A US-China trade deal will come. It just won’t solve any of the problems that matter
- An agreement is needed to mitigate current tensions, but the terms will neither tackle the imbalances in bilateral trade, nor address the geopolitical and strategic concerns that underlie the conflict
China and the US are likely to reach an agreement to end their trade war soon. Both sides will characterise the deal as a suitable compromise to mitigate the current trade friction between the countries.
However, the deal will not be transformative and instead will resemble a Band-Aid attempting to cover a gaping wound. There are many reasons the deal will fail to resolve the trade tensions.
First, the trade deficit between China and the US is structural in nature. China’s labour cost advantage, its central role as the global production network, and the role of the US dollar as the most reliable international currency, have facilitated the financing of American consumption of imported goods from China and elsewhere. America is addicted to cheap imported goods, and most of them come from China.