U.S.-China trade truce buys supply chain managers a little more time

While President Donald Trump and Chinese President Xi Jinping have agreed to a truce in the US-China trade war for a period of 90 days, many Pacific Rim supply chain managers may still feel they are living on borrowed time.

“The truce signed at the G-20 Summit signals that renewed bilateral trade dialogue will intensify in early 2019 to try to find a compromise bilateral trade deal,” said Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit. “However, China would need to agree to very substantial measures within 90 days in order to negotiate a compromise trade deal.

Analysts also note that the 90-day truce is a positive outcome for the near-term Asia-Pacific trade outlook, as it averts the previous U.S. plan to hike tariffs on $200 billion of Chinese exports to the U.S. from 10% to 25% on January 1, 2019.

“This large tariff hike would have hit Chinese exporters hard, so it provides substantial relief for China’s export sector, at least temporarily,” observes Biswas.

He adds that such a large tariff hike would also have had “significant transmission shocks” for other Asian economies, due to the integrated Asian manufacturing supply chain providing raw materials and intermediate goods for China’s manufacturing sector.

The truce also signals that renewed bilateral dialogue will intensify in early 2019 to try to find a compromise bilateral agreement.

However, China would need to agree to very substantial measures within 90 days in order to negotiate such an outcome.

For the moment, it’s a waiting game for all transpacific stakeholders…and the stakes are high indeed.