E Trade Protection Calmed

“The so-called “Phase One” deal between the U.S.-China, while welcome, does not mean the world economy is out of the woods. There are still significant tariffs which continue to restrain trade flows between the two superpowers, but also worldwide through supply chain linkages. And with politicians seeking a boost in popularity ahead of November’s U.S. Presidential elections, one cannot rule out the possibility of additional protectionist measures from Washington.” (National Bank, Feb.2, 2020)

As many have noted, the Phase 1 trade Deal leaves in place 25% tariffs on about two-thirds ($360 bn worth) of US goods imported from China.

The trade distortion occurring will not only continue to directly restrain trade between the US and China, but it will also affect global supply chain linkages.

By forcing China to increase its purchases of American goods and services, the Deal diverts China’s trade away from other countries.

For instance, it’s hard to see China maintaining commodity purchases from emerging economies and Canada when it is being forced to boost its agricultural imports from the US.

The European Union would also suffer a loss of manufacturing exports to China as that country is forced to increase its manufacturing imports from the US.

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