The Impact of the US-China Trade Deal on Global Markets

15th February 2020

As a result of needing to extend the last post I address the global markets brace for changes as the US and China reach a trade deal and whether this accord will lead to a lasting economic shift or if it merely a temporary fix?

The signing of a trade deal between the United States and China in January 2020 marked a significant turning point in the protracted trade war that had plagued both nations for the past few years. For those who have followed the saga, the accord offers hope of stabilisation. The deal promises to address longstanding issues related to tariffs, intellectual property, and market access. But, as is often the case in international relations, questions linger—will this agreement result in lasting economic shifts, or will it be a fleeting moment of peace, soon overshadowed by the very same forces that led to the conflict in the first place?

The notion of shifting allegiances and delicate negotiations immediately calls to mind the tragic figures of Shakespeare’s King Lear, where seemingly resolute decisions unravel into chaos. While Lear's division of his kingdom leads to disaster, the US-China trade deal—though far from tragic—could reveal, in time, the fragility of political and economic compromises. Both sides may have emerged from the negotiations with promises of future cooperation, but history often shows us that the foundations of such deals can be as unstable as Lear’s kingdom.

The Deal: A Moment of Hope or a Temporary Fix?

The terms of the US-China trade deal appear, on the surface, to be a win for both sides. The US has secured commitments from China to purchase more American goods—primarily in agriculture, energy, and manufacturing—which President Trump heralded as a victory for American farmers and workers. In return, China will see some relief from the heavy tariffs imposed by the US administration. The deal also includes provisions to address intellectual property rights and forced technology transfers, issues that have long been a bone of contention between the two economic giants.

However, the deal is not without its critics. Some argue that the provisions in the agreement are vague, with little concrete detail about how they will be enforced. The deal also does not address the underlying issues of economic nationalism, which has been a driving force behind both countries’ trade policies. While the agreement may bring temporary relief to certain sectors, it remains to be seen whether it can truly shift the trajectory of global trade.

This situation invites a comparison to Charles Dickens’ A Tale of Two Cities, where the opening lines famously declare, “It was the best of times, it was the worst of times.” Similarly, the US-China deal could be seen as both a victory and a setback, depending on one’s perspective. While it may ease tensions in the short term, it also reveals deep divisions in the global trading system, and the long-term consequences remain uncertain.

The Economic Context: A World Shaped by Trade Wars

To understand the potential impact of the trade deal, it is necessary to consider the broader economic context. The trade war between the US and China, which began in 2018, has been a defining feature of global commerce in recent years. The imposition of tariffs, coupled with restrictions on technology transfers and intellectual property theft accusations, has created an environment of uncertainty for businesses and investors. The global supply chain has been disrupted, and many companies have sought to diversify their operations to mitigate the risks associated with the trade war.

One of the most immediate effects of the trade war has been the slowdown in global economic growth. As major economies have engaged in tit-for-tat tariff impositions, the cost of goods has risen, and businesses have faced higher production costs. This, in turn, has dampened consumer spending and investment. According to the International Monetary Fund (IMF), global growth in 2019 was the slowest it had been since the financial crisis of 2008, and the outlook for 2020 remained uncertain.

The trade war has also had a significant impact on financial markets. Stock prices have fluctuated wildly in response to trade-related news, and investors have been forced to reassess their strategies. The threat of an economic slowdown has also weighed heavily on investor sentiment, contributing to a decline in global commodity prices and a drop in corporate profits.

It is tempting to draw parallels to the world of Victorian literature, where industrialisation brought both immense growth and profound disruption. In many ways, the current state of global trade mirrors the tensions of the Industrial Revolution, as nations scramble to adapt to new economic realities while dealing with the fallout of previous decisions. Much like the characters in George Eliot’s Middlemarch, who must navigate a rapidly changing society, businesses today must adjust to an evolving global landscape.

The Potential Long-Term Impact: Can the Deal Change the Global Landscape?

While the immediate effects of the US-China trade deal are likely to be limited, there is the potential for the agreement to have a lasting impact on the global economy. One of the key provisions of the deal is China’s commitment to purchasing additional US goods, particularly in agriculture and energy. This could provide a boost to American exporters and help to offset the losses incurred during the trade war. However, this shift in trade flows will not necessarily lead to a fundamental change in the global trading system.

At best, the trade deal may serve as a catalyst for broader economic reforms in both the US and China. If China follows through on its commitments to open its markets and improve intellectual property protections, it could signal a new era of cooperation between the two nations. This, in turn, could encourage other countries to follow suit, leading to a more open and transparent global trading system.

However, this optimistic scenario seems unlikely in the short term. The underlying tensions between the US and China—especially in the areas of technology and security—remain unresolved. Both sides have expressed a desire to confront each other on these issues, and it is unclear whether the trade deal will lead to any meaningful changes in these areas. As a result, the global economy may continue to be shaped by a series of ad hoc agreements and temporary fixes, rather than a comprehensive restructuring of the international trading system.

It is worth noting that the global economy is already undergoing significant changes, driven by factors such as technological innovation, demographic shifts, and the rise of emerging markets. The trade deal between the US and China, while important, is only one piece of the puzzle. The longer-term trajectory of global trade will be determined by a complex interplay of political, economic, and social forces.

The Broader Implications for Globalisation

The US-China trade deal also raises important questions about the future of globalisation. In recent years, there has been a growing backlash against the perceived negative effects of globalisation, with many arguing that it has led to job losses, income inequality, and environmental degradation. The rise of populist movements in both the US and Europe has reflected a growing desire to “take back control” of national economies and limit the influence of global institutions.

The trade deal between the US and China could be seen as a reflection of this broader shift towards economic nationalism. By prioritising bilateral agreements over multilateral frameworks, both countries are signalling their desire to reshape the global economic order in a way that better serves their national interests. In this sense, the deal could be a harbinger of a new era of protectionism, where nations pursue their own economic goals at the expense of international cooperation.

This move away from multilateralism and towards protectionism echoes the sentiment found in the works of John Stuart Mill, particularly in On Liberty, where he argues that the greatest threat to individual freedom is the imposition of unnecessary restrictions. While Mill’s focus was on the freedom of the individual, his arguments can also be applied to the broader context of global trade. Protectionism, though often framed as a means of safeguarding national interests, can ultimately restrict the freedom of individuals and businesses to engage in the international market.

Conclusion: A Fragile Peace?

In conclusion, the US-China trade deal represents a critical moment in the ongoing saga of global trade. While it may offer some short-term relief to the global economy, its long-term impact remains uncertain. The deal is unlikely to resolve the underlying tensions between the two nations, and it may ultimately prove to be a temporary fix rather than a lasting solution.

The global economy, much like the characters in Wuthering Heights, may be driven by passions and rivalries that are difficult to overcome. However, there is hope that through continued negotiation and cooperation, the world can avoid the kind of economic ruin that characterised the earlier phases of the trade war. Whether this agreement will prove to be a stepping stone towards greater collaboration or merely a brief respite remains to be seen, but as in the case of the characters in Frankenstein, whose creation ultimately leads to unforeseen consequences, the effects of the US-China trade deal may be far more complex than initially imagined.