Following a roughly 20-month trade dispute, the US and China finally declared a truce on Dec. 13 through a “phase one” trade deal, which would have the US cancel planned tariffs on US$160 billion of Chinese imports — including smartphones, toys and consumer electronics — that were set to go into effect on Sunday last week.
The US has also agreed to reduce tariffs on US$120 billion out of US$300 billion of Chinese goods affected since Sept. 1 from 15 percent to 7.5 percent.
However, previously imposed tariffs of 25 percent on roughly US$250 billion of Chinese goods, such as machinery, electronics and furniture, remain in place. In exchange, China has committed to a minimum of US$200 billion in increased purchases of US products and services over the next two years, including US$32 billion in agricultural goods.
Despite differences in the content of the announcements from Washington and Beijing on the terms of the preliminary agreement, both sides consider themselves winners. Yet, is it a win-win for everyone? Economists and trade experts have polarized views on the matter.
At first glance, it looks as if the US would benefit from this deal, as existing tariffs with a big increase in Chinese purchases would help lower the trade deficit with China. However, compared with last year’s US$419.2 billion US-China trade deficit, the benefit is utterly inadequate.
Some people believe the US putting the brakes on new tariffs and agreeing to reduce existing ones in exchange for a large amount of Chinese purchases would help US President Donald Trump’s re-election bid. However, Beijing does not give specific commitments in the agreement, which gives it a brief respite from growing economic headwinds, while questions over whether it will honor its pledge remain unanswered.
Even though China has promised to include intellectual property, technology transfer, financial services, currency and foreign exchange issues in the next round of talks, there are no signs of progress with regards to structural reforms or other changes to its economic and trade regime, such as industry policy, government subsidies or state-owned enterprises, which are major concerns for Washington in terms of technology and national security.
For the time being, the US and China can claim to be winners, but as long as Beijing’s structural problems are not resolved, the trade row is likely to persist and might evolve into a long-term technology competition, as well as a political rivalry between a democracy and an authoritarian state.
Moreover, the next phase of trade talks is likely to fall apart sooner or later, considering that the negotiations have been conducted in fits and starts over the past two years. So long as the trade row continues, there is unlikely to be a significant improvement for Chinese and Taiwanese businesses, which still need to hasten their global production adjustment plans to diversify risks.
In the meantime, as concerns over credit and investment quality in China increase with the slowdown of the Chinese economy, Taiwanese financial institutions need to further reduce their exposure to China, which was as high as NT$1.73 trillion (US$57.27 billion) at the end of September, equivalent to 0.49 times the industry’s net value, Financial Supervisory Commission (FSC) data showed.
While US-China trade tensions have eased, they have not ended, so business uncertainties remain. China’s financial crisis must also not be ignored. The FSC must closely monitor the changes in banks’ exposure to China and step up its risk management measures.
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