Market prepared for frosty US China trade relations to continue

While US president elect Joe Biden will take a different approach on trade that his predecessor, the fundamental competitive relationship with China will remain according to analysts and commentators.

“There’s this consensus among Democrats and Republicans that we do have a more contentious relationship with China, a more competitive relationship with China,” said Amy Celico, principal at Albright Stonebridge Group, who was speaking during a panel in this year’s BAFT conference. “The United States has to play better on offense and defense, different from the Trump administration.”

During the Trump administration, the US and China have been engaged in a trade war during which they have exchanged tariffs on goods from each respective country. Earlier this year, they came to an agreement to end the dispute in the form of a phase one deal.

The incoming administration will need to deal with structural issues that define in the US China trading relationship, according to Celico.

“The Biden administration is going to be able to pick up where the agreement left off, which is in dealing with a whole host of structural issues that are to be addressed. The Chinese government is not anxious to remedy [issues] with state owned enterprises, subsidies and continued weakness in intellectual property rights protections and market access restrictions.”

This comes on the heels of 15 Indo-Pacific countries, including China signing the Regional Comprehensive Economic Partnership (RCEP) earlier this week. RCEP is now the world’s largest FTA by both population (30 percent) and global GDP (30 percent). The US had previously pushed for another Pacific FTA, the Trans-Pacific Partnership (TPP) but the Trump administration later unilaterally withdrew from the agreement.

Other TPP member states carried on without the US and signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Biden has not committed to rejoining the CPTPP but has said he is willing renegotiate the agreement. Celcio said that the signing of RCEP, which had been in negotiations for nine years, puts more pressure on the incoming president to act.

“There’s going to be more pressure for [the US] to think about what is our plurilateral trade posture that keeps us engaged in the Asia Pacific region.

Though the global economy and trade were severely affected by the pandemic, Peter Hall, vice-president and senior economist at Export Development Canada said that domestically the consumer economy has returned to near pre-coronavirus levels.

“When you look at the bulk of activity inside of the economy, the consumer, in most economies is about 60 precent of activity, in the US it happens to be 70 precent of activity is fully back. We see a V shaped recovery that has occurred at the consumer level. That has translated over to the trade level as well, at least in terms of goods.”

US retail sales grew over the past six months after two months of sharp contraction but latest data from October indicate growth to be slowing.

Hall added that given how quickly trade in goods has recovered, the existing supply chain has remained unchanged but that the pandemic has acted as a catalyst for conversation.

“We hear a whole lot more talk about nearshoring, reshoring and glocalisation. If we’re selling into the Asian space, then we should be organised in terms of our production and all of our logistics in the Asian space. If it’s North America, let’s do all that in North America. If it’s Europe, same thing there.

“I do believe that as we emerge from this, that new thinking about supply chains is really going to transform the way that we organise our production and distribution around the world. Glocalisation is going to become much more a part of our vernacular.”