China loses the trade war to the US

29.03.2019

A US delegation led by US Treasury Secretary Stephen Mnuchin arrived in Beijing for the next round of trade talks. On the eve of the meeting, it became known that China will surrender one of its key positions to the United States, and, in general, is already losing the trade war.

The trade war between the United States and China is already growing from a topical agenda for the world community into one of America’s truly global adventures. However, those who hurried back in 2018 to write US President Donald Trump into adventurers are not quite right. Real affairs begin only now, and the exhausting exchange of trade duties, like blows on the geopolitical ring, was only a preparation for the transition to the ground floor, where the suffocating receptions begin.

Trump makes China nervous. Firstly, the prospect of Beijing still looms the prospect of getting under an unprecedented fee of $ 200 billion. Despite the truce announced on December 1, 2018, Trump didn’t take this threat back. Secondly, Washington is beginning to play the Taiwanese card more actively, spitting on Beijing’s demand not to go into the affairs that the Celestial considers as its internal. Thirdly, there are problems in the Chinese economy that international economists are already talking about.

The United States, too, does not playfully keep its duty regime against China, which, even against the background of a trade war, is increasing its trade surplus with the United States, which makes Trump angry. Among other things, the anti-Chinese measures of the White House’s host are already beginning to affect the American economy, which experts predicted a recession if the trade war is not over soon.

All of these factors in the aggregate are pushing both sides to conclude a real, solid deal, which in fact has long been waiting for the world markets to assess the impact on the global economy. On the eve of the talks, it became known that China is softening its position on one of the key issues, and this is after Beijing has already made concessions at the last meeting in Washington. It goes to the victory of the United States in this confrontation.

New concession from China

On the evening of March 28, a US delegation arrived in Beijing to continue trade negotiations. It is headed by US Treasury Secretary Stephen Mnuchin and Trade Representative Robert Lightheiser.

On the eve of the talks, Reuters reported, citing a source in the US government, that for the first time China agreed to unprecedented concessions to the Americans.

The source reports that American companies complain that they often have to transfer the technological know-how of their products to Chinese joint venture partners, local officials and Chinese regulators as a condition for doing business in the country. The US government notes that technology is subsequently often transferred to Chinese competitors and used by them.

It is noted that China refutes these claims. Beijing has repeatedly stated that there is no requirement for American companies to share technology. This question in general has become one of the main stumbling blocks, because of which the parties are still unable to agree. However, everything has changed.

China has negotiated proposals that go further than ever in the past. Including - on technology transfer.

In fact, China’s position was once solid. The laws do not indicate the need to share technology, and if this happened, Beijing could show documents, which would indicate that the transfer of know-how was the result of mutual consent of the parties. The opposite is unprovable. But the US is listening to their companies, not the Chinese negotiators. That is why “coercion” as a forbidden method is again and again put on the view of China.

Now, sources, even before the official announcement of the outcome of the negotiations, triumphantly report that China has confessed to forcing US companies to transfer secrets. And this recognition for Beijing is tantamount to capitulation in a trade war.

China is overwhelmed with problems

One of the main requirements of Trump to China is to end the actions that, according to Washington, lead to the systematic theft of American intellectual property. This issue can be discussed at the talks as part of the issue of technology transfer, which means China is even making concessions. What causes Beijing to do this?

As we know, the Chinese economy is showing rapid growth. And indeed it is. In 2017, China’s GDP grew by 6.9% according to official data (6.8% according to later revised data). Then a trade war began with the United States, and by the end of 2018, China’s GDP showed an “only” growth of 6.4%, which was the lowest figure ever since 1990. However, after all, 6.4% is a lot.

On the eve of the talks in Beijing, the research company China Beige Book published a report in which, without any hesitation, called this growth of the Chinese economy "inflated" and artificial. China's economy in I quarter of 2019 again went up after a decline in 2018. The company generates its reports based on a survey of more than 3.3 thousand Chinese enterprises.

The latest report by research company China Beige Book announced an “error-free recovery in the first quarter” caused by an increase in the volume of loans, contrary to Beijing’s efforts to reduce debt burden and reduce borrowing in the private sector.

The document says that China in the first quarter of this year increased its revenues and net profit of business, increased investment and expanded the number of jobs in comparison with the fourth quarter of 2018. But this is bad, because it happened because of the growth of the debt load of the business amid the increasing cost of loans.

Another factor is related to Taiwan. Relations between China and Taiwan remain uneasy. The Trump administration decided to put pressure on Beijing, establishing contacts with the island nation. Bloomberg reported the day before that a US warship passed through the Taiwan Strait on Sunday, then a report was published criticizing restrictions on visiting Tibet, and among other things, the Uyghur exiles from China were received at the State Department.

This factor is the pressure on China, which previously did not even touch on this topic in negotiations with the United States, trying to distinguish between economy and politics. But now it will be much more difficult. Among other things, the media reported that the United States and Taiwan have agreed on the supply of an F-16 fighter party to the island state. And this is a very wake-up call for Beijing.

What's next?

Foreign economists are already building many hypotheses regarding further developments. How big the real concessions of China will be - the negotiations already underway in Beijing will show. However, if the agreement between Beijing and Washington contains the satisfaction of the American demands in exchange for the lifting of trade sanctions, then this cannot be interpreted in any way except as a complete defeat of the Middle Kingdom. It was blackmailed and the United States won.

China's GDP, even with a growth of 6.4%, is a booming economy that needs a lot of resources. If this economy is "pruned wings", then it will most likely not grow. But growth will slow down to about 3-4%, which will make it no longer a rapidly growing, but just a growing economy. Consequently, China, as a huge market for resources, will need them less and less.

And this will inevitably affect the cost of raw materials, such as gas, oil, metals, chemical products and much more. A reduction in demand may lead to a fall in prices, which will already have an effect on exporting countries.