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Three-month Grace Period To Sort Out China-US Relations
Dec 05, 2018


Editor's note: President Xi Jinping met with US President Donald Trump in Argentina on Saturday. According to the news releases issued after their meeting, both sides have agreed to suspend any tariff escalations and to intensify their efforts at negotiations within the next 90 days to reach an agreement. comments:

The two heads of state have clearly put the brakes on escalating the trade frictions. A truce was reached, and room given for further consultations. These are positive outcomes to begin. Nevertheless, the trade teams from both sides will now engage in a new round of what are certain to be complicated and tough talks in the coming three months.

Why did China and the United States reach this cease-fire? The main reason is that both sides have paid a price for their eight-month trade frictions. When their trade conflict began escalating in March, the US administration believed that it would be easy to win the battle.

But the following eight months have demonstrated that no one emerges a winner from a trade war-both sides lose. The US trade deficit in goods reached $77.2 billion in October alone, which is a record high. The automaker General Motors announced at the end of November that it will shut down seven plants around the world, including four in the US, but none in China, resulting in huge pressure on the US government.

At the same time, foreign direct investment flowing into the US in the second quarter of the year slid in negative territory, with a divestment of $8.2 billion, the first time since the beginning of 2015. By contrast, as recently as 2017, the US had FDI of $275 billion, the highest in the world.

Obviously, the trade frictions have not helped the US to shrink its trade deficit, and neither have they led to the reshoring of jobs or capital. Instead, the trade war has resulted in more risks to the US economy.

As it stands, the two presidents have pressed the "pause" button on the trade frictions. This is a wise choice that will benefit both sides. But the next three months will be critical-the economic and trade teams need to implement the consensus reached during Saturday's meeting, and come to an agreement. This would be good for both China and the US. The alternative would be a new round of trade conflict that brings greater uncertainty to both countries, and the world at large.

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