Although the March 1st deadline set for the increase in US tariffs on Chinese imports is near and no actual deal had been provided thus far, financial markets had been pricing in a positive outcome for the situation.
Companies and people who trade stocks, in particular, saw significant gains since 2019 started, a sign of confidence that ultimately politicians on both sides will need to reach an agreement.
Prospects for post-deadline – uncertain
Some of the latest news is showing that China would like to “persuade” the US with increased imports, hoping to get at least an extension of the deadline, if there won’t be agreement on all the issues.
Still, key problems like intellectual property theft, forced technology transfer, a change in the way Chinese state is operating, and last but not least, an enforcement mechanism, so the US will be able to constantly monitor if China is keeping its promises, are far from being done negotiating.
Despite the current positive sentiment seen in the financial markets, it might become increasingly difficult to trade stocks and other financial instruments, given that discrepancies between the two largest economies are far from being solved.
Alt text: US-China trade dispute
In the beginning, trade imbalances were considered to be the main issue, but now stakes are obviously much higher than that, going as far as the battle for supremacy and the role of world’s leading nation.
Why China and the US have this dispute?
The situation could be well-described as a battle between two different worlds. On one side we have the United States and the entire Western World. The main characteristic which should be noted here is that at its core we have the individual, and the way this world operated is by the competition between individuals, hence it is called a bottom-up society.
If we talk about China, things are in a complete antithesis. The family is at the core of society and cooperation, instead of competition, is driving economic activity. This is what we call a top-down society, in which the state has more centralized power and is totally responsible for all the big decisions.
To conclude, the toughest part of the dispute between the two economic powers will be to reconcile these differences, learn from one another, and come out with a resolution mutually beneficial and supportive for long-term growth. Would it be possible in the near term? Very unlikely, since most geopolitical experts claim it could take more than a decade.