Why US-China trade war topped the G20 Summit agenda

Special Why US-China trade war topped the G20 Summit agenda
US President Donald Trump takes part in a welcoming ceremony with his Chinese counterpart Xi Jinping in November 2017 in Beijing. (Getty Images)
Updated 02 December 2018

Why US-China trade war topped the G20 Summit agenda

Why US-China trade war topped the G20 Summit agenda
  • Nobody wants a global recession, which would affect energy prices
  • The Chinese find themselves in the unusual position of being global champions of free markets and globalization against a protectionist US

BUENOS AIRES: Trade wars have been the elephant in the plenary hall at the G20 Summit of world leaders in Buenos Aires this weekend. The Argentines have been anxious to push the more altruistic aspects of their agenda for the annual power gathering: Sustainability, the future of work and gender issues. 

But what the rest of the world really wants to discuss is how to head off a full-blown and damaging commercial war between the world’s two biggest economies: The US and China.

If the increasingly bitter skirmishing of the past year escalates into a full confrontation, economists agree that it will have a serious effect on the global economy, knocking whole percentage points off growth rates at a time when the world is already facing what the International Monetary Fund (IMF) calls “economic headwinds.”

For the Middle East, and Saudi Arabia in particular, the prospect of a trade-war-induced global recession would hit demand for energy products (still the region’s biggest revenue-earner) and affect its position as a global trading hub between East and West. With the US now virtually self-sufficient in energy, Arabian Gulf oil producers have looked East for future supply deals. Their fortunes are increasingly tied in with those of China and India.

“There are no winners in trade wars,” warned Neil Shearing, chief economist of London-based consultancy Capital Economics. US President Donald Trump disagrees, tweeting earlier this year: “Trade wars are good, and easy to win.” Since being elected in 2016, he has pursued an increasingly bellicose line against his main trading rival, China.

China's factory activity fizzled in November, in the latest sign that the world's second-largest economy is losing steam in the midst of a US trade war. (AFP)

Many economists disagree with Trump’s conclusion that America is losing out on hundreds of billions of dollars because of the trade imbalance with China. They argue that actually the US is gaining access to cheaper goods than it can afford to produce at home.

A lot of American business leaders are unconvinced about the benefits of Trump’s campaign against China. Iconic manufacturers such as Harley-Davidson and General Motors have threatened to move production outside the US and close American factories (some in the heart of “Trump country”) if they are unable to import cheaper Chinese products.

But Trump is convinced that the US is being ripped off. His electoral support base looks favorably on his confrontation with China as part of the process of “making America great again.”

To that end, he introduced proposals to impose $200 billion of tariffs on a range of Chinese imports, from steel and aluminum to food products. These tariffs are being phased in to give the industry time to adjust supply chains, with an initial 10 percent imposition due to be raised to 25 percent in January.

If that happens as threatened, the prospect of an all-out trade war is much closer. China has already said it will retaliate with tariffs on US goods such as gas and aircraft, as well as more symbolic measures against products regarded as typically American such as some beverages.

The Chinese find themselves in the unusual position of being global champions of free markets and globalization against a protectionist US. Chinese Vice President Wang Qishan held out an olive branch at a business summit in Singapore, offering further talks to avoid all-out war and promising to remedy some of the more obvious examples of Chinese trade abuse.

Some analysts say while Trump’s methods may be blunt and his rhetoric crude, he does have a point. China has become the biggest exporter in the world through careful management of its currency (Trump would say “manipulation”), illicit copying of Western technology and disregard for intellectual property rights.

These are the issues that will figure on the dinner agenda when Trump meets Chinese President Xi Jinping at the G20. There were some encouraging signs from the American side ahead of that dinner, with Trump saying: “We’re working very hard. If we can make a deal, that would be good. I think they (the Chinese) want to, and we’d like to. There’s some good signs. We’ll see what happens.”

America’s main negotiator on trade, Robert Lighthizer, said he would be “very surprised if the dinner is not a success,” and highlighted the good personal relationship between Trump and Xi.

One option could be for the second phase of the tariffs imposition (the hike to 25 percent) to be delayed to give officials and policymakers more time to talk through the issues, and for the US to push harder for Chinese concessions on technology transfer and intellectual property rights.

This would be a cease-fire in the trade war rather than an armistice, but could form the basis for more meaningful negotiations when a senior party of Chinese trade officials heads to Washington later this month.

Observers at the G20 thought it was still a long shot that there would be an enduring peace in the US-Chinese rivalry, but at least if the war-like rhetoric is toned down, the summit can chalk that up as a significant success.