The U.S.-China Trade War Could Drag On For A Long Time

The U.S.-China Trade War Could Drag On For A Long Time

Trade negotiations with China could resume soon, in the flash of a tweet. But it will take a long time to reach a deal, and much longer to seal it.

Wall Street wants a quick end to the trade war. Businesses on both ends of the trade equation want a quick end to the trade war. But a trade deal won’t be reached and sealed any time soon, as it was with Canada and Mexico. The politics and the context of the two trade disputes are much different.

That’s according to Johan Gott, principal in the consumer and retail practice of global management consultant A.T. Kearney and head of its Trade Wargaming initiative.

“The negotiations with China differ from those with Canada,” says Gott. “First, there’s no deal on the table and negotiators have been struggling to make headway.The scope of negotiations is much wider and addresses core Chinese industrial policies and envisions sweeping safeguards.”

Then, there’s the political landscape. “There is growing bi-partisan support for a tougher stance on China,” adds Gott. “If Trump were to be seen as soft on China, Democrats are likely to use that against him. Republicans are also unified in a hard stance against what is increasingly seen as a threat to the US. There is no such bi-partisan agreement against Canada and Mexico.”

And there’s the “big picture,” the whole context, which is quite different in the two trade disputes, according to Gott. “Drilling further down, the whole context of the Canada and Mexico metals agreement is very different,” he explains. “The agreement on metals tariffs between U.S. and Canada/Mexico is technically just an exemption from the larger Section 232 metals tariffs, a very important one, given the volumes imported from Canada and Mexico.”

Wait, there’s more. There are technology disputes, and the South China Sea disputes.

And there’s the nature of the pay-off for playing the game, according to  Tom Elliott, International Investment Strategist at deVere Group. “The winner of the U.S/ China trade dispute will be the side that can play the longest game: Trump wants a deal before his re-election campaign starts, Xi Jining before weaker economic growth threatens civil unrest,” he says.

While Elliott sees the “odds” of winning the game favoring China, he also sees “economic risks,” given the potential for China to suffer greater losses by dragging the game too long.

Meanwhile, there’s the potential of the trade war dragging in other countries.“The longer the dispute goes on, the greater the risks for long-term global growth as third party countries become forced to attach themselves to either the U.S or the Chinese camp and tech supply chains are disrupted,” says Elliott.  “For instance, China last week threatened the U.K with unspecified consequences if it banned Huawei 5G technology on security grounds, while U.K-based ARM mobile phone chip designer can no longer supply Huawei if it wants to continue to work with Android and Apple.”

Still, Gott is hopeful that the US agreement with Mexico and Canada could pave the way for a deal with China.

“The agreement with Canada and Mexico is a reminder that the Trump administration is open to making deals, even when the rhetoric can sound uncompromising,” adds Gott.“Remember that NAFTA was called “the worst trade deal in history,” yet USMCA is not that radically different. Metal tariffs were a key talking point at Trump rallies, yet there was room for compromise. This gives us some hope that we might see an agreement with China as well.”

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