China can ‘take a breath’ on trade war but Trump win risks escalation: economists

UBS economists have warned trade friction between China and the US could escalate if Donald Trump is reelected president in November, despite a truce to be signed by the two countries this week.

“That remains a risk, although we have phase one deal,” said UBS chief China economist and head of Asian economic research Tao Wang at UBS’ Greater China Conference on Tuesday.

She said conditions would become “more steady” after the deal, offering some certainty for businesses and governments. “We can take a breath here,” Ms Wang said in reference to China-US relations.

Donald Trump and Xi Jinping are due to sign off on the first phase of a trade deal this week.
Donald Trump and Xi Jinping are due to sign off on the first phase of a trade deal this week.Credit:AP

However, she conceded that for some companies there had been uncertainty and surveys of chief financial officers in China undertaken by UBS found some firms were moving out of the country.


While this trend has been going on “for years” due to changes such as higher labour costs, she said the trade conflict had become an additional reason for companies to consider going offshore.

“There may be some noise in 2020 but generally speaking … [the] trade war might improve,” she said.

However, UBS global research chief Arend Kapteyn said the long-term relationship between the US and China was largely dependent on the next US president after the election in November. If Democrat frontrunner Joe Biden became president Mr Kapteyn suspected there would be a de-escalation and a more predictable and rational regime.

In the meantime, he was uncertain about what future trade truces would look like and criticised the phase one deal as “quite narrow in scope”.

“To some extent those fundamental issues are unresolvable, I don’t think it’s realistic or reasonable to expect China to give up on its policy of 2025,” he said.

China has introduced an initiative called Made in China 2025 that has caused friction with the US.

“This deal looks very modest and some of it is unclear whether it’s even possible,” Mr Kapteyn said. “There are large purchase commitments that look completely unrealistic … but none of these fundamental long-term issues have yet to be resolved hence the problems of phase two [and] phase three,” he said.

The author attended the 2020 Greater China Conference as a guest of UBS.

Most Viewed in Business

Source: Thanks