Chinese Patience

Economist Alexander Daniltsev talks about the end of the trade war between the United States and China.

In recent weeks, a possible trade war between the U.S. and China, provoked by Donald Trump’s administration, has been one of the most popular topics of discussion in business and expert circles. Markets prepared for new problems, but the catastrophe did not occur.

On Saturday, the parties issued a statement that they had achieved an interim result in the negotiations: The increased duties were at least postponed after an agreement was reached to reduce the trade imbalance between the U.S. and China. Global business breathed a sigh of relief. According to some reports, U.S. exports to China should grow by $200 billion. In 2017, the trade “bias” toward China was estimated at more than $300 billion.

The U.S. position seemed exceptionally active and quite aggressive. It’s clear that Trump’s goal is not just to expand or protect the U.S. market. The conflict began with threats to limit imports of products from China, but the old, fundamental U.S. concerns about Chinese enterprises using U.S. intellectual property, technical achievements and products of creative work quickly surfaced.

In response, China threatened to limit imports of American goods, although later, it showed interest in facilitating access to U.S. technology and high-tech products.

Issues regarding sanctions also entered the picture. Because of its cooperation with North Korea, China was extremely concerned about restrictions on the supply of high-tech parts to one of its largest information technology companies.

Despite the whole mess of disagreements, two days of talks showed that cooperation is still possible. Some media presented the result as a victory for the United States, although it is not completely clear how exactly these agreements will be implemented. At the same time, Trump announced that sanctions against a Chinese company that had cooperated with North Korea would not go into effect, since this would negatively affect employment in China.

The U.S. and China have been active trading partners for more than 20 years. In 2017, China provided more than 20 percent of U.S. imports. The Chinese share for the import of some groups of textile goods in the U.S. is reaching 50 percent to 60 percent — equipment is at 30 percent, and electrical goods at 40 percent.

China’s share in U.S. exports is much lower, about 8 percent, like the U.S. share in Chinese imports, also about 8 percent. However, for China, the U.S. is the go-to source of modern technical solutions. Thus, the two countries are very important partners and a classic example of benefiting from the international division of labor.

Of course, this agreement in itself does not settle the differences, but it is grounds to search for mutually beneficial solutions. China, more than any other country, is interested in the dynamic development of the world economy as a country that depends on export markets. China is clearly well aware that any conflicts involving such large economies as the Chinese and American economies will create a threat to global economic growth.

Currently the international community is most likely witnessing a “family” conflict between the largest players in international trade. However, this is a matter involving critical issues, like the discussion of conditions for further cooperative development and the terms of benefit distribution within the division of labor.

This is, first of all, a problem of China’s access to, and use of, U.S. technological potential, and at the same time, of making sure U.S. companies obtain revenues for technological leadership. The U.S. would also like access to the capacious Chinese market. Therefore, it can be assumed that the parties will reach a compromise.

As a result, the U.S. will strengthen its position in the Chinese market, and Chinese companies will be able to expand their use of American technology, strengthening their positions in third markets while not forgetting to share profits with the U.S. stakeholders. The U.S. and China will optimize the use of their resources, which will benefit both sides within the framework of the world economy.

If the U.S. expands its agricultural exports to the Chinese market, competition with suppliers from Russia will increase. If restrictions are imposed on the flow of products from China to the U.S. market, competition between Russian and Chinese exporters in the markets of other countries will intensify. Russia, like China, is not interested in developing a global trade war because it also depends on export markets and is interested in the dynamic development of the world economy. Such trade wars will jeopardize international trade growth.