Is the trade war really over?

Many involved in global trade breathe a sigh of relief last on news the United States and China had vowed not to launch a trade war against each other.

"There has been no substantial progress in resolving existing issues in the Sino-US trade relationship.”

The announcement, follow a visit from Chinese Vice Premier Liu He to Washington, comes after months of protracted discussions - and actions - between the two nations which have played havoc with global stability.

But in ANZ Research’s view, there has been no substantial progress in resolving existing issues in the Sino-US trade relationship. Going forward, we cannot rule out the US continuing to initiate other trade measures, with China reciprocating.

Value add

China still intends to lift the value-added content of its economy. This is reflected in the change in China’s import structure which has been shifting towards the development of semiconductors in the last five years.

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Thus, technology transfers from the US will be essential. But the US apparently remains doubtful about China’s progress in the protection of IP rights.

It’s worth noting it has been in China’s own interests to improve IP protection (as President Xi Jinping mentioned at the Bo’ao Forum in April).

The new agreement requires China to revise IP-related laws and regulations, including its patent law. The question is whether the statement is credible enough for the US to consider reversing its current ban on technology transfers - including China’s direct investment in sectors that the US deems sensitive.

Chip security

The ZTE incident – in which the Chinese tech giant was accused of violating sanctions which led it to be temporarily banned from the US market - was not mentioned in the joint statement, although it has definitely triggered Chinese concerns about ‘chip security’ in its electronic supply chain.

ANZ Research expects China to devote massive resources to develop its semiconductor industry, eventually reducing the market share of US exporters in future.

Both countries agree China will ‘meaningfully’ increase the imports of US agricultural and energy products. But China has been increasing foreign agricultural imports in the last few years. The joint statement did not introduce anything new on this issue.

Some farming states in the US are reportedly worried about China’s tariff measures. The latest statement may help alleviate some domestic pressure within the US, but over the long run the fundamental issues remain unsolved.

The chances are the US will continue to implement some targeted measures and China will make reciprocal responses, in our view.

Raymond Yeung is Chief Economist, Greater China at ANZ