Opinion

The US-China trade agreement will not put an end to geopolitical risks

The agreement between the US and China should not be read so positively in Europe, especially in Germany

By: Date: January 31, 2020 Topic: Global Economics & Governance

The reading of the global financial markets on the agreement reached between the United States and China has been positive, probably excessively, given the relatively limited size of the agreement reached. The best thing about the agreement is that it allows a truce – at least partial – in the strategic competition between China and the United States. This truce comes at a key moment for both presidents, Trump and Xi, for different reasons. Trump needs a victory while calming the financial markets before the US presidential election. Xi needs to improve investors’ perception of China’s economic situation to achieve growth of at least 5.7% in 2020 and, thanks to that, achieve its objective of doubling the per capita income of the Chinese population.

As expected, the agreement includes a significant volume of Chinese imports from the United States. With a total value of up to 200,000 million dollars, which includes energy, agriculture, manufacturing and services, this commitment means doubling American exports to China, which will undoubtedly mean a reduction of European exports to China in the sectors in which we compete more with the US, such as car components, airplane components, as well as chemicals.

In other words, the trade agreement between the US and China should not be read so positively in Europe, especially in Germany, which concentrates the majority of European exports to China. Additionally, in order for the trade agreement to be considered positively in Europe, it should have opened the door to major reforms in the Chinese productive sector, increasing China’s growth potential, which has been declining for years.

Although the agreement reached includes two chapters on intellectual property protection and technology transfer, with measures aimed at reducing the cost of initiating an intellectual property investigation, the reality is that it does not include any reform of the Chinese productive system and, in especially, a reform of the enormous weight of the public sector in the production of goods and services in China.

The agreement, which is only interim, has been oversold by both parties and probably will not last. The differences between the two powers remain enormous, so the geopolitical risk remains intact. Most likely, this risk becomes a reality in the Middle East, and in particular Iran, given the enormous investment that China has made in this country and the risk that the US will continue trying to isolate it by putting pressure on China to disinvest in Iran.

Investors should realise that what they have been living in a fairy tale since early December, and not the geopolitical reality in which we find ourselves.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Opinion

ECFA重要性遞減 台灣出口未來關鍵 在保持科技優勢和出口多元化

從地緣政治角度來看,ECFA自動延續無疑是個好消息,但協議對台灣經濟的直接影響較過去變得有限。雖然台灣對中國大陸的出口仍然重要,但ECFA占整體出口的重要性因資通訊科技產業快速發展而縮小。由於台灣在全球製造業供應鏈遷移和價值鏈重組中占有重要位置,未來對美國和東南亞出口預計將會加速。

By: Alicia García-Herrero Topic: Global Economics & Governance Date: October 20, 2020
Read article More on this topic More by this author
 

Opinion

Trump’s International Economic Legacy

If Donald Trump loses the United States presidential election in November, he will ultimately be seen to have left little mark in many areas. But in the US's relationship with China, the decoupling of economic links could continue, and that could force Europe into hard choices.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: September 29, 2020
Read article More on this topic More by this author
 

Opinion

Non-summit shows EU-China ties at new low

There was nothing concrete to justify calling this video conference an EU-China Summit.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 16, 2020
Read article More on this topic More by this author
 

Opinion

China's 'dual circulation' plan is bad news for others' exports

This opinion piece was originally published in Nikkei’s Asian Review. Minds in Beijing are focusing increasingly on the upcoming meeting of the Chinese Communist Party Central Committee next month. High on the body’s agenda will be sketching out a new official five-year plan for Asia’s largest economy. A freshly coined buzzword looks set to play […]

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 15, 2020
Read article More on this topic More by this author
 

Blog Post

全球為數不多 台灣今年經濟有望正成長

台灣的貨幣政策和大多數國家相比仍屬相對緊縮,台幣升幅也是相對有限。總的來說,台灣第二季的GDP與其他國家相較算是非常優異,主因是行動管制少,所以衝擊也小得多。

By: Alicia García-Herrero Topic: Global Economics & Governance Date: August 28, 2020
Read article More on this topic More by this author
 

Opinion

Relocating production from China to Central Europe? Not so fast!

Western European imports from central Europe have fallen dramatically, while imports from China fell much less, and had already recovered to pre-COVID level by April 2020. Central European governments should instigate new measures to foster the transition towards knowledge-intensive economic activities.

By: Zsolt Darvas Topic: Global Economics & Governance Date: August 20, 2020
Read article More on this topic More by this author
 

Opinion

Coronavirus recovery: invest rainy day savings to boost Hong Kong’s economy

The Hong Kong government might want to consider diversifying its economy by using part of the savings earmarked for rainy days. Beyond cushioning the negative impact of Covid-19 on SMEs and households, it is one more reason to spend.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: August 6, 2020
Read article More on this topic
 

Opinion

China Has an Unfair Advantage in the EU Market. What Can Be Done to Level the Playing Field?

This article has originally been published in Brink News. The dominance of Chinese state-owned enterprises in China’s domestic market is giving them unfair advantages in the European Union single market as well. The EU Commission recently released a series of recommendations for leveling the playing field regarding foreign subsidies. Unfortunately, while useful, these ideas are unlikely to […]

By: Alicia García-Herrero and Guntram B. Wolff Topic: Global Economics & Governance Date: July 28, 2020
Read article More on this topic
 

Blog Post

China's targeted corporate shopping spree to continue, especially in Europe

Expect small, below the radar deals to continue to flourish and, by the same token, Europe to lose part of its edge in industrial technology and other strategic sectors.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: July 17, 2020
Read article More on this topic
 

Blog Post

Debt relief for Sub-Saharan Africa: what now?

When G20 finance heads meet on 18 July, Europe will again need to lead on the group’s flagship COVID-19 initiative to postpone low-income countries’ debt service payments. For the first time, China has agreed to participate as an official creditor alongside members of the Paris Club. However, continuing lack of clarity on which Chinese creditors will participate, coupled with resistance from private sector creditors to voluntary participation, suggest that actual relief will be much less than originally planned.

By: Suman Bery, Sybrand Brekelmans and Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2020
Read article More on this topic
 

Blog Post

Europe’s China problem: investment screening and state aid

China’s state capitalist economy poses a challenge to EU openness to foreign investment. In response, the European Commission 17 June published a White Paper on “levelling the playing field with regard to state aid”, contemplating sensible and balanced policies to protect the integrity of the European single market from subsidised foreign acquisitions. However, against the backdrop of collapsing global capital flows and limited existing FDI from China, there is little risk of excessive exposure, indeed a deepening of bilateral investment flows would be beneficial for both economies.

By: Marta Domínguez-Jiménez and Niclas Poitiers Topic: Global Economics & Governance Date: July 2, 2020
Read article More on this topic
 

Opinion

Toward a smart Indian response to China

Rather than risking its soldiers' lives on the border, India should join 'middle power' economic coalitions to address China's behavior.

By: Suman Bery and Alicia García-Herrero Topic: Global Economics & Governance Date: June 23, 2020
Load more posts