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Trade Truce

December 3, 2018

After considering the news around the G20 Summit in Buenos Aires, I found myself alarmed that just a few of the 20 national leaders at that meeting hold so much sway over all of our lives. Perhaps I am a naïve old lefty, but there seemed to be a higher proportion of autocrats to democrats in the ‘family photo’ than I am used to seeing, especially if one included the wannabe autocrats. Fortunately, G20 summits rarely conclude policy, being more a photo opportunity for the leaders to show their domestic populations how important they are in an important peer group.

 

Still, there was potentially some good news for shipping at the meeting as the US agreed to withhold for 90 days its next tranche of 25 per cent tariffs on imports from China, leaving in place the recently imposed 10 per cent tariff. After the 90-day hiatus, if no agreement can be reached on a wide range of issues including trade, intellectual property, technology transfer and cybercrime, then the next tranche of tariffs will go ahead. A White House statement sounded positive about the prospects for a deal, reporting that “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries.”

 

China’s Xinhua news agency reported that Presidents Xi and Trump had a “highly successful meeting” over a working dinner on Saturday. Putting a positive spin on the meeting, the agency reported that ”on economic and trade issues, Xi said that it is very normal that the two countries have some disagreements in the fields of economy and trade, adding that the key is to manage their differences properly and work out a solution acceptable to both sides in the spirit of mutual respect, equality and mutual benefit. They agreed not to impose new additional tariffs and instructed the economic teams of both sides to step up negotiations toward the removal of all additional tariffs and reach a concrete deal that is mutually beneficial and win-win.”

 

In other words, China would appear to be willing to concede some ground on trade on the basis that it is negotiating with the US as an equal. President Xi will be able to tell his countrymen that China has achieved its goal of transforming the country from also-ran to world leader in just two generations. Does Mr Trump realise that he has gifted China this propaganda coup? The nations of the Pacific, caught between the two superpowers, will have mentally promoted China already. The outcome of the G20 meeting has been to formalise that parity.

 

Meanwhile, for a deal to be reached, will China really be willing to concede the poor economics of importing American coal over Indonesian coal? Having spent billions of yuan on expanding its domestic oil refining capacity to over 14 Mn bpd, will China really take a decision to import US oil products? Perhaps, because President Xi knows that he is likely to out-last President Trump unless the American can alter the constitutional limit of two terms for a President. Chinese negotiators, used to playing a long game, may take the view that China has no more than six years of a bad deal with the US before it can renegotiate with Mr Trump’s successor.  

 

The Take Away

 

At the G20, leaders agreed to reform the World Trade Organization which has lost relevance in the new era of bilateralism. The most important bilateral relationship is between the US and China. Their positive briefings after the meeting have pushed up oil and stock markets around the world as the trading week opened today. The prospects for a deal appear to be positive: China can see the advantages in appearing to give short-term concessions for long-term benefit. President Trump can claim to have ‘won’ another negotiation. If shipping benefits, then who are we to judge the politics?

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