A very useful commentary piece by Gerard Lyons
The world moves on …….
The Chinese Vice Premier and President Xi’s main economic advisor and special envoy, Liu He, has just completed what looks like a successful trade mission to Washington. It would appear to be a key step in a more fruitful future economic and trade relationship between the US and China.
As we spend time here in the UK focusing on our relationship with the EU, it is a sign – on top of the the recent Commonwealth meeting in London – of how the rest of the world is moving on.
I am still of the view that the next twenty years will be one of strong global growth and that we in the UK need to position for it.
He was accompanied by a high level delegation including the Governor of the PBoC, Yi Gang, the vice chair of the NDRC, Ning Jizhe, and senior people from the ministries of financial & economic affairs, industry and technology and agriculture, among others.
Liu He met with President Trump and US Vice-President Mike Pence in the Oval Office last Thursday,as well as with numerous key people such as Treasury Secretary Mnuchin, Commerce Secretary Wilbur Ross, Trade Representative Robert Lighthizer and multiple Congressional leaders.
On Saturday, before returning to Beijing, Liu He stated that both sides agreed not to launch a trade war and would not impose tariffs against one other. The talks in Washington were described as being positive, pragmatic, constructive and productive.
Agreements were reached in finance, energy, agricultural goods, medical goods and high tech products. China also agreed to boost manufacturing, energy and agricultural imports from the US, to protect the intellectual property of US technology and to cut some tariffs imposed on US goods.
It is clear that, as was said before the Chinese delegation returned home, that there is a consensus between the Presidents, Xi and Trump. According to China Daily, “Trump said that it’s very important for the US and China to maintain a good cooperative relationship in the economic and trade fields. He said both the US and China have good economic momentum and enormous market potential, adding that there is a huge space for bilateral economic and trade cooperation.”
In recent months there has been increased worry about rising trade tensions, triggered by concerns about the sizeable US trade deficit with China. While this visit went well it would be premature to suggest trade tensions will evaporate. It is noticeable, for instance, that China has not agreed to a numerical target for cutting the bilateral trade deficit, as some in the US would like, but which would seem unworkable. It is also unclear how China’s currency policy will evolve. Nonetheless, given events in recent months, this was a positive meeting.
An easing of trade tensions would also aid China’s policy focus. As Liu He made clear when he spoke at Davos in January, China’s eyes are on domestic economic issues including tackling pollution, addressing poverty and preventing a build up of risks in the financial system.
But building on a good relationship with the US will be important as China develop its economy by moving up the value-curve.
Various US level officials will soon visit Beijing to take things further in the key areas identified in this Washington visit.
Liu He added that both US & China will strengthen their cooperation in mutual investment and intellectual property protection, helping support the stability of the global economy & global trade.
We, in the UK, need to appreciate how Brexit will allow us to position the UK to benefit from this changing and growing global economy. Part of that changing world is the increased importance of a constructive US-China relationship.
Dr Gerard Lyons is a vice chair of the 48 Group and a non-executive director of the Bank of China (UK), as well as being chief economic strategist at Netwealth.