A terrible week for China – U.S. relations 

Chinese markets are continuing to trend downward as conflicting reports emerged last week over the possibility of the American and Chinese negotiators resuming trade discussions. Last week in particular was rather eventful in regards to the trade dispute for a host of reasons which ultimately saw several Asian markets slide several percentage points as a result. 

Tariffs, again

First, Trump announced new tariffs which took affect on Sunday. The tariffs affecting $300 billion worth of goods effectively make all Chinese products now subject to one tariff or another. The most recent fees include electronics such as Apple’s iPhone for which the company applied and was subsequently denied an exemption waiver, even after CEO Tim Cook had dinner with Trump during which he undoubtedly pled his case before the American president. 

China had already responded to the tariff threat by devaluing its currency which continued to slide against the dollar last week to 7.1487 yuan per dollar. The tactic aimed at reducing the price of Chinese goods to offset tariffs and make exports more lucrative to other countries earned a harsh rebuke from the U.S. Treasury Department which labeled China a currency manipulator.

Did the Phone Ring? 

After the G7 Summit, Trump claimed his administration had received a phone call from Beijing China which conveyed a promising a strong desire to return to the table. 

“China called last night our top trade people and said, ‘Let’s get back to the table,’ so we will be getting back to the table,” Trump said last Monday. “We’ve gotten two calls and very, very good calls. They mean business.”

The problem is that China flat-out denied those calls ever taking place. It’s foreign ministry claimed to have no knowledge of the phone calls.

“I am not aware of the phone calls over the weekend,” said Spokesman Geng Shuang. “I haven’t heard of the calls.” 

The denial prompted the Trump’s treasury secretary, Steve Mnuchin to give a vague response that “there were discussions back and forth. Let’s leave it at that.” Trump himself refused to elaborate further and declared that he did not want to discuss them. 

It’s possible that Trump invented the phone call story to give U.S. markets a boost which have also been sliding in recent weeks due to the trade war. Just prior to the G7 Summit, China unveiled tariffs on $75 billion worth of U.S. imports which sparked a confusing Twitter rant from Trump in which he ordered American companies to begin “looking for an alternative to China.” As a basis for forcing U.S. businesses out of China, he referenced a 1977 International Emergency Economic Powers Act. 

Threatening to declare yet another unprecedented national emergency, he argued that Beijing’s intellectual property theft and the trade deficit between the two nations would constitute such an emergency, but clarified that he had no immediate plans to give such an order. The law in question has historically only been used to sanction countries, individuals, and businesses, but never to completely force American companies out of a foreign country. The act could conceivably be used for such a purpose, however, by prohibiting companies from doing business with China although such a sweeping action would be catastrophic to American industries. Ignoring the economic ramifications, there’s the question of if it would even be possible given the considerable amount of manufacturing that American businesses do abroad. 

G7 Rebuke

At the G7, world leaders were more focused on the Hong Kong crisis whereby they condemned Beijing’s role in suppressing Hong Kong protests. They stressed the autonomy of the city owing to the 1984 deal struck between Britain and China. Chinese officials were displeased by the G7 voicing an opinion on the matter. 

“We have repeatedly stressed that Hong Kong’s affairs are purely China’s internal affairs and that no foreign government, organization, or individual has the right to intervene,” Shuang said. 

Violence during the protests has become more rampant with the city police recently raiding a subway car and beating its occupants. They’ve also begun using blue paint to spray protestors as a way of marking them for future retribution. The protests, now in their fourth month, are threatening to cast a large shadow over the planned 70th anniversary of the Chinese government on October 1. 

Ultimately, Washington is most concerned with the trade deal and it seems to be the most pressing of the two issues especially when considering the world economy. Market volatility continues to soar upward which in turn drives economies across the globe down. The Chinese Vice Premier, Liu He said that “China is willing to resolve its trade dispute with the United States through calm negotiations and resolutely opposes the escalation of the conflict.” He elaborated that the trade war has no winners and with both sides hurting, a solution must be reached. 

The disparity between Trump’s account of Chinese phone calls and that of Beijing officials combined with the increasingly violent protests in Hong Kong have created one of the worst economic situations in recent decades prompting many to speculate that another U.S. recession is on the horizon. A trade agreement between Beijing and Washington is the best chance of preventing such a calamity.