What happened next is nothing short of remarkable. Global markets surged with unadulterated optimism. This optimism came on the heels of announcing US-Chinese trade negotiations slated to happen in Switzerland. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are scheduled to meet with their Chinese counterparts. They will explore a range of trade and economic topics in this not-to-be-missed discussion. This is the first in-person talks since the US began placing tariffs on China. Those tariffs launched in 2018 and sparked a still-ongoing trade war.
The backdrop of these negotiations is informed by a decades-long history of discord between these 21st century economic powerhouses. In January 2020, both nations signed the Phase One trade deal aimed at addressing concerns over unfair commercial practices and intellectual property theft. The agreement is not without its complications. Further complicating matters, the contentious political climate heading into the 2024 election doesn’t bode well for these negotiations.
Historical Context of the Trade War
The US-China trade war started in the early part of 2018. President Donald Trump implemented these punitive tariffs on Chinese imports, accusing the country of unfair trading practices and intellectual property theft. Those acts brought about a tectonic shift in US-China relations. In reply, China rolled out a matching set of retaliation actions targeting a wide range of American-made goods. Tensions mounted between the two countries. Consumer goods and agriculture advocates successfully lobbied, through extensive negotiations, for the eventual signing of the Phase One trade deal.
This agreement was in many ways a high water mark, requiring deep structural reforms in China’s economic policies. It sought to lessen the mistrust that had built up through the years. President Joe Biden’s reluctance to repeal most tariffs inherited from the last administration reflects this mindset. He raised new levies on top of those. This extension of tariffs is an important reminder of the difficulties each side has in achieving a complete and permanent settlement.
Now as the US enters 2024 election season, trade discussions have become more politicized than ever. Donald Trump has pledged to impose tariffs as high as 60% on Chinese imports if he returns to office, reigniting fears of a renewed trade war. This new rhetoric further complicates the ongoing talks and adds a new layer of uncertainty to the already complex negotiations.
Current Negotiations and Global Market Impact
The second set of meetings in Switzerland are expected to deliver terribly compelling clues on the next course of US-China trade relations. The announcement has at least initially surged global risk sentiment. Unsurprisingly, a lot of investors are cautiously optimistic that this dialogue will lead to economic stabilisation. Analysts warned that even if they were to get all the parties to the table, getting a full deal could be a long and contentious process.
Based on our collective experiences, experts expect these negotiations to usher in more nuanced conversations. Tariffs, trade imbalances, and intellectual property rights will all be on the agenda. The stakes couldn’t be higher. Both countries are mutually reliant on each other for trade, and a long-term stalemate could dramatically impact economic security around the globe.
In the end, the reaction in the market is a split one. While optimism grows with each positive report out of the talks, this has created bearish pressure on safe-haven commodities such as gold. All this seems to have convinced investors to return their attention back to equities and other riskier assets, with the hope of seeing thawing relations between the US and China.
Future Outlook
How these first conversations end will determine the character of subsequent interactions between the two countries. The experts we spoke to say the only way to reach a breakthrough will be through deep compromise. Considering the political climate and history of that, compromises will be difficult to reach.
Each side seems to be preparing for what will be an intricate negotiation process. It should be clear that any agreements will have to address the deep-seated issues that have plagued both sides for decades. The risk of renewed tensions is acute if substantial progress is not achieved.