China Trade War Risk Is Rising As Trade Talks Flop

President Trump’s trade team just wrapped up its meetings with Chinese officials and it was a complete flop.   The China trade war risk is rising and it is a potential disaster for the US economy.

The Beijing meeting started off on a bad foot last Thursday.  The US delegation led by Treasury Secretary Steve Mnuchin gave a list of demands to the Chinese that included:

  • Reducing the trade deficit by $200 billion by 2020
  • Cutting subsidies to numerous state-backed industries
  • Stop retaliating against US trade tariffs

The US demands amounted to a call for unilateral Chinese disarmament ahead of a potential trade war.  Moreover, Beijing would also have to abandon key elements of its industrial policy.

These demands didn’t go over well with the Chinese.  The Chinese delegation counter-demanded the US  drop its objection to China being treated as a market economy in the World Trade Organization.  Beijing also petitioned the US to stop export restrictions of sensitive high-tech products.

Neither side made major concessions.  Indeed, the meeting ended without so much as a joint statement.  This is very unusual and a bad sign for things to come because it means that the US and China are so far apart on issues that they can’t even agree on a basic statement for public relations purposes.

China Trade War Risk Is Rising As Further Escalations Ahead

The failure of trade talks means that both sides will now focus on how to move their trade agendas forward.  President Trump and his team will finalize the list of goods that will comprise the first round of tariffs on $50 billion worth of Chinese imports.  Next up will be drawing up a list of goods on another $100 billion in imports.

The Chinese will also move forward with their punitive measures.  Beijing is set to finalize its tariffs on $50 billion worth of US goods.  And it will most likely lodge a complaint against the US in the World Trade Organization.

Looking ahead, the Chinese government could also start targeting the US government more directly by selling its vast stockpile of US government debt.  This would raise the cost of borrowing for the US government, hurt the budget deficit and hobble the US economy in one shot.China could sell US Treasuries in trade war

Accordingly, both sides are now set to ratchet up the pressure on each other.  The China trade war risk is rising and it will have dire consequences for the US economy and the stock market.

See more of our analysis here.

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Al Basoglu

I am a financial services professional with over a decade of experience in various roles. I've lived and worked abroad in 5 different countries while pursuing personal and professional challenges. My interests include markets, history and different cultures. I tend to weave all of my interest into my analysis and articles.