Just as the two economic superpowers are in the midst of negotiating their trade dispute, China has begun the process of initiating a formal complaint with the World Trade Organization against tariffs imposed by the United States.
“This is a blatant breach of the United States’ obligations under the WTO agreements and is posing a systemic challenge to the multilateral trading system,” China’s representative said, according to a transcript. “If the United States were free to continue infringing these principles without consequences, the future viability of this organization is in dire peril.”
A U.S. official present at the meeting on Monday said China is using the WTO complaint process as a shield for distorting trade policies. According to the official, China is using “grossly unfair and trade-distorting forced technology transfer policies and practices and through this unfounded dispute”.
“It is China, and certainly not the United States, that is threatening the overall viability of the WTO system,” the U.S. official added.
Trade Wars to Trigger Black Swan Event?
The United States has already slapped tariffs on$250 billion worth of Chinese products, including further threats on more tariffs equal to $267 billion. On the other hand, China has instituted $110 billion worth of tariffs on US goods, which includes further measures that would affect US businesses that are domiciled in China.
In early December 2018, U.S. President Donald Trump and Chinese president Xi Jinping agreed to cease fire on their tariff-for-tariff battle, giving the markets hope that a year-end rally could ensue. However, December alone resulted in the Dow falling 8.7 percent and the S&P 500 losing 9 percent, making it the worst December since 1931.
The truce reached at the G-20 Summit didn’t quell investor fears as markets fretted on the notion that a trade deal can only materialize after lengthy discussions between the two economic superpowers. Furthermore, contentious topics like forced technology transfer and intellectual property could also derail negotiations.
Trump and Jinping met at the G-20 Summit in Buenos Aires, putting global markets on pause as the two economic superpowers met to hopefully ameliorate their trade differences. As part of the agreement, both nations agreed to withhold imposing further tariffs on each other for 90 days while they work out a firm, ironclad deal.
Until then, trade talk could continue to permeate the markets through 2019 and top Australian economists are already predicting that a trade war could trigger the next black swan event.
“More overt retaliation from China to the US and Western developed countries more broadly, in part fuelled by trade and IP tensions, is a key risk,” RBC Capital Markets chief economist Su-Lin Ong said.
March 1 marks the official end of the 90-day truce.
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