THE SLIDE IN commodity prices over the recent day or so portends investor concern about the prospects for and impacts of a US-China trade war that has yet entirely to materialise in currency and equities markets.
Energy markets, in particular, are skittish. Between them, China and the United States account for one-third of world oil demand, which will fall if the spillover from the trade measures taken so far slows global economic growth. Traders are also starting to speculate about the possibility of a seismic realignment of global energy markets should China price US energy out of its market.
Metals markets were also hit, as China is the biggest consumer of most metals, used as raw materials for its exports. Similarly, agricultural commodities, such as soybeans.
The White House announced on Wednesday an additional $200 billion-worth of tariffs to be introduced in September at 10% on for the most part Chinese consumer-goods exports, but also components and semi-manufactures.
Beijing’s reaction was predictably along the lines that Washington’s trade actions would hurt everyone; seventy of the top 100 exporters from China are foreign companies, Zhu Haibin, chief China economist at JPMorgan, told the Financial Times.
The commerce ministry said that it would have no choice but to respond to the latest US move. It also said that it would take the matter to the World Trade Organization, a jibe at US President Donald Trump’s reported wish to remove the United States from the world trade body but not one that veers too far from the generally measured tone taken so far (to the point of sanctimoniousness).
A question for this Bystander is, what is the Trump administration’s real endgame?
It says the tariffs are to get China to end its ‘unfair’ trade practices and open its markets. But the president in his public comments has fixated on the size of the US merchandise trade deficit with China. That would imply a grand trade deal between the two nations that would reduce the headline number of that deficit.
That would give the US president a trade war win that would be straightforward to promote to his electoral base. However, there is no sign at this point of such a deal being in the making.
But it would not solve the other complaint that the United States has against China, over technology transfer, both as a quid pro quo required by China for foreign firms for market access or through straightforward theft of intellectual property.
Washington has a legitimate case on both fronts. It might be able to use its trade war as leverage to get concessions on the first, under the rubric of a deal over market opening.
However, tariffs do little to remedy the second. With technology development so fundamental to China’s economic future, Beijing will hold out to the last over striking any deal that would be effective in curtailing something that it anyway denies doing.
In 2015, President Xi Jinping reached a ‘common understanding’ with Trump’s predecessor President Barack Obama that their governments would hold back on cybertheft of intellectual property for commercial gain.
The formulation was always vague — Xi’s definition of its scope was much narrower than Obama’s — and there was no formal mechanism of verification or enforcement. Both that and its provenance would prevent its embrace by the current US president.