China Was Desperate For A Trade Deal, But The G-20 Agreement Is A Mirage

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The G20 meeting in Buenos Aires had a primary objective. To reach an agreement between the United States and China.

However, the announced agreement is more a “diplomatic truce” than a real agreement.

The United States commits to delaying tariffs against China that would start on January 1st, 2019 and China commits to purchase more agricultural and energy products (LNG, liquefied natural gas) in addition to promising to advance in legal security, compliance with contracts, the opening of capital markets and protection of intellectual property.

However, the wording is vague, the commitments are conditional and the time is limited.

When we talk about trade wars as if they were something new, we make a diagnosis mistake. We’ve been in a trade war for years. The United States has been denouncing trade barriers imposed by China and other countries directly and indirectly for years, with a World Trade Organization that did nothing about it.

The United States acted in the wrong way, and between 2009 and 2016 introduced more protectionist measures than any other G-20 country. The World Trade Organization warned on several occasions before the Trump administration took office of the increase in protectionism since 2011.

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China desperately needs to keep the trade surplus with the United States to maintain its extremely indebted growth model. More than the United States needs China to purchase its debt.

China is not the main holder of US bonds (not even the largest foreign buyer). The largest holders are North American institutions and investors in their vast majority.

The United States has seen demand for its bonds remain robust and yields have not soared even with China and the Fed selling. Meanwhile, China’s foreign exchange reserves have fallen.

China’s foreign currency reserves fell to the lowest level in 18 months in October. A reduction of $ 33.9 billion in October, the worst since December 2016 and the lowest level since April 2017.

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