US and China to Discuss Trade War De-escalation

The future of the global economy rides on the success of the upcoming trade talks between the US and China. Trump’s top trade officer will meet with her Chinese colleagues this week to discuss a de-escalation of the increasingly ugly and harmful trade war.

Background on the Trade War

The trade talks, the first personal meeting between Chinese and American civil servants since the tit-for-tat tariff escalation in March, are unlikely to lead to a trade agreement on Tuesday. However, the tariffs have achieved such a high level that trade between the two countries has decreased dramatically. Any thawing in the trade war could be a welcome sign for companies and consumers in both countries and around the world.

Current Tariffs and Their Impact

The United States have set most Chinese imports at least 145% tariff, and China reacted to some US imports with a tariff of 125%. The last tariff ships on the water, where the tariffs have been announced, have almost all docked, and the first ships with goods subject to the tariffs are coming into ports. This means that companies in China and the United States will soon be exposed to a difficult decision: pay a tariff that more than doubled or no longer sell the goods.

Economic Consequences

The punitive tariffs have already damaged both economies. The US economy contracted in the first quarter, the first contraction of which has been in stock as a company, in the expectation of Trump’s “liberation day” tariffs. In the meantime, China’s factory activity has slowed to its fastest pace in 16 months, and the government is expected to inject the economy with another round of stimulus to support it.

Global Implications

Although the China-US trade situation is by far the most aggressive, Trump has also imposed large tariffs on most other countries around the world: a universal tariff of 10% for practically all goods, as well as 25% tariffs for steel, aluminum, car parts, and some goods from Mexico and Canada. So, the world observes the conversations with anticipation. Global economists from the International Monetary Fund, OECD, and the World Bank have all predicted that Trump’s trade war would have catastrophic effects on the global economy, dramatically slowing down growth in some countries and inflaming inflation.

Upcoming Talks

The United States’ Treasury Secretary and US trade representative will travel to Geneva, Switzerland, where they will meet with Chinese officials. In an interview with Fox News, the Treasury Secretary said that the talks were a first step, but he tried to downplay the expectations for a deal. "I have the feeling that it is the de-escalation, not the big trading business… but we have to de-escalate before we can go forward," he said.

Market Reaction

Wall Street welcomed the news: the markets rose in reports on the talks. The Dow Futures rose by more than 200 points or 0.6%. The futures for the wider S&P 500 rose by 0.7%, and the Nasdaq futures by 0.8% higher.

Impact on Trade

According to Flexport, a logistics and freight forwarding broker, the number of cargo ships led by China to the USA fell by 60% in April. JP Morgan estimates that Chinese imports into the United States will fall by up to 80% in the second half of the year. "A decrease of 60% in containers means 60% fewer things that arrive," Ryan Petersen, CEO of Flexport, said. "It is only a matter of time before they are sold via the existing inventory, and then they will see bottlenecks. And then you will see price hikes."

Conclusion

Despite the increasingly poor warnings and economic turbulence, the two countries are still far from a deal. Both sides have dug in and say that they need great concessions at the beginning to start negotiations. The Treasury Secretary said it could take two to three years for the trade to normalize with China. So much is on the conversations in Switzerland. Even without trade agreements in hand, personal discussions are encouraging. Since the two countries have inflicted so much damage, they have left very little selection than starting the thawing process.