Written by: William Keenan
The G-20 Summit concluded December 1st, 2018 with numerous agreements and deals signed. However, one of the most important was the momentary ceasefire between China and the United States in regard to the ongoing trade war. President Trump has agreed not to ratchet up tariffs on more than $200 billion of Chinese goods from 10% to 25% in January. On the other hand, President Xi has agreed to buy a “not yet agreed upon, but very substantial” amount of agricultural, industrial, and other products from the U.S. while at the G-20 summit.
The trade war started by President Trump after he claimed that China stole trade secrets, violated patents, and hacked US companies has taken a toll on both the US and Chinese economies. American farmers and companies have fared the worst as pork, soybean, and corn prices have fallen exponentially as China―the world’s leading importer of soybeans―has turned to other countries such as Brazil to trade with at a lower price. In order to keep up with the tariffs, farmers have needed to raise prices on their goods in order to turn a profit. In turn, China has pivoted and now prioritized trade with other countries who offer the same goods at a now discounted price. In the automotive sector, General Motors (GM) has closed five North American plants due to the additional cost of $1 billion imposed by the metal tariffs which can potentially lead to price increases on automobiles. GM and other car manufacturers will have to raise the price on cars to account for the rising price of parts, in this case, metal. To avoid this, GM has laid off thousands of workers and opened plants in counties that are not currently affected by the US-Chinese trade war, allowing themselves to buy and sell at a normal rate.
On the Chinese side, economic growth slowed in the third quarter of 2018 to its lowest in ten years and the value of the yuan has fallen around 10% due to the ongoing trade war. This provides a clear reason why both sides would agree to a momentary ceasefire.
For President Trump, a staunch nationalist and creator of an ‘America First’ foreign policy, a reprieve and slight concession given by the Chinese momentarily quell fears about an effect on American consumers and the stock market. In addition, this concession also forces China to buy American goods from American companies. Perhaps in a nod to the upcoming 2020 election, President Trump has ensured that rural farmers―many of whom voted for him in 2016―will be able to access and sell to the Chinese markets once again. Trump ensuring that rural farmers will have access to the Chinese markets again, shows that he is attempting to reverse their profit loss and lessen the need for new subsidies. Moreover, by not yet imposing a tariff hike to 25% on Chinese goods, Trump has momentarily halted the trade war from directly affecting the American consumer. On the Chinese side, the ninety-day truce will allow President Xi to stall and come up with a plan to either concede or continue with the trade war. Further, by only agreeing to a temporary ceasefire and not fully conceding, Xi will appear strong to the Chinese nationalists both at home and abroad.
All and all, this ‘ceasefire’ is a rare occasion that both China and the United States can claim victory. For the U.S., President Trump can point to the fact that Xi agreed to buy American agriculture and industrial products, while Xi can breathe a sigh of relief that he now has an additional ninety days to come up with a solution to the trade war.