US-China Trade War

Battles lines drawn between the world's two largest economies
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Background and explainers on the trade war between China, led by President Xi Jinping, and the United States, and its President Donald Trump. Having started in July 2018, the prolonged conflict reached a turning point in January 2020 with the signing of the phase one trade deal, but not after it had weighed heavily on the global economy for 18 months due to additional import tariffs levied by both China and the US. The US has accused China of unfair trading practices, including intellectual property theft, forced technology transfer, lack of market access for American companies in China and creating an unlevel playing field through state subsidies of Chinese companies. China, meanwhile, believes the US is trying to restrict its rise as a global economic power.

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Amid shifts in geopolitics, supply chains and global trade, companies have been scared into rethinking how they operate and invest. Government officials who are reshaping the world economy without a sound understanding of consequences could well break the system.
Efforts to defend Beijing’s official narrative have intensified this year, as the country’s post-coronavirus economic recovery slowed amid mounting problems.
What some decry as protectionism and mercantilism ruining the global economy is really a rebalancing towards addressing important national issues. The biggest risk is not this broader reorientation – which should be welcomed – but US-China rivalry that threatens to hurt everyone.
The pre-pandemic approaches to supply chains were conditioned on the assumption that global links were reliable, predictable and cost-effective. Covid-19, geopolitics and labour market dynamics are driving firms and countries to look to new locations such as India, Mexico and Southeast Asia for diversification.
Data suggests Hong Kong is starting to recover, with tourism, service exports and population numbers coming back up. But challenges remain, including eagerness of many in the West to write Hong Kong off.
Developing countries want a stronger voice in international decision-making and in setting the rules and practices of the future multilateral architecture, and are taking practical steps to achieve that.
Chinese deals have dropped to a 17-year low in the US as M&A shift towards the rest of Asia, Middle East and elsewhere. While deals have dipped overall, there are reasons to be optimistic, such as in the life sciences.
China’s growth, global economic conditions, geopolitical tensions and energy transition ambiguity are all risks. Businesses can prepare by boosting in-house intelligence and diversity in recruitment and operations.
US-China tension is souring the atmosphere of international cooperation, complicating the management of currency reserves, and raising war risks. In this context, arguing over whether the US is decoupling or de-risking is futile – to Beijing, it’s all the same.
Amid falling corporate trust and a US tech barricade, creative solutions are needed, such as setting up centres of collaboration in trusted third countries like Singapore.
The economy is set to get worse before it gets better, especially once markets fully realise the bad news – and starts dumping overinflated assets for cash and gold.
For decades, the US and China engaged in strategic ambiguity to keep their relationship stable, but both are now openly targeting global leadership. By ramping up their rhetoric and acting with explicit intent, the two countries are not only inflicting economic pain but also increasing the chances of a hot war.
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