US-China trade war: is the time ripe for peace to break out? | Larry Elliott

Beijing talks look to have neatly concluded, just in time for Trump to visit Davos and claim victory

Everything is slotting neatly into place for peace to be declared in the trade war between the US and China. The 90-day truce brokered between Donald Trump and Xi Jinping at the G20 summit last month is holding and talks at official level in Beijing this week have gone well.

China’s eagerness for a deal was shown when Xi’s righthand man on economic issues, Liu He, turned up unexpectedly at the start of this week’s talks. Xi is sensitive to the damage Trump could cause to China’s slowing economy and wants a rapid agreement.

The way that trade talks work is that the hard graft is done at official level so that 99% of a deal is concluded before political leaders become involved. Significantly, talks between Trump and China’s vice-president, Wang Qishan, are due to take place at the World Economic Forum (WEF) in Davos later this month – an ideal place to declare that the trade war is over.

In a sense, it is strange that Trump has agreed to be the headline act in Davos for a second straight year because his message to his political base is that he has no time for the “globalisers” who make the annual pilgrimage to the Swiss Alps.

However, Trump is a showman. He loved being the centre of attention in Davos last year and would like nothing better than to announce to all the free traders at the WEF that his hard-nosed protectionist approach had paid off.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

It will be as well to read the small print of any deal carefully because the Chinese are hardened trade negotiators and – despite blinking first – will not concede more than they think they have to. Beijing is assuming that Trump is desperate to show US voters that his “America First” approach has succeeded where the emollience of previous presidents did not.

The other thing to note about trade negotiations – at least in recent years – is that hopes of a breakthrough can quickly be dashed. Trump may decide, for example, that China is not actually going to increase significantly imports from the US and has no real intention of tackling intellectual property rights abuses.

Financial markets, though, are signalling a growing belief that Trump understands the risks of a drawn-out battle with China and would prefer to take what’s on offer, claim victory and move on. That looks a reasonable assumption.

Playing field tilted in favour of online retailers

Some have beaten expectations and some haven’t. But for retailing overall it was a rotten December – as tough a Christmas period it has been since 2008 when the economy was deep in recession following the collapse of Lehman Brothers.

Announcing its downbeat snapshot, the British Retail Consortium said trading conditions were tough at a time when the industry is going through deep structural change. Both points are correct. Spending would be migrating online even if consumers were flush with cash. The fact that households are watching what they spend has made the adjustment process more brutal.

Business rates are clearly a factor tilting the playing field in favour of online retailers. And, in order to pre-empt any criticism, Amazon said that despite taking a smaller share of online spending than people realised it paid £63m in business rates last year – “more than estimates and more than is paid by many well-known high street retailers”.

That’s pushing it a bit. Amazon’s business rates bill – which includes every last bit of real estate the company occupies – was on UK sales of £8.77bn. John Lewis and Waitrose stores had sales of £11.6bn and paid £174m. Debenhams paid £80m on sales of £2.3bn while some of the difficulties faced by HMV are explained by business rates of £15m on sales of just £277m.

Amazon and the other online retailers pay the tax they owe but that’s hardly the point. The real questions are whether the business rates system is fit for purpose and whether an online sales tax is needed. To which the answers are no and yes.

Federal Reserve told to hold fire over rate hikes

When four regional presidents of the US Federal Reserve come up with the same message on the same day it counts as more than a hint. So when those running the federal reserve banks of Chicago, Boston, Cleveland and Atlanta all say the Fed should leave its interest rate policy on hold the message is obvious. There won’t be three or even two interest rate increases in the US this year. At most there will be one. There might even be none at all.

Contributor

Larry Elliott

The GuardianTramp

Related Content

Article image
White House expecting agreement with China 'within next week or so'
Trade adviser Peter Navarro suggests little more than translation of text is needed

Richard Partington Economics correspondent

30, Dec, 2019 @6:11 PM

Article image
US and China resume trade talks with both eager for compromise
Asian shares rise as fresh round of negotiations begins amid concerns about a slowdown in the Chinese economy

Lily Kuo in Beijing

07, Jan, 2019 @10:14 AM

Article image
Markets fall sharply as Donald Trump attacks China over trade talks
US president sends series of tweets and suggests agreement might be delayed

Sean Farrell

30, Jul, 2019 @6:03 PM

Article image
Trump quashes hopes of early resolution to US-China trade dispute
US president says reports from Beijing he had agreed to start phasing out tariffs were untrue

Larry Elliott

08, Nov, 2019 @5:55 PM

Article image
China voices economic fears about Donald Trump presidency
Beijing’s concerns about a further slowdown in trade come as political uncertainty and social tensions spread anxiety about global economy

Katie Allen

13, Jan, 2017 @6:19 PM

Article image
Could doomsday be nearing as US-China trade war heats up?
Dispute between economic powerhouses is reminiscent of cold war standoff in Cuba

Larry Elliott

10, May, 2019 @5:25 PM

Article image
Trump needs to make peace with China and get a cut in interest rates | Larry Elliott
US president’s target has tended to be Beijing but his focus is likely to turn more to the Federal Reserve

Larry Elliott and Gwyn Topham

29, May, 2019 @11:00 PM

Article image
US and China hold first ‘candid’ trade talks under Biden tenure
Both sides emphasised importance of bilateral trade relations and agreed to further negotiations

Vincent Ni China affairs correspondent

27, May, 2021 @9:39 AM

Article image
US and China agree to reopen trade talks in October
Investors welcome news but remain cautious while Trump shows little sign of ceding

Jasper Jolly

05, Sep, 2019 @12:31 PM

Article image
US-China trade war: all you need to know about Trump's tariffs
The battle between the world’s two largest economies is hotting up – here’s the lowdown

Richard Partington and Jasper Jolly

10, May, 2019 @10:45 AM