- An example of how trade talks can help peace
The US-China trade agreement, signed on Wednesday, has left no losers. As it is only the first phase, and the second is expected, it represents a truce rather than peace, in what had developed into a full-fledged trade war between the world’s two largest economies, and the greatest single bilateral trading relationship. Started by US President Donald Trump in fulfilment of populist campaign promises, the trade war did not just affect the USA and China, but the whole world. Particularly affected were the European Union, and the two countries’ as mutual trading partners, like Taiwan and Japan. An important consideration was how the trade war disrupted supply chains. A product shipped from a third country grew pricier because it was supplied to one country by the other as part of a subassembly for the exporting country. Another dimension was the search by importers in both countries for new supplies, such as the Chinese hunger for South American soybean to replace US soybean, priced out of the market by tariffs. Soybean went from $12 billion imported from the USA to just $3 billion.
The deal requires China to import $200 billion worth of US goods over two years. During President Trump’s setting off the trade war, some economists expressed concern that the USA was using its economic power instead of leaving the markets to determine relative positions. It is true that President Trump has brought an element of mercantilism to the free market, but his agreement is an indication that the trade war was hurting the US economy enough for him to be concerned about his re-election, due at the end of this year.
Apart from trade problems, the USA and China have got security issues because of Chinese disputes with US allies over islands in the China Sea. There is also a naval confrontation between the two in the South China Sea. Yet that did not stop them from hammering out this interim trade deal, which will lead to a final one. India and Pakistan could profit from this example. The Indian government in particular should note how President Trump did not let his anti-China election rhetoric from making a deal. Both Pakistan and India could settle trade issues for greater mutual prosperity, leaving security issues for another time.
