News

Don’t rule out a US-China trade war just yet – Danske Bank

Chief Analyst, Allan von Mehren at Danske Bank, notes that Trump has struck a softer tone towards China lately but at the same time his economic team is looking at ways to take measures against China in a less confrontational way.

Key Quotes

“There have been a couple of interesting developments lately in US-China trade relations.

  • First: Donald Trump has chosen a more conciliatory path with China. His telephone call with China’s president Xi Jinping on 9 February was described by the White House as a ‘lengthy’ and ‘extremely cordial’ conversation and Trump agreed to support the One China policy at the request of Xi Jinping. Chinese state media also wrote in a new and more optimistic tone about US-China relations following the call. The change of style by Trump on the China issue is positive with respect to avoiding a conflict between the two nations.
  • Second: however, only four days later The Wall Street Journal reported that the US was eying a new tactic to press China on the trade issue. According to the article, the commerce secretary would designate the practice of currency manipulation as an unfair subsidy when employed by any country, instead of singling out China. US companies would be able to bring anti-subsidy actions themselves to the US Commerce Department against China or other countries.”

“Apparently, the new National Trade Council in the White House headed by China hawk Peter Navarro is drawing up the plan. The plan aims to balance the goal of challenging China on trade and currency while keeping relations with the country on an ‘even keel’.”

“Using this tactic, the US would avoid singling out China, as it would also include other nations. However, it might also mean that the US would add a country such as Germany, which the Trump administration has accused of having a much undervalued currency through its membership of the euro.”

“The change of tactic by the Trump administration would also solve another problem: it is very difficult for the US government to label China a ‘currency manipulator’ according to the three criteria stipulated by the US Treasury Department, as China meets only one of the three.”

Another tack that the US administration is considering taking according to The Wall Street Journal is to produce alternative trade deficit numbers, which would increase the US trade deficit and thus support the case for ‘defensive steps’ on trade.”

“This picture would overstate the US trade deficit and for Trump underline how much the US is losing from trade. It would affect the deficit with Mexico and Canada in particular, with China less affected.”

Trade war still a risk this year

  • Only time can tell what the next episode of the Trump show will bring. However, we are not yet convinced that he has suddenly gone soft on China and put his campaign goals of protecting the US against unfair Chinese trade policies back in the drawer.
  • It’s hard to gauge what the grand plan for Trump is to level the playing field with China. Unpredictability seems to be part of his negotiating style. Suddenly questioning the One China policy on Taiwan after his election may have been part of a strategy to scare China and show what he is capable of if China retaliates in response to US protectionist measures.
  • Watching the Chinese media’s response to his threats, Trump may also have realised that the Chinese will not change any trade practices themselves. His way forward could be to take his own steps to protect US manufacturing from China, while at the same time talking smoothly to the Chinese leadership.
  • If Trump takes ‘defensive’ measures towards China (or other countries), China cannot be expected to sit back and watch without retaliating. However, if it comes to a trade war, it would enable Trump to paint a picture at home that he has been very open and friendly and merely taken fair measures to level the playing field but that China is the one retaliating in an aggressive way.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.