There is much hype over the trade talks between the two largest economies of the world – the US and China. There are lots of negotiations going on. As talks progress, the potential fate of the Wall Street for the immediate is now unfolding.
People from all backgrounds have an eye on it as the result is going to have a global impact. If the trade war between these two countries gets suspended, then it will be fruitful in many ways.
Wall Street is already on its toes with regards to the trade deal. And not only this, all the major stock markets are uptight about it, as the final outcome of the US-China trade deal is going to affect them in some or the other way.
Investors are feeling like they are having butterflies in the stomach as the happening or cancellation of US-China trade deal will influence the corporate earnings in a great way and thus the ROIs.
It is expected that if the deal between US-China gets finalized, then the stock markets will be stabilized and the condition of the markets will be enhanced. Also, the US president Donald Trump is looking forward on the deal as this could help in curbing the continuously rising US trade deficit.
According to CNBC report, on March 6, the Commerce Department stated that the trade deficit of the United States reached a 10-year high in December 2018; pushing the figures to $59.8 billion. In November the deficit amounted to $50.3 billion and was estimated to be $57.3 billion by December, however trade deficit easily crossed the estimated figures owing to rise 2.1% rise in imports while the exports dropped by 1.9% (as suggested by the reports of Commerce Department.
With the finalization of the US-China trade deal, there could be a boost in the stock market rally ahead of 2020. This could help Donald Trump for securing a place in Presidential election in 2020, for the second consecutive term.
But is the path straightforward to the successful closure of the US-China trade deal? Probably not! Though there are signals coming about the progression of the trade deal, there are some things that could act as a blockage on the path! So what could be the probable hurdles?
The long-standing policy of Beijing that subsidizes its own businesses and charges that it unlawfully obtains the US technology is a major factor in the deal. Also, there is a trade imbalance between these two countries. The value of the products that China buys from the US is lesser as compared to the value of the products it sells to the US. Due to this, the trade deficit of the United States with China popped up $43.6 billion to a total of $419.2 billion last year. As per the reports, China imported products worth $120.3 billion from the US while US imports from China valued at $539.5 billion.
Reports suggested that senior official from the US administration stated that the deal is on progress. However, the final outcomes are a mystery. There is a sign that the deal could be finalized by the end of March 2019.
Beijing expressed publicly its intent of getting swifter on the policies that enable the Chinese companies and the officials of local government to pressurize America and other businesses from foreign on sharing their technology to compensate their admission to the markets of China. This could be due to the concern raised by Trump for disrespect of intellectual property by China.
Trump imposed an import tax on the imports of Chinese products. But this public statement seems to have less enforceability to the reforms in comparison to the expectations of the US negotiators. It is not clear whether this commitment will actually be enacted into laws by China. This concern poses a potential threat to the US-China trade deal and could prevent a purposeful trade deal.
Last year, in order to pressurize Beijing so that it makes favorable changes in policies supporting trade with the US, a series of tariffs were imposed by Trump on Chinese goods. Like, a 25% import tax was levied on $50 billion import from China, etc. But this did not bring benefit. The electrical components that are not available in the US are being imported from China by paying higher costs.
By the end of the previous year, the cost of the duty per month for consumers and business amounted to $1.4 billion and $3 billion respectively (as per the research by Mary Amiti – economist, Federal Bank of New York and economists of Princeton University and Columbia University). So, the imposition of higher tariffs did not leverage the deal, as expected by Donald Trump.
Also, another report of research conducted by Federal Bank of Atlanta depicted that last year US companies had to cut the expenditure on large equipment by 1.2% due to tariffs.
When these figures are seen in line with the yearly production of goods and services by the US that amount to $20 trillion, they seem normal, but what about the secondary effects of such acts? In the previous year, the stock market plunged 19% due to the fear of severe and damage-causing implications of the trade war.
Many of the concessions of China seems mitigating the issues of the United States instead of a set of guidelines that must be adhered to for trade by each of these countries.
In order to curb the growing trade deficit of the US with China, Beijing offered to purchase more farm goods and energy from America. This offer was made by Xi to Trump during their meeting at the global conference dinner in December 2018. But, again, there is no surety whether this commitment will be fulfilled by China or not. It has been previously seen that Beijing making commitments but not keeping up with them.
The US Trade representative Robert Lighthizer, during his speech to House panel in the previous week, stated – “I can point to many examples” of Beijing signing onto an agreement “and in very few cases have they actually kept their obligations.”
Mr. Lighthizer also mentioned that it is not enough that Beijing agrees to the extra purchase of farm products and energy, the agreement having far-reaching effects needs to have changes in the policy of China with regards to respecting Intellectual property, forced transfer of technology and subsidization of companies in China.