US-China trade talks: no end in sight

Dr. Rebecca Harding, CEO

As US-China trade talks resume this week, the spectre of global trade disintegration on nationalistic grounds looms ever larger. There is one month to strike a deal between the two countries before the 90-day ceasefire in tit-for-tat rhetoric expires. At stake is $200bn of Chinese exports to the US which will have tariffs of 25% imposed on them, as opposed to the 15% now.

The Trump administration’s demands are that China buys more US goods, make its financial and technology markets more open to global investors, ends its “intellectual property abuses” and puts a stop to its “Made in China 2025” programme. China in return argues that it has opened up its markets and it has committed to buying more US soya.

While the rhetoric between the two sides has moderated slightly, President Trump made it clear in the first week of February that there was no chance of him meeting President Xi before the deadline expires, and US negotiators have indicated that there is still a “mountain to climb.”

We should not expect a resolution to this conflict this week. It is important that both sides are seen to “win” which will be a complex, not least because this is not really about trade – it is about economic systems. The growth of China challenges the status of the US as the world’s dominant economic power. Yet if the US accepts this, it is also accepting a multi-polar world with its own role smaller and less influential economically, technologically and potentially militarily as well. This is a big challenge and will take years, not weeks or months.

Why the suspension of the INF Treaty matters to trade

Jack Harding, Head of Political Risk

Global nuclear arms control was dealt a major blow in early February when both the US and Russia suspended their involvement in the Intermediate-Range Nuclear Forces (INF) Treaty. The INF Treaty, signed in 1987 by Ronald Reagan and Mikhail Gorbachev, is an agreement between the US and Russia to abolish all ground-launched cruise and ballistic missiles with ranges between 500 – 5,500 km (“shorter-range” to “intermediate-range” missiles).

Donald Trump’s stated objective is for the US to develop a nuclear arsenal that is the ‘top of the pack’ with an estimated cost of $1.2tn over the next 30 years according to the Congressional Budget Office. Meanwhile, Russia has announced it will invest in the technology to produce new intermediate missiles within two years. This includes a hypersonic missile capable of travelling at five times the speed of sound and a ground-launched version of the precision naval-launched Kalibr cruise missile.

Although the US and Russia have attracted most of the media attention, China has been developing increasingly sophisticated intermediate missile technology for a while and is not restricted by any international arms control agreements. They recently showcased the Dongfeng-26, an intermediate–range missile that has been dubbed the “Guam Killer” given that the US military bases on the small Pacific island are well within its range.

Beijing had previously called on the US to reconsider the suspension of its involvement in the treaty fearing that the move was as much directed at China as it was at Russia; unrestricted US nuclear missile development could act as a strategic deterrent to Chinese activities in the region if ground-based missiles were to be installed in Guam or Japan. Given that US-China trade talks are scheduled to resume this week, it is likely that the suspension of the INF Treaty will undermine progress in any bilateral dialogue that occurs, particularly given Trump’s frequent conflation of trade interests with US national security.

Although these developments will potentially come as good news for Lockheed Martin (developers of the US’s Terminal High Altitude Area Defense system – THAAD) and Raytheon (developers of the Patriot and Tomahawk missiles), the apparent demise of the INF treaty has also fuelled concerns of a global arms race; particularly since New START (the New Strategic Arms Reduction Treaty) expires on 5 February 2021. If New START is not extended, in just two years’ time the world will lose the last safety net for controlling and limiting the arsenals of nuclear states. Expect the issue of nuclear arms control to feature heavily in the dialogue between the great powers over the coming weeks.

Selected trade news in the week ahead:

  • Monday 11th February: Robert Lighthizer and Steve Mnuchin travel to China to take trade negotiations between the two countries forward.
  • Monday 11th February: US-ASEAN Forum in Jakarta to discuss how maritime tensions in the South China Sea, populism and Islamic extremism in the region can be addressed. ASEAN is under pressure from the trade war between the US and China, and this will be the elephant in the room in discussions this week.
  • Wednesday 13th February: Prime Minister May returns to the House of Commons with feedback from discussions with the EU on Brexit. Although markets are quiet, the closer we get to a no-deal exit, the more likely it is that sterling will show greater signs of weakness. It is already too late for ships travelling between Australia and New Zealand and the UK to reach their destination before the UK is scheduled to leave the EU on the 29th March.

Coriolis in the news this week

Coriolis CEO has been cited as one of the top female leaders in trade by the Association of Global Trade Professionals:

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