Tariff rollbacks a potential stumbling block?

China is seeking rollbacks on US tariffs implemented since March last year but Trump indicated there would not be a “complete rollback.”

WHILE the United States and China appear keen to sign the first phase of a trade deal, could China’s request for a rollback in tariffs be a potential stumbling block?

President Donald Trump who had referred to a US-China trade deal as being imminent, said he had not agreed to any rollbacks, contrary to news that both sides were planning to cancel tariffs that had been implemented.

Gao Feng, a Chinese commerce ministry spokesman, had reportedly spoken of such a plan, saying that the trade war which had started with tariffs, “should end with the cancellation of tariffs.”

However, White House trade adviser Peter Navarro denied any agreement on that, saying while the Chinese “propaganda press” was trying to push the United States “in a direction, ” it was Trump who made the final decision.

Somewhat vague, White House economics adviser Larry Kudlow had earlier said “there are going to be tariff agreements and concessions.”US tariffs on US$156bil of Chinese consumer goods such as smartphones, laptop computers and toys are slated for next month; a partial reversal is reportedly possible, of the 15% tariffs on US$112bil of Chinese imports on Sept 1.Talks on rollbacks could take time; the US has hit China on US$360bil of imports in four tranches.

China is seeking rollbacks on US tariffs implemented since March last year but Trump indicated there would not be a “complete rollback.”

With these rollbacks also facing fierce internal opposition in the White House, the signing of the partial deal gets pushed further and further back.

Pressure is mounting on both sides to sign at least phase one of the potentially arduous deal that would encompass US complaints against China on technology, intellectual property rights and state subsidies.

US productivity in the third quarter fell for the first time since 2015, declining at a 0.3% annual rate, compared with gains of 2.8% and 3.6% in the first two quarters of 2019.

Trade war uncertainty has slowed down business investment in equipment, machinery, software as well as research and development.

The IHS Markit’s services purchasing managers’ index in the US fell to 50.6 in October from 50.9 in September; the service sector, which is far larger than manufacturing, had remained in decline as inflows of new work failed to grow for the first time since 2009, IHS Markit chief business economist Chris Williamson, said.

China’s exports and imports fell less than expected in October, but its economy could grow at 5.8% next year compared with 6.1% forecast for 2019, said the International Monetary Fund.

“A weakening US economy may reduce Trump’s chance of being re-elected, while China’s growth has slowed from 6.8% year-on-year in the second quarter to 6% in the third quarter, ’’ said RHB Research Institute chief Asean economist Peck Boon Soon.

In another trade-related development, the going ahead of the 16 member Regional Comprehensive Economic Partnership (RCEP), without the participation of India, represents a big loss of opportunities for wider market access.

“India will miss out not just on trade but also on the balancing of geostrategic influence in the Asia Pacific, ’’ said Socio Economic Research Center executive director Lee Heng Guie.

India represents 10% of the combined Gross Domestic Product of RCEP members, and 40% of the market size of this trade bloc.

Members consisting of the 10 Asean countries and key trading partners China, South Korea, Japan, Australia and New Zealand, look set to sign the deal next year.

Even without India, the RCEP trade bloc, if it materialises, will be the largest in the world, making up a third of the world’s population.With India’s participation, this will come up to half, a possibility later when India is ready to join the bloc.

India’s withdrawal would somewhat devalue the deal, as it would have been the third largest economy in the RCEP, next to China and Japan, said Malaysian Rating Corp director of economic research Nor Zahidi Alias.

This agreement will help cement China’s economic position in the region, as it faces a trade war with the United States, while China’s consumer market, with its growing demand for goods and services, will benefit its trading partners.

Despite criticism that RCEP tariffs are agreed between countries and not across the board, the sheer size of the bloc holds a lot of potential for exports of the same products on a set of standardised documents, and the building of supply chains.

The implementation may take a long time but ultimately, it will boost multilateral trade significantly.

Hard work and dedication is required to make this work but conviction of its benefits will ensure its final success.

Columnist Yap Leng Kuen believes that when one door closes, another opens. The views expressed are the writer’s own.