Finally, the US and China have made some headway on the trade talks. At least, it looks like the March 01st deadline to hike tariffs to 25% will now be put off. That itself is a good start. There are other things to worry about for the US and China. Firstly, the US is too deeply entrenched in the trade war and there is no way they can now withdraw without, at least, a moral victory over the Chinese. For China, there are enough problems at home. A reasonable compromise is what they would be look for. Here is how!
Crunch the trade deficit
That seems to be Donald Trump’s single point agenda now. With a trade deficit of $600 billion, the US was literally becoming a consumption bowl for Chinese products. Now China has agreed to work towards a gradual and phased reduction in this trade deficit. How will this be done? China has committed to infuse nearly $1.2 trillion over the next few years buying goods and services from the US. A sharp reduction in trade deficit with China between now and 2020 will be a good starting point for Trump to again stake his claim for the US Presidency. Work has already started on the Mexican Wall via imposition of national emergency and a Chinese victory to top it will be icing on the cake. The US may not have an economic case, but they surely have a political case to make. China realizes that it cannot afford growth to falter.
What about IP protection
That remains a bone of contention between the US and China and is likely to remain an irritant in their relationship. In fact, neither side would want to cede any room on this front. The US has long been accusing China of allegedly misusing US intellection property and using it to enhance its own scientific body of knowledge as well as the profits of its businesses. That may not be far from the truth but all economies from the US in the 1950s to Japan in the 1970s have essentially growth through the reverse engineering. That is exactly what China is doing today, albeit on a much bigger scale. While China will be happy to purchase more goods from the US, it is unlikely to relent on structural issues. Donald Trump may not really mind that concession.
What about world trade?
If the US and China enter into a trade deal, it could seriously undermine the role of the WTO. Increasingly, free trade could give way for regional trade blocs and preferential treatment to select nations. The US and China may have just triggered off that trend. The impact is already visible. The EU and UK have become more tractable on the BREXIT issue. For India, the mandate is clear. It is time to build serious partnerships if it wants its trade and exports to get the big push. That seems to be the trade trend in the coming years! ©
