Macroscope | The trade war’s damage is done in Asia, and even an interim US-China deal can’t undo the past year

US-China trade is in the limelight this week as the two sides meet in Washington for the 13th round of trade negotiations. The mood music improved somewhat from mid-September, as both countries took actions to reduce tensions. However, this week’s talks did not have a promising start.

In any case, optimism was dialled back earlier this week as the US added eight Chinese tech companies to its entity list over China’s treatment of its Muslim minorities, and with talk of the US administration looking into US investor protections in China.

The Trump administration had taken the constructive step of signalling openness to an interim deal – a limited trade agreement that would delay or even roll back some US tariffs in exchange for China’s commitment on agricultural purchases and intellectual property. The chances of the two sides reaching some sort of negotiated settlement should be higher if trade issues can really be separated from the more challenging issues such as structural reforms and national security.

Even if there is a pause in tariff escalation, the economic damage caused by previous tariff hikes cannot be immediately undone. The protracted US-China trade conflict has exerted a significant drag on China’s export performance since late 2018, with negative spillovers to the rest of emerging Asia through the supply chain. And for companies relocating their production out of China, the process will not be easily reversed.