Thoughts on Ongoing U.S. - China Trade Dispute
Recently, U.S.-China trade negotiations hit an unexpected bump in the road. Whereas, entering the month of May 2019, many observers expected the bilateral negotiations to imminently conclude with a finalized trade agreement, the parties hit an impasse at the 11th hour over key issues, such as legislative enactment of Chinese economic reforms, the enforcement mechanisms for trade violations, and the continued use of U.S. tariffs. Ultimately, a trade deal should (and will) be achieved in order to preserve the many economic benefits that both nations enjoy from the trade relationship, however it is imperative for the U.S. to achieve the objective of fairer trade with China while limiting the damage from tariffs to the domestic and global economies.
While we have repeatedly written in our recent quarterly market commentaries about the importance of international trade in today’s global economy, many point to developments in U.S. manufacturing and advocate for a more protectionist approach. However, these developments are more a function of technological advancement, population demographics, and a growing service economy than anything arising out of U.S.-China trade. A thorough examination of U.S. and Chinese economic data indicates that both nations benefit from free trade with each other, despite the obvious fact that China repeatedly engages in unfair trade practices.
This article discusses some of the common questions regarding U.S.-China trade and dispels some common misconceptions about the benefits (or lack thereof) from the trading relationship.