USD 40 billion and USD 50 billion per year. The solution will also include higher imports of Boeing aircraft with a volume of up to 20 billion US dollars. In addition, there is said to have been an initial agreement on the critical points of contention on currency issues and the protection of intellectual property, about which, however, nothing more is known yet. In return, the Americans declare themselves willing to renounce the tariff increase on imports from China with a value of 250 billion US dollars planned for today (15 October). The tariffs should be raised from 25% to 30%. However, the partial agreement is still far from ready to be signed. The details known so far are mainly based on Trump’s statements and should be assessed with caution.
Above all, the plan for the Chinese to import up to 50 billion US dollars in US agricultural goods could prove to be an air number. Not only would China have spent barely more than 25 billion US dollars on US agricultural products even at its peak before the outbreak of the conflict – the target would therefore at least be a doubling of previous imports, even quadrupling compared to the significantly lower value from 2018, and would then correspond to at least one third of all China’s imports from the USA. That alone would be difficult to implement. In addition, China’s demand for soybeans, the most important agricultural import from the USA, has fallen significantly due to the swine fever rampant in China. Soya warehouses are packed to the brim. This, too, would currently make it more difficult to expand imports. And in any case, US farmers could only increase deliveries to China slowly at the moment. In view of weak demand for soya from China, they have opted for alternative sowing for the coming harvest season and could only increase soya harvests significantly again in 2021. Only an expansion of pork deliveries, on which China is now dependent, is conceivable. But these are significantly lower volumes. The plan is therefore feasible at best in the medium term.

On the positive side – and already in the short term – is the fact that Trump is suspending the next increase in punitive tariffs against China for the time being. If the agreement now reached is actually sealed in writing in mid-November, it is likely that the tariff increase planned for December will be cancelled. This would relieve considerable pressure from China’s export economy and brighten the country’s growth prospects, which have recently deteriorated somewhat, even if a large part of the tariff burden were to remain in place. However, the weighted tariff rate would then only be a good 15% instead of 25%. It is also possible that Trump has his own economy in mind when abolishing the tariffs, because he gradually sees that the US economy is beginning to suffer from the tariff conflict. This would at least significantly increase the chances of success of the partial agreement described as „Phase 1“ and possibly also pave the way for further rapprochement.

Until then, however, caution is called for, as the US President, known for his voltes, can change his mind just as quickly. Therefore, the uncertainty which has arisen from the back and forth in the trade dispute and which is depressing the global economy will always remain with us. It would also be premature to expect Trumps to give in in the conflict with the EU. On the contrary, it cannot be ruled out that the US President will „shoot“ himself at the Europeans after an agreement with China. It’s certainly too early for euphoria at the moment.

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