Thaw in US-China trade relations won't mean business as usual
DESPITE settlement of Phase One of the US-China trade deal, 25 per cent tariffs on US$250 billion of Chinese goods entering the US remains in place and is not likely to budge until China signs a second trade agreement
DESPITE settlement of Phase One of the US-China trade deal, 25 per cent tariffs on US$250 billion of Chinese goods entering the US remains in place and is not likely to budge until China signs a second trade agreement.
Relief is diluted by fears that all may fall apart, plunging the two sides back intob full-blow economic conflict, reports London's Loadstar.
A major cause for worry is China's commitment to purchase an additional $200 billion of US goods over the next two years but Beijing insists it depends on market conditions. Washington appears adamant that China must meet its obligation.
In Phase 1 of the trade deal, the US has suspended a 15 per cent tariff on some US$160 billion of imports from China and halved tariffs on another $120 billion of imports from China, from 15 per cent to 7.5 per cent.
In return, Beijing suspended a planned tariff of 5-10 per cent on $75 billion of goods from the US and shelved a 25 per cent levy on US-made cars and a 5 per cent tariff on auto parts and components.
There is some relief that further escalation of the trade war has been averted and both sides should benefit from the agreement. Bloomberg has raised its projection for China's GDP growth this year from 5.7 per cent to 5.9 per cent.
The US's National Retail Federation, one of the most vocal critics of the trade war, welcomed the truce but stressed the importance of eliminating the remaining tariffs.
'The trade war won't be over until all of these tariffs are gone. We are glad to see the phase 1 deal signed and resolution of phase two can't come soon enough,' said chief executive Matthew Shay.
And Shehrina Kamal, product director, risk monitoring, of Resilience360, finds several elements of the agreement 'unrealistic', including the expectation that China imports an additional $32 billion of US agriculture goods over the next two years.
'The experience of the past two years has shown that things can change at a moment's notice. The agreement has not reduced the uncertainty,' Ms Kamal said.
US importers will continue to explore alternative sourcing options. They are going to move cautiously and deliberately, holding back on significant investment moves in their supply chains, she said.
Hong Kong's Freightos' weekly freight rate update this week notes that the thaw in US-China relations is 'leading retailers to project a return to growth and normal seasonal ordering trends by the end of Q1 as trade conditions improve. This likely means that transpacific prices this year will exceed 2019's atypically low prices'.