Friday, 26 April 2019 04:38 GMT
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Structural problems at the heart of trade war




(MENAFN - Asia Times) Former finance minister Lou warns of the problems that negotiation teams face when Trump and Xi talk at the G20 in Buenos Aires By Gordon Watts November 20, 2018 7:50 PM (UTC+8) <> <> <> <> <> <> <> The trade war between the United States and China is starting to have an impact on the global economy. Photo: iStock Ten days and counting. When the curtain goes up on the G20 summit on November 30 in Buenos Aires, the spotlight will fall on the planned trade talks between United States President Donald Trump and his China counterpart Xi Jinping.

For the global community, it can not come quick enough.

So far, the shockwaves from what is starting to look like a new Cold War have left international markets wobbling and the world's second-largest economy cooling amid heightened concerns from the global community.

But hopes of a quick fix might be premature.

"China-US divisions are structural problems, which may not be solved in the short term," said Lou Jiwei, the former minister of finance . "However, a break-up will cause huge damage to both, as China is not the former Soviet Union, and it has become highly integrated into the current global system.'

The fallout has already descended on China's economy. Last week, a batch of data released by the National Bureau of Statistics showed that the impact of the trade dispute is having a significant effect.

While industrial output and investment grew faster than expected in October on the back of a raft of government measures, retail sales have softened.

Corporate debt The property market has also suffered while new car sales have stalled as consumers rein in spending. Local government and corporate debt are other ongoing issues.

As for the markets, they have reacted wildly in the past 24 hours after the spat between Beijing and Washington spilled over at the Asia Pacific Economic Co-operation meeting at the weekend.

The Shanghai Composite Index dropped 2.1% to close at 2,645.85 while the Shenzhen Composite Index shed 2.7%. Hong Kong's Hang Seng fell nearly 2% with the rest of Asia's major indices in the red following an overnight sell-off on Wall Street.

Reports that Xi's top trade negotiator, Vice-Premier Liu He , had canceled plans to visit the US added to the turmoil.

Yet this can be put down to a change of strategy from Beijing. A source told the South China Morning Post that the decision had been made after 'work-level discussions' between the two sides.

'The latest plan is that the two countries' trade negotiation teams will meet in Buenos Aires,' the person, who declined to be identified, was quoted as saying, adding that they would work behind the scenes to flesh out even a tentative agreement between Trump and Xi.

Still, China is pressing ahead with its 'opening up' policy to cope with rising trade tensions, according to Liu Shijin, an adviser to the People's Bank of China.

Trade frictions Although a timeline was not mentioned for these 'market reforms,' he told a finance forum in Beijing that they could not be stopped.

'The Sino-US trade frictions are still ongoing, private firms' expectations are unstable, and some people are saying they cannot see clearly and are a bit anxious,' Liu said.

'To cope with the trade frictions, China should implement a high level of opening up of its markets and economy, but it will push ahead with those reforms on its own steam and [will] not be forced by others,' he added.

His remarks come at a time when tit-for-tat tariffs have been imposed on a range of imports from both countries, including duties worth more than US$200 billion on Chinese goods and products entering the US with the threat of more to come.

'Through its strategic choice of Chinese products, the US government was not only able to minimize the negative effects on US consumers and firms, but also to create substantial net welfare gains in the US,' authors Benedikt Zoller-Rydzek and Gabriel Felbermayr wrote in a paper for EconPol Europe , a network of researchers in the European Union.

'As the trade conflict escalates, however, the US administration may not be able to restrict its selection to products with high import elasticities,' they added. 'And US welfare might decrease as more of the tariff incidence falls on consumers.'

Only a deal in Buenos Aires would eliminate that scenario.

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Structural problems at the heart of trade war

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