The intensifying confrontation between the United States and China significantly amplifies uncertainties in the future of the global economy. Their trade conflict should be solved by thoroughly and repeatedly having cool-headed talks.
U.S. President Donald Trump announced that, effective this past Friday, punitive tariffs on $200 billion (about 22 trillion) worth of Chinese goods will be raised from 10 percent to 25 percent.
Trump seemingly aims to extract further concessions from China at ministerial-level trade negotiations between the two countries that will start Thursday.
Optimistic views had recently been spreading in markets that an agreement would be reached soon during bilateral negotiations. The sudden announcement of tariff hikes reversed these views. Investor sentiment has quickly deteriorated and has caused a spontaneous, worldwide decline in stock values.
In the United States, the Dow Jones Industrial Average temporarily dropped nearly 650 points on Tuesday. On Wednesday in Tokyo, the Nikkei Stock Average also dove 321 points.
The United States and China account for about 40 percent of global gross domestic product (GDP). If their confrontation intensifies with the tariff increase, that would bring an even more serious level of damage to the markets and economic activities. A situation should be avoided in which the trade dispute gets bogged down.
In the bilateral ministerial-level trade negotiations, both countries need to make concessions to avoid the raising of punitive tariffs.
Against the background of Trump’s abrupt announcement was apparently the fact that the United States maintained robust growth and stock prices were approaching their highest levels ever. It seems the judgment was that even if a hard-line stance toward China is taken, the negative effect on the United States would be minimal.
However, the target of the increase in tariffs includes many goods related to daily life, such as home electrical appliances and furniture. The price increase in imported goods could cool down consumption, a driving force behind U.S. economic growth. It is desirable for the United States to more carefully determine the risks from raising tariffs.
Primarily, if the United States wields punitive tariffs, wouldn’t China take a tougher stance and the two countries be further apart on an agreement? Trade issues should be solved not through intimidation but through dialogue based on mutual trust.
Of course, China’s response is also indispensable for the negotiations to advance. Frustrations over China’s continuing unfair trade practices and restrictions are mounting not only in the United States, but also in Japan and European countries.
The United States is especially dissatisfied over China distorting free competition by providing huge subsidies to its state enterprises. Unless China revises its policy of giving excessively preferential treatment to its industries, it will be difficult to solve the trade dispute.
The Chinese economy has just come out of a slump due to the government’s economic stimulus measures. To put an end to its sluggish economic growth, it is becoming important for China to present its own positive reform plans.