Trade war

Experts split over impact of US' truce with EU on China row

US President Donald Trump (right) meeting European Commission President Jean-Claude Juncker at the White House on Wednesday. The deal between the two men to suspend new tariffs while negotiating over trade has drawn mixed views from analysts over how
US President Donald Trump (right) meeting European Commission President Jean-Claude Juncker at the White House on Wednesday. The deal between the two men to suspend new tariffs while negotiating over trade has drawn mixed views from analysts over how it could affect the US-China trade dispute.PHOTO: REUTERS

Some see US upping ante against Chinese; others say it bodes well for deal with them

HONG KONG • United States President Donald Trump's surprise trade truce with the European Union (EU) has analysts asking: "What does this mean for the trade war with China?"

So far, there have been two very different answers. One camp sees the deal between Mr Trump and European Commission President Jean-Claude Juncker to suspend new tariffs while negotiating over trade as a deliberate attempt to mend fences with allies as the US girds itself for a protracted dispute with China.

"De-escalating the US-EU trade track, and possibly the Nafta trade track in the period ahead, does not mean the US-China trade track is also ripe for an off-ramp," Evercore ISI vice-chairman Krishna Guha wrote in a note. "This is possible, but it is at least as likely that the US is reducing trade tension with its allies in order to improve its leverage and staying power in what we continue to fear will be a prolonged trial of strength with Beijing."

Mr Guha said Evercore ISI's base case is that there will be no US-China deal before next year.

The US truce with Europe is likely to embolden Mr Trump to increase his pressure on China, said senior economist Chua Hak Bin of Maybank Kim Eng Research in Singapore. "Trump will likely blow his trumpet and argue that his trade war threats are working," he said. "The probability of a full-blown US-China trade war has ironically increased with the US-EU trade deal."

The other view: Mr Trump's apparent deal with Europe shows how bargains can be struck.

U.S. MOVE TO BOOST LEVERAGE

De-escalating the US-EU trade track, and possibly the Nafta trade track in the period ahead, does not mean the US-China trade track is also ripe for an off-ramp. This is possible, but it is at least as likely that the US is reducing trade tension with its allies in order to improve its leverage and staying power in what we continue to fear will be a prolonged trial of strength with Beijing.

MR KRISHNA GUHA, vice-chairman of Evercore ISI.

POSITIVE SIGN

The willingness of Trump to agree to a trade truce with the EU is a positive sign that a similar arrangement could be reached during a discussion with (Chinese President) Xi Jinping.

MR ANDY ROTHMAN, a former US diplomat in Beijing who is now an investment strategist at Matthews Asia.

"The willingness of Trump to agree to a trade truce with the EU is a positive sign that a similar arrangement could be reached during a discussion with (Chinese President) Xi Jinping," said Mr Andy Rothman, a former US diplomat in Beijing who is now an investment strategist at Matthews Asia, a money manager. "I also think that Xi is better placed to make more concessions than Juncker was able to offer, and thus obtain more concrete results from Trump."

That is because of Mr Xi's position as the sole leader of his country and his pledge to make China's economy increasingly market-oriented, said Mr Rothman.

One thing all analysts can probably agree on: Do not count your trade truce chickens just yet.

"We should be cautious," said Ms Deborah Elms, executive director of the Asian Trade Centre, a consulting firm in Singapore. "The EU got promises to start talking. China also received similar treatment. After two dialogue sessions, China ended up facing US$50 billion (S$68 billion) in tariffs, with potentially more on the way."

The US has imposed 25 per cent tariffs on US$34 billion worth of Chinese imports - triggering retaliation from Beijing - with another US$16 billion to be targeted soon.

The Office of the US Trade Representative has also identified an additional US$200 billion of Chinese goods slated for a 10 per cent duty. Last week, Mr Trump threatened to target as much as US$500 billion worth of Chinese imports.

While there appears to be little sign of US-China negotiation, the situation remains fluid. Mr Trump has sprung a surprise before by pushing ahead with tariffs even after Treasury Secretary Steven Mnuchin declared in May that the trade war was "on hold". Mr Trump also opted for a softer tack on new rules scrutinising Chinese investment.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 28, 2018, with the headline 'Experts split over impact of US' truce with EU on China row '. Print Edition | Subscribe