US, China could reach trade deal by year-end, experts tell ST forum

Singapore

THE United States and China could reach a deal to end the protracted trade war by the end of this year or early next year, experts believe.

But they agree that the rivalry between the world's two largest economies is here to stay and the world will see "competition, cooperation and restrictive engagement" between the two countries for the years to come.

"There is still very strong interest in China to reconcile with the US," said Associate Professor Li Mingjiang of the S Rajaratnam School of International Studies."They understand that it's premature for Beijing to confront and challenge the US," he said at the annual Straits Times Global Outlook Briefing on Wednesday, adding that if current trade tensions continue, it will worsen every aspect of their bilateral ties.

Within the US, politicians, businesses and think-tanks are pushing for "some sort of a deal", he added.

Agreeing, OCBC economist Selena Ling noted that US President Donald Trump has started his bid for a second term: "He has to have a few big wins within this year for the re-election campaign."

Meanwhile, China has realised that it has to make more concessions, especially in the likely event that it has to deal with Mr Trump for another four to five years if he is re-elected, she added.

Last Saturday, Mr Trump and Chinese counterpart Xi Jinping agreed to hit the pause button on the ongoing trade war in an 80-minute meeting at the G-20 summit in Osaka, Japan.

The US will not place any new tariffs on Chinese imports and both countries will resume talks aimed at ending the trade fight that has roiled markets and hurt global growth.

Ms Ling observed that the trade war fallout has led central banks around the world to start cutting interest rates to cushion their economies."This will reduce the probability that there will be a trade war-induced global recession," she said.

For Singapore, it could slide into a technical recession - which is defined by two consecutive quarters of slowdown - but she does not expect a full-year recession as yet. "As the threats are all external, there would be some space for policy easing but probably not as strong as before," she said.

While she expects a fairly benign scenario with the two major economic powers reaching a trade deal in the next few months, she does not see any attractive investment opportunities for investors for the time being."The reality is there's no screaming buys at this juncture," she said.

Mr Trump also said at a press conference after his recent meeting with Mr Xi that American companies could resume doing business with Chinese telecoms equipment giant Huawei.

However, it is not clear how this will be done as the Shenzhen-based firm still remains on the US Commerce Department's entity list, which effectively bans US companies from selling products and services to it.

The Straits Times' tech editor Irene Tham noted that if the US continues with its Huawei ban, it could lead to a splintered tech world with two sets of technologies in two economic camps."The downside is more than just about carrying two different mobile phones in two different places," she warned.

Having two sets of networks and technologies that do not interoperate will mean a duplication of resources, which is not productive for the world, she said.

Ms Ling noted that the Huawei ban looks more like a bargaining chip used by Mr Trump to make a deal.

If Huawei is a threat to national security, there is no way it would be included in the trade talks, she argued.

That said, Prof Li pointed out that there is some element of genuine concerns among US policymakers and lawmakers on Huawei being a security threat as early as 2011, way before both presidents come to power.

This reflects the deep distrust that the Americans have regarding state-and-business relations in China, he noted. "It's a time for China to face up to these challenges and think about its development model," he suggested.

Nonetheless, it looks like China is prepared for a prolonged "struggle" with the US but yet it wants to avoid an open split, he said.

And in this struggle, it is ultimately about whether the US or China is the number one in the world."The last major thing that China needs to move to number one is technology," he noted, adding that with technology supremacy it will help to boost both its economy and military.

"This is the major piece missing in China's power index. And the Americans understand that." And if things continue to deteriorate on the technology front between the two powers, the world may have to live with two systems, he added.

The forum is sponsored by OCBC Premier Banking.