Unless President Donald Trump reverses an earlier decision — which he said he might — or U.S. and China negotiators reach some sort of agreement before then, the U.S. will impose additional tariffs on Chinese imports starting March 2.
Tariffs on $200 billion worth of Chinese imports will more than double to 25% from 10% currently.
In the meantime, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin completed two days of talks with Chinese officials, including a Friday meeting with Chinese President Xi Jinping, and both sides reported that progress had been made. They are set to resume talks next week in Washington.
Invesco’s chief global strategist, Kristina Hooper, says China will ultimately win the U.S.-China trade conflict because China “can play the long game.”
Speaking at the Inside ETFs conference earlier this week, Hooper explained that China is in a better position to withstand the conflict because it’s not a democracy.
President Xi is essentially president for life — he doesn’t have to run for re-election like an American president does — and the Chinese government can adopt programs to increase domestic spending to offset any drop in the foreign purchases of its goods, which it is currently doing through monetary and fiscal stimulus. In the U.S., Congress, not the president, must first act to increase spending and the Federal Reserve, which oversees monetary policy, is independent of the president.
“China is in a better place to the weather the storm and wait for the U.S. to capitulate,” but “China will give on lowering the trade deficit quite significantly and the U.S. will spin that as a win,” said Hooper, indicating that China will agree to import more U.S. goods.
Trade flow between the two countries — the largest economies in the world — has been shrinking because of the trade war.
According to the latest data from China, the U.S. trade deficit with China fell $2.5 billion to $27.3 billion in January. U.S. exports to China plunged 41.1% from a year earlier to $9.2 billion, while U.S. imports from China fell 2.4% to $36.5 billion. At the same time that China exported less to the U.S., it exported more to the European Union and to Southeast Asian countries. Exports to the EU rose by 15.3% and to Southeast Asia by 12.5%.
— Related on ThinkAdvisor:
- Deere’s CEO Calls Out Tariffs, Trade as Profit Disappoints
- Fund Managers Remain Bearish Despite Rally: Merrill
- GMO’s Inker: Bullish on Medium Term, but Big Threats Loom