Why China and US Trade Talks Matter to Investors – Introduction
United States of America and China are the two biggest economies in the world. The two have a combined GDP of more than $30 trillion. This means that the two have a GDP that is about 37% of the total world GDP. This is despite the fact that the two economies have a combined population of more than 1.5 billion people compared to the world’s population of more than 7 billion people. Annually, the Chinese economy has continued to expand by more than 6% compared to US 2-3%. Economists believe that China will overtake the US GDP by 2030. Further, the economies are also big in terms of debt. The US has a national debt of more than $20 billion while China has a national debt of more than $6.5 trillion. When you add the corporate debt and the local municipal debt, the mountain climbs to almost $40 trillion.
As the Chinese economy continues to expand, the United States has continued to become worried. This is because no country likes being passed by another one. It will also mean a dynamic change in how the world operates. This is because the two countries operates using very different models. United States prides itself for the promotion of democracy. For example, in funding developments, it only does so to countries that share its democratic creed. China on the other hand does not seek to influence the political workings of other countries. In recent years, the country has continued to fund development in autocratic countries like South Sudan and Libya. Most people refer to this as a debt trap method of financing. In it, the country offers a lot of money, and then takes over strategic assets.
For these and other reasons, when the two countries started a trade war one year ago, it affected countries from around the world. The trade war happened because the Trump administration – and Americans in general – believe that the country has taken advantage of the US. They accuse it of blocking its companies from operating there and stealing its technologies. As a result of all these, the two countries started imposing tariffs on one other to force negotiations. This resulted to tariffs worth more than $250 billion.
This week, negotiators of the two countries will be meeting in China. This meeting comes a month after the two presidents met in Buenos Aires at the G20 meeting and agreed to negotiate a deal. This also comes a year after similar talks took place last year. Therefore, the expectations for the meeting are still very low. Investors are hoping that the weakening global economy will lead to major compromises among the two countries.
A comprehensive deal between the US and China will be very important. This is because it will open up the economy to American companies who have struggled to penetrate the market. It will also lead to lower tariffs on American goods such as soybeans, corn, and energy commodities. Most importantly, the spillovers of the deal will be felt in other countries that supply the two countries. Increased demand will lead to more trade and a better quality of life
Why China and US Trade Talks Matter to Investors -UsefulTips