Scrambling to keep our investments healthy in markets that are exceedingly volatile takes continual effort. With the recent 500-, 600- and 799-point swings in the DOW Jones Industrial Average, we are looking for the reasons for those swings. Some economic analysts say the continual trade dispute between China and the U.S. is causing such an effect. Not surprisingly, this “trade war” has heightened the nerves of investors, particularly those dealing with firms emphasizing exports and imports.
Adding to the tensions is the uncertainty surrounding the agreement worked out between China and the U.S. regarding tariffs, particularly auto tariffs, where there is uncertainty as to what was actually agreed on.
There is no evidence that both China and the U.S. are carefully thinking about how to pursue a new trade deal. Various observers, including National Economic Council Director, Laurence Kudlow, have warned President Trump that continuing tariffs will have adverse effects on the U.S. economy. What the Trump Administration wants to avoid is seemingly endless negotiations with Chinese Trade officials. It is no exaggeration to suggest that both China and the U.S. have a lot to do to repair their trade relationship.
Chinese economic officials involved highly appreciate a scenario where the U.S. negotiators decide to delay imposing an increase from 10 percent tariffs to 25 percent on $200 billion of Chinese products. While such a halt would please Chinese negotiators, Trump is aware that might make him appear weak.
Adding to the tumult, China has her own economic problems. One of them is the slowdown in manufacturing activity reported by the Chinese government. The official manufacturing purchasing managers’ index fell to 50.50 in November, reflecting a major contraction. This slowdown was carefully noticed by Trump’s trade advisors, mainly Robert Lighthizer, the main U.S. negotiator. He has placed emphasis on expedited negotiations, finishing within the proposed 90-day window that began on Dec. 1. That would result in tariffs not being increased. To do so, increased access to Chinese markets for U.S. firms would need to be included in any deal concluded.
Lingling Wei and Bob Davis, reporting for the Wall Street Journal, bring some hope into the equation, noting that, “Beijing and Washington agreed that China will purchase large amounts of goods and services, with China pledging to announce soybean and natural–gas purchases in the coming weeks, officials in both nations said. Beijing is also considering undoing tariffs on U.S. automobiles.”
The U.S. and China are currently looking for ways to investigate the impact of tariffs on trade, yet so far have not found ways to eliminate that impact. At the center of efforts to persuade China to make its trade with the U.S. freer is the attempt to have the Chinese increase their purchases of U.S. goods and services.
There is no question that there is much to be done before the U.S. and China can claim that these trade policies can bring increased benefits to both nations. Especially in high tech industries, where there is ample evidence that China wants the world to consider it a serious player, negotiators on both sides face a mountain of dilemmas. Zealous Chinese producers continually block American firms from entering Chinese markets in efforts to retain competitive production advantages. However, the Chinese profit from their theft of intellectual property that can only be gained by such foreign firms entering the Chinese market. On the American side, U.S. firms find lucrative possibilities in new consumers in China, but still remain fearful of the lax laws that will not protect the firms’ intellectual property from theft.
While these talks continue, it is apparent that U.S. and Chinese negotiators will have to remain patient in order to obtain some success in dealing with many production and trade issues.
That patience will continually be tested, as the Chinese attempt to establish procedures where high-tech dominance is emphasized and the entrance of foreign firms is made easier. If China implements this plan, it will provide U.S. negotiators with more tools to implement a public policy that would provide an opportunity for both China and the U.S. to operate in the same spheres. This would allow trade between these two giants to grow vigorously, providing an opportunity for them to allow free trade to flourish.
Author and educator Dave Kaplan writes from his home in Santa Barbara, Calif.