The truce between the United States and China on trade war is holding – just barely.
It seems Washington and Beijing are happy to bury the hatchets for the time being. How long this fragile ceasefire will last really depends on what unfolds in the next few weeks as bureaucrats on both sides of divide work at a feverish pace to come up with a deal that is acceptable to both US President Donald Trump and his Chinese counterpart President Xi Jinping.
The past year was full of hostilities and marred with acrimonious tit-for-tat tariff moves between the two top economies of the world. In September Mr Trump imposed fresh tariffs on $200 billion worth of Chinese goods, bringing the total to $250bn since he ratcheted up the trade war with China earlier in the year. China retaliated and imposed duties on $60bn of goods from the US.
Both sides have traded sharp barbs throughout the year with the US warning of further impeding tariffs and Beijing claiming Washington is holding a knife to its throat.
However, Mr Xi finally sat down with Mr Trump in Buenos Aires at the G20 meeting a few weeks ago and both leaders agreed to stop trade hostilities, deciding to hold off on imposing more tariffs for a period of 90 days starting December 1 as they try and negotiate a deal to end the dispute.
Mr Trump in a Saturday tweet said he had a “long and very good call” with his Mr Xi and that “big progress” was being made towards a deal between the two.
The agreement will be “very comprehensive” and will cover “all subjects, areas and points of dispute”, said Mr Trump, who was spending the weekend in Washington.
Mr Xi said both he and Mr Trump hope to push for “stable progress” in US-China relations, and that bilateral ties are now at a vital stage. The pair discussed various international and regional issues, that China supports further talks between the US and North Korea, and hopes for positive results, Bloomberg cited China's Xinhua news agency as saying.
The remarks come as a US delegation prepares to leave for Beijing in a little over a week to hammer out a deal to end the tariff war that is threatening to derail global economic growth and has roiled financial markets.
What the chances are of US Trade Representative Robert Lighthizer securing a deal that is sellable to Mr Trump is anybody’s guess. However, with the equity markets, which Mr Trump considers a yardstick of his success, on the slide and US government shutdown entering the second week over his demand for funding to build a US-Mexico border wall, he needs some good news and fast.
Although the US has also been at logger-heads with its neighbours Canada and Mexico and its trading partners in the European Union over imports into the US including timber aluminium and steel, the row between the US and China is by far the biggest factor casting a pall of gloom over broader global economic growth.
Already, the International Monetary Fund has cut its global economic forecast for this year and next, the first downgrade since July 2016, due to strained trade ties between the two nations. The fund in October released a downbeat outlook as central bankers and government officials gathered at the annual IMF and World Bank meetings in Bali. The global economy will now grow 3.7 per cent in 2018 and 2019, 0.2 percentage points lower than the fund’s July forecast, and at the same pace of 2017.
The vulnerabilities in emerging market economies, rising interest rates, sluggish growth in the Eurozone, and growing American protectionism are also painting a darker picture for the global growth over the next year and beyond. However, the question remains how all these factors will impact the hydrocarbon-rich Middle East, especially the six-member economic block of GCC, which accounts for about a third of the proven global crude reserves and is net exporter of the commodity.
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Will a recovery in oil prices after a three-year oil price slump that began in the middle of 2014 help the sovereigns to continue spending to boost their economies, considering emerging markets are the destination for a large chunk of the region’s oil and gas exports?
“For the Middle East region, it [the trade war] will probably lead to higher cost of capital and lower inflow of capital, ultimately leading to lower growth,” said Christopher Dembik, the head of macro analysis at Saxo Bank. “The most vulnerable sectors are transportation, banking and real estate.”
Mr Dembik’s comments echoed thoughts of Mohamed Bardastani, ICAEW economic advisor and senior economist for Middle East at Oxford Economics, who in September said that although the rise in oil prices promises to support growth in the region, rising interest rates and tighter monetary conditions could slow down momentum in the non-oil private sector.
“Any escalation of the trade war between US, China and the EU could weigh on the region’s economic outlook through weaker external demand and lower oil prices,” he wrote in a research note.
Already, some companies in the UAE are feeling the pinch.
Exports of Emirates Steel to the US, the UAE's biggest employer outside the oil and gas sector, were affected after the Trump administration imposed 25 per cent tariff on steel. However, Saeed Al Remeithi, the company’s chief executive, said the impact would be limited as Emirates Steel ships just 5 per cent of its total exports to America.
The UAE's Economy Minister Sultan bin Saeed Al Mansoori on November 20 said the Emirates hopes to resolve the tariff issues with the Trump administration in 2019.
The US Secretary of Commerce Wilbur Ross has promised to look into the issue, he told media in Abu Dhabi recently.
While a resolution for UAE’s steel and aluminium producers is on the cards, the going might be a little harder for Dubai-based DP World, the fourth-biggest port operator globally, which relies on flourishing trade for profitability and growth in container volumes through its ports around the world.
The government-controlled firm believes international trade tensions will make 2019 challenging, its chairman Sultan Ahmed bin Sulayem told Reuters.
The psychological impact of trade tensions involving the US are starting to translate into reality. The financial institutions are becoming increasingly cautious and taking measures such as tightening lending in reaction to trade tensions.
DP World in August warned about geopolitical risks and changes in trade policies after first-half profit fell 2.1 per cent.
Mr Bin Sulayem, however, struck an optimistic note saying: “Historically, we have managed worse scenarios than this."
The slowdown in global growth may also turn out to be a hitch for the Dubai’s Emirates, the largest long-haul carrier in the world. Airlines across the globe thrive in growing business and economic environments but the likely dampening economic scenario may put an extra burden on the company, which has struggled to maintain profitability on the back of rising fuel costs and an unfavourable currency situation.
The UAE’s property market is equally susceptible to changes in the growth scenario elsewhere, especially in emerging markets such in India and China, as well as the UK and the Eurozone, which account for a major chunk of the buyers of properties in the Arabian Gulf’s biggest economies.
“So far, the global impact has been rather limited but downside risks to growth are considerably increasing,” Mr Dembik said.
“We have more and more data confirming that China is not ready to save the global economy again at the expense of its own deleveraging process.”