A Tense Time For Us Trading With China And The Eu

A the wide range of people, organisations and countries involved in trading heaved a huge sigh of relief following the recent announcement that an agreement had been reached in the long-running trade war between the US and China.

While there may not have been the huge boost to the market that some may have been hoping for, it does promise greater stability over the next couple of years, not to mention more harmonious relations between the two countries with the world’s biggest economies.

The US seems to have been the big winner in the deal, surely good news for President Trump in the year he’s up for re-election. In its simplest terms, China has agreed to buy an extra $200 billion worth of goods and services from the US over the next two years, above the $185 billion value of its 2017 imports. This is a huge commitment that requires a 54% increase in each of the years. So, it may turn out to be very significant that there’s an escape clause in the agreement signed by Trump and Chinese vice premier Liu He early in January.

Other wins for the US include the maintenance of the 25% duties it charges on around $250 billion worth goods destined for the manufacturing industry and the 7.5% it charges on $120 billion worth of clothing and electronics imported each year. China has also made major concessions in promising to loosen regulations that have, until now, restricted imports of many products from the US agricultural sector.

On the Chinese side, the country will keep the retaliatory duties between 5% and 25% that it imposed on $110 billion worth of products that it imports from the US annually.

But amid all the celebrations there have been concerns aired that many other countries may lose out because of the deal, including a number of US allies. This is because the hugely increased import commitments that China has made means that they will have to buy the products and services previously supplied by countries like the UK, Brazil and France.

Against this backdrop, there’s also a brewing trade row between the US and the EU with President Trump evidently squaring up for the fight. The indications are that it’s the auto industry that will be the primary focus with big tariffs threatened on imported cars from manufacturers like Renault, Volkswagen and BMW as well as on typical European foodstuffs like cheese and wine.

The situation is further complicated by the proposals of the EU and Britain to bring in laws to ensure that US digital firms pay their due taxes. The US has declared these proposals unfair and threatened to also use extra tariffs on imported autos as retaliation.

The fact that Britain leaves the EU at the end of January and will be seeking its own trade deal with the US adds an extra layer to the complexity of the situation.

It looks like there will be some very interesting negotiations on the way, especially given that everything is driven by Trump’s unilateral “America First” agenda. But with threatened tariffs being his main negotiating tool, it could well be US businesses and consumers that end up paying the price if his tactics eventually fail.