At the start of the year, one of the often repeated risk factors was that a trade war between China and the US could break out due to Trump's hardline stance on the US trade deficit with Beijing. Since then, such fears have largely faded as the status quo re-established itself, and trade between the two nations has proceeded largely unchanged. However, one year later, dark clouds may finally be gathering.
According to the FT, the Trump administration has put its main programme for bolstering economic relations with China on ice "as it complains about the two countries’ swollen trade imbalance and says Beijing’s efforts to liberalise its economy have gone into reverse." This was reveled in an FT interview with David Malpass, a top economic diplomat for the administration and who is currently undersecretary for international affairs at the US Treasury Department, who said that the Comprehensive Economic Dialogue (CED) with Beijing is “stalled” and that there are no plans to revive talks. The decision comes after the dialogue between the two countries in July ended without any tangible progress, the FT adds. The sudden breach in relations comes at an odd time, with Trump attempting to convince Beijing to pressure North Korea over its nuclear missile programme.
Meanwhile, the White House is taking an increasingly confrontational approach in its economic relations, including by opposing China’s bid for recognition as a “market economy” in the World Trade Organisation, as reported this morning.
Malpass spoke of the CED in the past tense, saying it had been intended to make progress on market liberalisation and the economic dialogue between the two countries.
“China is not moving in a market-oriented direction so for now the CED is also stalled,” he said on a visit to New York. “There is not a dialogue on restarting the CED. The critical step is for China to change economic practices to be more in line with global rules and global market liberalisation techniques.”
For now, without any tangible actions set to follow the latest verbal trade war escalation, we don't expect a formal reaction from China except for the occasional angry op-ed in Global Times. However, should Trump follow through with some tariffs on Chinese imports that could change, although whether even a full-blown trade war between the US and China will have any impact on these melting up markets is increasingly in doubt.