A world trade war is brewing. The US-China agreement won't stop it

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Tensions between the world's two largest economies are likely to continue in 2020 as Beijing and Washington enter a second round of trade talks, which are expected to be more difficult than the "phase 1" process that started in Wednesday Washington has led to a deal.
The European Union is too embroiled in its own trade dispute with the United States, which has strained relations between the outstanding Western powers. The impending rupture of the UK with Europe presents a number of challenges as the country tries to re-establish a relationship with its largest export market.

President Donald Trump has announced the "Phase 1" trade agreement between the United States and China as a major breakthrough. US officials said the deal will cut some tariffs and allow Beijing to avoid additional taxes on nearly $ 160 billion of the country's goods. The Trump administration said it had received pledges from China to buy multi-billion-dollar agricultural goods and combat intellectual property theft.

"Are we in an ideal location? No," said Robert Lighthizer, the president's leading negotiator, to reporters before signing. "Is that a very good first step? Yes."

However, further details of the wording of the agreement are not known. Economists, market analysts, and trade experts remain concerned about whether the two countries can make serious progress, such as Washington's request that the Chinese government significantly restrict its role in the country's economy.

"The planned business is reaping all the low-hanging fruit," Capital Economics analysts wrote in a research report last month. The original agreement "does not mark the end of US-China tensions," they added.

A view of the container port in Qingdao in east China's Shandong Province on Tuesday, January 14, 2020.
Both sides maintain significant tariffs. Around two-thirds of all U.S. imports from China – valued at approximately $ 370 billion – will continue to be subject to customs duty after the agreement is signed, according to a December analysis by the Peterson Institute for International Economics. More than half of U.S. exports to China would continue to be subject to retaliatory duties, the institute said.

"Steep rates are the new normal," wrote Chad Brown, a senior fellow at the institute and a former economist at the World Bank.

Others have raised "more problematic" issues on the horizon. At an event in Hong Kong earlier this week, former Federal Reserve chairman Janet Yellen warned that US-China competition could slow down development Artificial intelligence, 5G mobile networks and other technologies related to national security.

China and the United States are already fighting for the Chinese technology company Huawei, a leading global provider of telecommunications equipment for building 5G networks.

Breakdown of the costs of Trump's trade war with China

The gap between the United States and China has other implications for the global economy.

"The world is moving closer and closer to different economic sectors with a focus on the United States and China," wrote Mark Williams, chief economist for Asia at Capital Economics, last October. While he noted that geopolitical rivalries can be productive – think of the space race between the United States and the Soviet Union – he said it was more likely that "limits on the flow of people, technology, and ideas" would hamper global productivity.

Tensions with Europe

China is not the only world power to get caught up in trade with the United States.

The Trump administration is considering whether to tariff French products – including cheese, handbags, and champagne – for $ 2.4 billion to punish the country for its new tax on digital services.
The United States has argued that France's tax affects how large American technology companies Facebook (FB) and Google (Acol), is a barrier to trade. The European Union, which manages trade policy on behalf of its Member States, has threatened to respond to provocations.
New tariffs would escalate an already strained relationship between Washington and Brussels. The Trump administration imposed a 25% duty on most European wines in October to compensate for government subsidies aircraft manufacturer airbus (EADSF), Since then, the White House has threatened to raise the tax because no progress has been made in resolving the problem.
Washington had already levied taxes on steel and aluminum in the EU and threatened German cars with higher tariffs despite substantial investments in the United States of America BMW (BMWYY). Volkswagen (VLKAF) and Daimler (DDAIF),
Trump's proposed wine tariffs will hurt the Americans, not the French

An agreement with Europe to address these issues will be one of Trump's priorities for 2020, according to William Reinsch, an expert at the Center for Strategic and International Studies, who was President of the National Foreign Trade Council for 15 years.

It is an immensely important relationship that both sides must maintain. Trade between the United States and the European Union is over $ 1.1 trillion a year – the world's largest bilateral relationship.
However, a deal is likely to be elusive. Reinsch recently posted in a blog post that talks might not get started due to disagreements over whether agriculture – a highly subsidized and protected industry in Europe – should be included in the negotiations.

Even when the discussions begin, Reinsch argues that they could be derailed by a number of threats, including higher car tariffs, that "first emerge when the president loses patience at the slow pace of conversation."

He added that as progress progresses, "the president's desire for a" victory "to brag about the election takes precedence over content … and hollow victories are announced."

Mediate a Brexit deal?

With the Brexit on January 31, the United Kingdom is also striving for a trade agreement with the European Union.

This must be completed before the end of the year, otherwise there will be trade barriers between the country and its largest export market.
Negotiations on most trade agreements take years, but Prime Minister Boris Johnson has insisted that he will not extend the talks beyond the end of the year. This could affect the UK's chances of concluding a comprehensive agreement.

"If the government wants to keep to the schedule at any cost, it will probably be a very limited deal," said analysts at French bank Société Générale. "This will mean sacrificing the possibility of a good deal for services on the altar of political expediency."

The risk of a Brexit nightmare for companies has not disappeared
Johnson has to find a delicate balance. While the UK has a lot to do with the European Union – the market accounted for 44% of total UK goods and services exports in 2017 – staying near Brussels would limit its ability to reach a new trade agreement with the United States , Johnson's advocates have touted this as a huge potential Brexit benefit.

Nevertheless, the British economy cannot afford new barriers to trade. Experts warn that such restrictions would limit economic growth and expose the country's auto industry to collapse.

Data released on Monday showed a sharp fall in UK GDP in November, suggesting the country's economy stagnated or shrank in the fourth quarter. The Bank of England could now cut rates to support growth.

According to Paul Dales, the UK's chief economist at Capital Economics, uncertainty about the UK's future trade relationship is likely to slow GDP growth and the strength of the pound this year.

– Ivana Kottasová, Katie Lobosco and Donna Borak contributed to this report.