By Nouriel Roubini
NEW YORK ( Project Syndicate ) — Financial markets were cheered recently by the news that the United States and China have reached a “phase one” deal to prevent further escalation of their bilateral trade war.
But there is actually very little to cheer about. In exchange for China’s tentative commitment to buy more U.S. agricultural (and some other) goods, and modest concessions on intellectual-property rights and the yuan /zigman2/quotes/210561989/realtime/sampled USDCNH -0.0248% (also known as the renminbi), the U.S. agreed to withhold tariffs on another $160 billion worth of Chinese exports, and to roll back some of the tariffs introduced on Sept. 1.
Despite the latest Sino-American “skinny deal” to ease tensions over trade, technology, and other issues, it is now clear that the world’s two largest economies have entered a new era of sustained competition. How the relationship will evolve depends greatly on America’s political leadership — which does not bode well.
Despite the latest Sino-American “skinny deal” to ease tensions over trade, technology, and other issues, it is now clear that the world’s two largest economies have entered a new era of sustained competition.
How the relationship will evolve depends greatly on America’s political leadership — which does not bode well.
The good news for investors is that the deal averted a new round of tariffs that could have tipped the U.S. and the global economy into recession and crashed global stock markets.
The bad news is that it represents just another temporary truce amid a much larger strategic rivalry encompassing trade, technology, investment, currency, and geopolitical issues. Large-scale tariffs will remain in place, and escalation may well resume if either side shirks its commitments.
Also read: You call this a trade deal?
As a result, a broad Sino-American decoupling will likely intensify over time, and is all but certain in the technology sector.
The U.S. regards China’s quest to achieve autonomy and then supremacy in cutting-edge technologies — including artificial intelligence, 5G, robotics, automation, biotech, and autonomous vehicles — as a threat to its economic and national security.
Following its blacklisting of Huawei (a 5G leader) and other Chinese tech firms, the U.S. will continue to try to contain the growth of China’s tech industry.
Cross-border flows of data and information will also be restricted, raising concerns about a “splinternet” between the U.S. and China.
And owing to increased U.S. scrutiny, Chinese foreign direct investment in America has already collapsed by 80% from its 2017 level. Now, new legislative proposals threaten to bar U.S. public pension funds from investing in Chinese firms, restrict Chinese venture capital investments in the U.S., and force some Chinese firms to delist from U.S. stock exchanges altogether.
The US has also grown more suspicious of U.S.-based Chinese students and scholars who may be in a position to steal U.S. technological know-how or engage in outright espionage.
And China, for its part, will increasingly seek to circumvent the U.S.-controlled international financial system, and to shield itself from America’s weaponization of the dollar /zigman2/quotes/210673925/realtime XX:BUXX -0.08% . To that end, China could be planning to launch a sovereign digital currency, or an alternative to the Western-controlled Society for Worldwide Interbank Financial Telecommunication (SWIFT) cross-border payments system.