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10 October 2019
ECONOMY

The US-China relationship worsens rapidly before talks

The move by the US to blacklist Chinese tech giants like video surveillance company Hikvision and the world’s most valuable artificial intelligence start-up, SenseTime, took the Trump administration’s economic wars against China in a new direction.

BLOOMBERG/CHRIS RATCLIFFE


The US-China trade talks were expected to be back on track this week and the two sides found a way to avoid sending more unsettling signals to financial markets as well as a global economy that looks increasingly fragile, reported Bloomberg.

However, this did not take long to change and the state of relations between the world’s two largest economies has worsened before the latest round of Chinese negotiations get underway.

The move dealt a blow against sectors like AI where China is increasingly dominant, adding to the frictions, the US is also slapping visa bans on Chinese officials linked to the abuses in Xinjiang.

Additionally, the focus is narrowing to how to pressure index companies like MSCI and Bloomberg Barclays to reduce the weighting Chinese companies get in emerging market indexes. Also under discussion is how to limit federal government retirement funds from investing in China—despite White House denials, the US continues to look for ways to restrict financial flows into China.

Until this summer the notion that Trump’s trade wars would prove damaging to the US and global economies was largely that—notional, but the data in recent months have been clear—tariff wars and the uncertainty caused by them have contributed significantly to slowdowns in business investment and manufacturing.

Kristalina Georgieva, the Head of the International Monetary Fund, warned that a world that just two years ago was in a synchronised upswing was now looking at a synchronised slowdown tied to trade tensions.

The IMF would be lowering its projections for global growth for both 2019 and 2020, with 90 per cent of the world seeing slower growth, said Georgieva.

The damage in the US is also growing and the focus in recent months has been on the manufacturing recession in the US and the swing states where it is hitting hardest.

Even before this week’s moves by the Trump administration, Chinese negotiators were signalling they were only prepared to discuss a much narrower deal than the grand rebalancing that the Trump administration has been pursuing.

The US President has in recent weeks repeatedly said that he is opposed to a ‘partial’ or interim agreement with China that would see the Chinese step up purchases of US farm exports and his administration put further tariffs on hold


RELATED STORIES: INTERNATIONAL MONETARY FUND US PRESIDENT DONALD TRUMP PRESIDENT XI JINPING US-CHINA TRADE TENSION MSCI AI BLOOMBERG BARCLAYS

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