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Trade War With China: ‘Not So Easy to Win’


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China and the U.S. have been locked in an ongoing trade war as each country disputes tariffs placed by the other on the trading of goods.  In his campaign, President Trump promised to “fix” China’s “longtime abuse of the broken international system and unfair practices”.  The U.S. did file a request to the World Trade Organization regarding possible violations by China on intellectual property rights. Other nations such as Japan, Saudi Arabia, and Ukraine and governmental bodies such as the European Union have also filed requests regarding possible Chinese violations. China’s trade surplus with the US hit a record high in 2017, with a surplus of $275.81 billion. President Trump began placing tariffs on Chinese goods in January 2018.  China has responded by imposing tariffs on 128 products it imports from the U.S.  New tariffs have since been imposed by both nations, in a back and forth pattern, each retaliating against the other.

 
On December 1, 2018, President Trump and his Chinese counterpart Xi Jinping met at the G-20 summit.  They announced a temporary, 90-day stand-down in the escalating trade dispute.  This agreement prompted a sharp gain in the stock market on Monday, December 3rd, with an opening rise of 1.7% for the Dow. By the close, the increase was still at plus 1.1%.  However, on Tuesday, U.S. stocks tumbled when experts warned that the two countries remain far apart in ironing out key disputes.  The Dow ended Tuesday down 3.8%, more than erasing the gain from the previous trading days.

 
The trade dispute has rattled markets in recent months as signs emerged that it has begun affecting corporate profits. That stoked traders’ fears that if it drags on much longer it could further weigh on global economic growth. These jitters helped drive demand for government bonds Tuesday, pushing prices higher. On Wednesday, A spokesperson for the Chinese Ministry of Commerce said in a brief and vague statement that Beijing is “confident” its trade and economic teams will be able to work with the Trump administration to strike a permanent deal on trade issues within “90 days in accordance with a clear timetable and road map.” Many experts agree that the U.S. needs to build a united front against China to effectively create any lasting change. They point to the complaints filed by other countries (see above).  Secretary of the Treasury Steven Mnuchin stated that there could be “a phased-in approach. This is not about kicking the can down the road, but there are certain issues that they can deliver in the short term.”
Stock and bond trading is closed in the U.S. Wednesday in observance of a national day of mourning for former President George H.W. Bush.  By the opening bell on Thursday, markets had dropped even further

 

One result of this instability in China has been an increase in interest regarding moving manufacturing to Mexico. Not only does Mexico offer strong intellectual protections and great trade agreements, but labor rates are now slightly cheaper in Mexico than in China. This is the first time in history that this has been true. Couple that with much faster shipping times to the U.S., and the “neighbor to the south” has become a really attractive alternative. Atisa, for example, has been hosting Chinese visitors on a weekly basis and activity is only increasing. Both U.S.and Chinese companies are looking to partner with developers like Atisa in order to move at least part of their production into North America. This has the added benefit of geographical diversification and can serve as a hedge against political and geographical turmoil.

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