A trade war truce twinkles in the dark

Trump Xi
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The recent announcement, muted as it was, of a partial solution to the nearly two-year trade war between the US and China, while not the end of the the fracas, could and should be viewed in a positive light. But much still hinges on the vagaries of politics in both countries.

The announcement of a phase one trade deal between China and the US brought relief to the world and has been viewed as somewhat of a truce in the bitter trade war that has clearly rattled the global economy and with it air cargo.

While the interim deal is largely focused on agricultural products, the move at least marks a turning point for the world’s two largest economies as they demonstrate the capability to move forward somewhat amicably. This is a much needed indication after months of fractious relations between the two economic powerhouses.

It is in its barest form an indication that the two countries can stabilise their relations and succeed through calm-headed negotiation. That is surely more important than what actually came out of this phase one agreement.

Unfortunately for the global economy it has been a political conflict fought with economic weapons. It is without doubt a ‘weaponisation’ of trade. Nothing is likely to change on this front in the near future.

US President Donald Trump has suggested that this initial deal heralds a much bigger deal is “potentially very close”. But we all know the proclivity this man has for double-speak and a certainly an enormous ‘pinch of salt’ is always in order.

This trade war is as much about domestic US politics and Trump getting himself re-elected as it is about tackling unfair Chinese trade practices, Chinese technological ascendence, intellectual property theft and so on. The ongoing impeachment circus probably won’t help the cause of ending the trade war though. It will surely be used as yet another tool in Trumps feeble tool box to extract maximum value for his own personal ambitions.

The fact that this first ‘skinny’ agreement, as analysts have referred to it, focuses on agriculture speaks volumes about what Trumps motives really are. He alienated a substantial portion of his base by hurting farmers – collateral damage – in his trade war and this agreement helps sew up that problem.

But many problems remain for Trump, who has an unearthly focus on elections next year, and this will surely not bid well for a quick resolution to the trade war. There is more milking to be done from this trade war cow that will help offset domestic problems for Trump one suspects.

China on the other hand also involves deep politicking. The trade war hurt and continues to hurt the Chinese economy, but it would be a colossal mistake to think that the Chinese leadership would simply roll-over on this. There is no way in heaven, earth or hell that the single-party state would simply capitulate on its core principles of sovereignty and its clear ambitions to be a major force in the world. And it too has its internal problems.

So what are we left with? We have a solitary tiny LED light barely twinkling at the end of a long tunnel. But twinkle it does. One can only hope that Trump plays his cards to end the trade war sooner than later, but this may be a vain hope as the US election is still months away… and timing, as they say, is everything.

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