Another Blink?

It was interesting weekend. After just 2 days of talks, the US and China agreed to bring down their existing tariffs substantially for a period of 90 days. During this period, both parties have agreed to have talks to resolve their trade differences.

So the US tariffs have come down from 145% to 30% and the China tariffs have come down from 125% to 10%. For a 90 day period.

Clearly Trump has moved away from his initial position of the tariffs remaining in place whilst the trade negotiations take place.

He had no choice because the shelves in the supermarkets and department stores were running dry and even critical medical equipment like syringes and gloves were running low. The ports had loads of goods which could not be unloaded because of the tariffs and shipping activity at the mains ports in the US had reduced dramatically. At the same time, farmers who used to sell agricultural products to China were hit because their products could not be shipped there.

In China, factories were hard hit as new orders dried up. Workers were being laid off and salaries unpaid.

A decoupling of the world’s 2 largest economies just wasn’t possible in the very short time frame imposed by Trump.

A deal may eventually be struck but clearly the US is going to need to extract something from China to balance the trade deficit. Will China give in? At this point in time, the US needs China. But the writing is on the wall for US importers. Either move your manufacturing away from China or better still, bring it back to the US. And once they have diversified, the US can move on. But for China, who can they export their products to? The US is such a big market that moving away from the US to other markets may not be possible. Boosting domestic consumption is possible but the Chinese will never be able to absorb what they export to the rest of the world.

Longer term this will be a much bigger problem for China than the US.