We live in an ever-globalizing world in which countries in different parts of the planet are more interconnected than ever before. This particularly concerns economic relations between many nations since the global transportation network is hitting new levels of advancement and development. Moving cargo and people around the world is easier thanks to cheap flights and gigantic ships, floating around oceans on a daily basis.
The world is getting smaller and people are adapting fast. The number of annual airline passengers globally hit over 4.2 billion in 2018, an unprecedented milestone in the history of modern aviation. The mobility is on the rise and it benefits everyone as the capital flows in and out of countries easily, without any extra barriers. Realizing how global trade and efficient movement of goods and people benefit economies is the very reason why a soaring number of sovereign nations open themselves for foreign visitors and businesses.
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Countries around the world vary in size and capabilities. Some are exquisite tourist destinations while others are major, gigantic manufacturing hubs. The process of globalization helps us fill in the gaps that all of our countries have in terms of production and consumption. For instance, Greece produces olives which can not be done in Finland. Therefore, Finland imports olives from Southern Europe. On the other hand, digital hardware technology manufactured in Finland is exported to countries where such production lines do not exist.
The United States and China in the globalized world
There are many major economies around the world from Europe to Asia and South America. However, none of these are bigger and more significant than the United States and China. These nations are the true driving forces of the global economy. They produce immense amounts of goods and services, supplying the rest of the world.
Everyone agrees that competition to a great extent in terms of global trade is not essentially beneficial. Rather, countries across Europe and other continents have decided to help each other out and unleash areas, in which they are particularly good. However, two of the biggest global superpowers do not see the world the same way as others.
China and the United States have a long, complicated history as rivals and allies. In fact, they have never been too close diplomatically, but the trade relations had to be enhanced as China gradually became the leading manufacturer in the world. With that, the century-long monopoly of the United States was slowly coming to an end. Therefore, the initial, subconscious competition between the two nations emerged in the 1980s.
The Trade War
Despite this mild competition, no US president had ever made a statement openly declaring a trade war with China. This was until the current US President Donald Trump assumed the office and said, that he would impose tariffs on Chinese imports in order to reduce the US trade deficit. The statement obviously attracted lots of attention from global media outlets, many of them calling Trump a provocateur and the enemy of people.
From that point on, this grand trade war between the two superpowers has been on. The US trade deficit reached its historic low in recent years, however, consumers and businesses now face increased prices on products. Trump is trying to substitute Chinese imports with local production, however, one thing he does not realize is that the price difference accumulated through the shift affects the vulnerable part of Americans the most. It also has a great negative impact on small and medium-sized businesses that represent the driving force to the US economy.
Tensions between China and the US affect numerous industries
The forex trading sector is one of the most important parts of the global financial chain. FX markets generate billions in revenue and are crucial for many businesses and individuals around the world. However, due to the trade war and the Chinese government’s instability, CNY is basically never traded on Forex. Even the best Forex brok struggle to sustain relations with their customers due to the lack of capacity amid the continuous trade war.
The trade war hits the manufacturing industry the hardest. Thousands of mega-corporations from the United States have manufacturing centers across China. This helps them produce at a lower price, offering more affordable items to their customers around the world. Even companies such as Apple Inc. are gradually coming to a standstill as tensions seem to reach new heights.
Top US and China officials seem to have agreed on a deal
The truth is that the vast majority of US officials realize how the economy and dynamics of global trade are dependants on China. Therefore, despite President Trump’s often explosive statements, they try to keep relations open and tight.
On Friday, Chinese and US top diplomats discussed the phase 1 of the new trade agreement between the two nations. This agreement will come in force shortly, partly regulating trade relations in years to come. Phase one is the early stage agreement and includes clauses that make both parties responsible for certain actions. For instance, China will be required to increase its exports from the United States by a minimum of $77 billion throughout the first year of the agreement.
These talks clearly indicate how important sustaining healthy trade relations between the United States and China is. WIthout Chinese manufacturers and US buyers, both countries risk big economic losses in an extended period of time.
United States and China talks were praised a good start but they will likely fail
Despite an optimistic outcome of this Friday’s talks between two countries, they will likely drift apart very soon. The main blame will probably be on the White House and some senior US officials or alternatively on China in regard to Coronavirus figures. The tensions were escalated recently as President Trump openly and loudly accused the Chinese government of hiding facts and real numbers about the coronavirus pandemic across mainland China. The White House also made accusations that the rising death toll globally is China’s fault as they state that reporting done by the country was slow and inaccurate.
As the pandemic continuous to take the toll of a growing number of nations across the globe, the trade talks that should deal with the never-ending dilemma are expected to fail. The world is bracing for the biggest recession since the great depression. In this new economic environment, protectionism will dominate the world for years to come. Chinese and US governments might at some point finalize a more ambitious and beneficial trade deal, but not now and not under current administrations.