Uncertainty generated by the US-China trade war has hounded markets for more than a year, and the end does not seem close. President Donald Trump’s decision to enact legislation supporting Hong Kong’s pro-democracy protesters was applauded outside of China, but has further complicated Washington’s already arduous trade negotiations with Beijing. Trump seems to be in no rush to finalise a deal. During the North Atlantic Treaty Organisation summit between 3-4 December, he said he would rather wait until after the 2020 US elections.
The delay would extend the ‘new normal’ with which the world has had to live for the last two years – with tariffs firmly in place, the slowdown in trade and global growth is likely to continue for the next two. Trump’s administration knows that supporting Hong Kong angers Beijing. While China’s countermeasures are not related to trade, one can assume that recent events have undermined the negotiations.
China’s foreign ministry rebuked Trump, accusing him interfering with its domestic policy. It intends to suspend US Navy port calls in Hong Kong and sanction US non-governmental organisations that are ‘aiding and abetting’ protesters. It has condemned a bill supporting China’s Muslim Uighur minority, which the US congress approved days after the Hong Kong bills were ratified.
One of the new laws requires the US state department to review annually whether Hong Kong is ‘sufficiently autonomous from China to justify its unique treatment’ under US law as a separate legal and economic entity. It also authorises the imposition of sanctions and travel restrictions on any Chinese and Hong Kongese officials responsible for human rights abuses in the territory. A second law bans the sale to Hong Kong of US-made crowd control munitions. The two pieces of legislation enjoyed rare bipartisan support in congress, a brief reprieve from the cutthroat climate in Washington as the House of Representatives pursues impeachment proceedings against Trump.
Trump is yet to testify in the proceedings. In the meantime, he has widened the scope of his one-man war against perceived currency manipulation. On 2 December via his Twitter feed, Trump announced the restoration of tariffs on steel and aluminium imports from Brazil and Argentina for allegedly devaluing their currencies. The move panders to his nationalist base and allows him to reiterate his ‘make America great again’ refrain. Facing impeachment, Trump needs a foreign policy headline that does not feature ‘Ukrainegate’.
Brazil and Argentina may not be as significant as China to global trade, but both have benefitted from the trade war. Cutting down on US agricultural products, China has sourced more of its soyabean imports from Brazil, and the share from Argentina is growing. Trump’s insistence on penalising the two countries coheres with his ‘America first’ agenda, but hardly inspires confidence in the credibility and longevity of any final trade agreement with China.
Onlookers expected the US and China to produce a ‘phase one’ deal before 15 December, when fresh tariffs are set to take effect. Some trust that Beijing is treating the spark of tension over Hong Kong as separate from the trade negotiations. Concerning Trump’s attitude towards the talks, markets are more cynical. The Dow slid 1% and the FTSE 100 dropped by 1.75% after Trump hinted at delays. The president may want to manage his nonchalance better next time.
Kat Usita is Deputy Head of Research at OMFIF.