Understanding the finer points of the stock market and the how and why of its ups and downs is a complex task for anyone. When major shifts in a whole diaspora of fields occur, people often look to the stock market as a gauge for how significant those shifts really are and what the potential results are going to come out as. World news is often reported as to how it has an impact on the world of finance, and this is certainly one such instance, as President Trump trades tariff blows with China in a rapidly escalating trade war. The impact of this trade war certainly didn’t avoid the stock market, which took notice of the shifting costs of exports and imports and created a noticeable response. Let’s take a look at what’s really going on in this recent episode in the global economy.
Trump VS China
The US President’s attitude towards foreign nations is an eternally shifting spectrum, though it does tend to rest somewhere towards antagonistic for the sake of sending a message. Trump’s ‘show of force’ tactics recently got him into a situation with China on a trade front, causing a situation that has impacted all of the global markets, and heavily impacted the American and Chinese markets. “Trump has a latent tension towards China that simply won’t abate, no matter how few tangible issues there are in reality. This drove him most recently to impose some pretty severe tariffs on Chinese goods,” reports Samuel Chang, data analyst at WriteMyx and BritStudent.
The United States began a 15 percent tariff on hundreds of billions of dollars of Chinese goods for import, from tech to clothing. Trump’s explanation for his move relates again to his suspicion of all of the largest global powers, from Russia to China. He spoke out, via his favorite medium Twitter, about the US over-reliance on Chinese exports, and that his tariff was a motivator for US companies to look for alternative solutions for suppliers outside of China, rather than simply turning to some nation over and over again to supply the products they needed.
Trump’s steps to disincentivize US trade with China could be viewed as impulsive, since the immediate effects of so drastic a tariff will likely fall on the US consumer, with US household costs potentially rising by up to $1000 a year, with such a large selection of consumer goods now made noticeably more expensive. Similarly, Trump’s plan, though it must have considered the possibility of consequences, didn’t allow for a reaction in the opposite direction as the Chinese trade officials lashed back at the tariff.
The Chinese Response
Not ones to be out-maneuvered, least of all by Trump, the Chinese responded to the tariffs with sanctions of their own that were as much a political response as a practical one, as they delivered a counter punch to Trump’s initial move. China immediately imposed additional tariffs on exported goods on a $75-billion target list, and further tariffs were placed on thousands of items originating from the US. Similarly, China was quick to begin imposing new duties on US crude oil, a predictable but damaging move that has made the potential fallout and impact on global stock markets more noticeable.
The Trade War Fallout
“Such actions from nations as influential as the US and China don’t come without an impact that affects people from all around the world. In this instance, a variety of shifts have left most markets a little worse for wear, but most drastic damage has been avoided”, explains Mark Cherry, a business writer at Australia2Write and NextCoursework. The fallout included the US stock futures dipping 0.7% and the Asian markets are down. A noticeable drop in oil prices was also recorded, as would have been expected after the duties imposed on US crude by the Chinese.
This is the latest in a series of jabs between the US and China, though there is no sense in which these sorts of interactions have all that much of a practical purpose. Though this particular episode abated pretty swiftly, the threat of further escalations has made the market quite jittery.
Mildred Delgado is a young and responsible marketing strategist at PhdKingdom and AcademicBrits. She works with a company’s marketing team in order to create a fully-functional site that accurately portrays the company. Mildred is also responsible for presenting these details to stakeholders in a series of marketing proposals. You can find her work at OriginWritings.
On March 2, 2020 the United Kingdom (U.K.) released its public negotiating objectives for a free trade agreement with the United States, its largest bilateral trading partner. In pursuing increased trade in goods and services and greater cross-border investment, the U.K government seeks an “agreement that works for the whole of the U.K.,” including “all four constituent nations,” and that takes account of the Northern Ireland Protocol that aims to avoid the introduction of a hard border on the island of Ireland. The United States released its objectives for talks with the U.K. in February of 2019.
Trade agreements are a valuable tool governments use to generate broad economic benefits, but negotiations can take time and outcomes are uncertain. Many governments simultaneously deploy export and investment promotion agencies to promote access to new markets for its companies or attract investments that will create jobs at home.
Usually affiliated with government, these agencies may promote the image and offerings of the home market, provide export training, offer support in identifying partners or specific business opportunities, organize trade fairs or trade missions, and conduct research and market analysis. They may be based domestically and maintain offices abroad.
The U.K. has enjoyed longstanding success in attracting inbound investment, but with uncertainties surrounding the implementation and impact of Brexit, U.K. trade and investment promotion agencies have a key role to play in promoting a thriving post-Brexit economic future. Although the U.K.’s Department for International Trade is on the front lines in providing trade and investment services, another agency — Invest Northern Ireland (Invest NI) — is specifically focused on making sure benefits accrue to Northern Ireland.
Banking on Belfast
Formed in Belfast in 2002 through a consolidation of the departments of trade, investment, and research and development, Invest NI helps new and existing Northern Irish businesses to compete internationally and works to attract new investment to Northern Ireland. The organization has over 600 professionals in its network, with business advisors across Northern Ireland, and throughout Europe, the Americas, Asia and the Middle East. With U.S.-U.K. commercial relations in the headlines, we spoke with Peta Conn, the Boston-based Executive Vice President and Head of Americas for Invest NI about the narrative she shares.
“Northern Ireland’s strength is its talent – a growing youth population, excellent universities and people who want to stay. We offer a strong ecosystem that brings together government, academia and business. There is a real focus on ensuring we can cater to future demand for skills. I’d add that Northern Ireland offers a great lifestyle and one that is affordable. Many come for the business and stay for the life.”
Key industries in Northern Ireland include financial services, legal services and cyber security. According to FT fDi Markets, Belfast has been ranked as the world’s number one destination for financial technology development projects, the top city in Europe for new software development projects, and the number one international location for U.S. cyber security development projects.
Conn highlighted the importance of testimonials, including the vote of confidence from Boston-based security analytics software and services firm Rapid7, which announced in October 2014 it would set up a software innovation center in Boston’s sister city of Belfast, creating high-paying jobs. Speaking of the investment at that time, Rapid7 CEO Corey Thomas pointed to the work that Northern Ireland’s universities were doing in IT security and the availability of high-quality technical staff.
The Hunt for Talent
Despite the uncertainties of Brexit, Conn noted that the last few years have seen some of the strongest foreign direct investment flows out of the United States into Northern Ireland. “It’s really about the need for talent and an immediate need for developers.”
That talent flows from Northern Ireland’s two major universities – Queens University Belfast and Ulster University. Both are leaders in innovative research, and Queens is home to the Centre for Secure Information Technologies, the U.K.’s national innovation and knowledge center for cyber security.
“If you want development operations or software, you can do this at Belfast salaries that are 20 percent lower than Dublin and 30 percent lower than London, and also have lower workforce attrition.”
Conn leads the Americas team, which includes a dozen people in Boston and 28 people in total across the region, in New York, Chicago, San Francisco, Miami, Toronto, Santiago, and, as of very recently, Los Angeles. In addition to promoting foreign direct investment, the team also helps Northern Ireland companies export to the United States.
Their performance indicators are based on employment and economic growth. Sales teams work to identify prospective investors and explain how Northern Ireland could fit within their growth strategies. Business development teams then offer customized solutions of how the market can specifically support business plans.
Once a company has committed to set up in Northern Ireland, one of the programs on offer is a pre-employment program called Assured Skills, which is unique to the region. Companies can co-design an academy-style course with a local training institution and then recruit a cohort of potential employees to take the course. At its conclusion, all participants are offered a job interview, thus de-risking the recruitment process and leading to a conversion rate of about 90 percent.
As U.S.-U.K. trade talks get underway, politics in both countries and the U.K.’s parallel negotiations with the EU, make the timing of any deal uncertain. The issue of Northern Ireland, which under the U.K.’s Withdrawal Agreement with the European Union (EU), remains part of the UK customs territory but subject to EU regulations, will be a focus of attention among U.S. lawmakers insistent on avoiding a hard border in Ireland and protecting the 1998 peace agreement that helped bring an end to conflict in the region.
A U.K. trade deal with the United States may bring modest benefits for Northern Ireland as government analysis suggests, but the Rt. Hon. Brandon Lewis, Secretary of State for Northern Ireland, has emphasized: “The United Kingdom is going to be one area and all will be able to benefit from our future global trade deals.”
While the talks proceed, Invest NI will continue to offer a compelling narrative of innovation, entrepreneurship, and opportunities to invest in Northern Ireland. Their stories will include everything from sophisticated software development to Northern Ireland’s dominance in producing 40 percent of the world’s mobile crushing machines and manufacturing a third of the world’s airline seats.
Like free trade agreement talks, investment promotion involves understanding long-term strategy direction and the areas of an economy’s competitive advantage. Invest NI will remain an important complement to U.K. government trade negotiation efforts, serving as the messenger of an economy that is open for business.
Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.
This article originally appeared on TradeVistas.org. Republished with permission.
Within the first few months of the Trump Administration in 2017, the U.S. Trade Representative issued a report identifying intellectual property theft and forced technology transfer as crucial sources of China’s growing technological advantage at the expense of U.S. innovation. Tariffs would be applied until a trade deal to address these practices could be reached.
But expectations had to be reset early in the negotiations – China’s offenses cannot be pinpointed to one set of laws, regulations or practices, and so the complex wiring of China’s national approach cannot be untangled or rewired in one pass, in one agreement, even if China shared that goal. An agreement this ambitious would have to be built in phases.
In presenting the “Phase One” agreement signed between the United States and China on January 15, U.S. Trade Representative Robert Lighthizer said the deal represents “a big step forward in writing the rules we need” to address the anti-competitive aspects of China’s state-run economy. And it is a serious document.
Beyond its detailed provisions, the strategic and commercial impact of the deal will take more time to evaluate. What is clear in the meanwhile, is that this administration has departed from the standard free trade agreement template.
Comprehensive agreements are out. Partial or phased agreements are in.
It’s common in trade negotiations to whittle down differences, leaving the hardest issues to the end. Early wins keep parties at the table, building a set of outcomes in which the parties become invested and more willing to forge compromises around the remaining difficult issues. One way to avoid settling for deals that leave aside the most meaningful – and often hardest – concessions is to stipulate that “nothing is agreed until everything is agreed.”
For this administration, however, the art of the deal is – quite simply – closing the elements of the deal available. With China, that may be the best and only way for the United States to achieve a deal. And it may very well represent significant progress. At turns, a larger deal looked as if it would collapse under its own political weight in China. Some things agreed is probably a better outcome than nothing agreed.
A Way Out or a Way Forward?
The deal lays down tracks for more detailed intellectual property rights and newer prohibitions on forced technology transfer. Among other commitments, the deal also breaks ground on previously intractable regulatory barriers to selling more U.S. agricultural and food products in China including dairy, poultry, meat, fish, and grains. But it does not address subsidies provided to China’s state-owned enterprises, a complaint shared by all of China’s major trading partners, Having dodged the issue for now, China may have created an advantage by stringing out its commitments over phases.
The Trump administration brought China to the table with billions in tariffs on imported goods. While compelling, it is not a durable approach. The U.S. macroeconomy is withstanding the self-inflicted pain, but tariffs have real and negative effects on U.S. farmers and business owners who will vote in November. Even a temporary tariff détente is a welcome respite, but uncertainty remains. And while we wait to see if the provisions on intellectual property and technology transfer prove fruitful, what of the lost agricultural sales for U.S. farmers and sunk costs for U.S. businesses?
As part of the deal (a part that gets phased out), China committed to shop for $200 billion in American goods and services over the next two years, including more than $77 billion in manufactured goods, $52 billion in energy products, $32 billion in agricultural goods and $40 billion in services. If fulfilled, the purchases in Phase One would appear to solve the problem of waning U.S. exports to China, but that was a problem of our own making so the administration might only merit partial credit for this part of the deal.
Journey of a Thousand Miles
Of course, the Trump administration’s phased and partial approach to reaching trade deals may simply stem from impatience or a focus on the transactional – comprehensive deals take too long to complete. But the approach may also make sense if these deals are stepping-stones in a bigger, longer game.
In a June 2018 report, the White House offered a taxonomy of 30 different ways the Chinese government acquires American technologies and intellectual property, including through U.S. exports of dual-use technologies, Chinese investments in the United States, and the extraction of competitive information through research arms of universities and companies in the United States.
Ambitious as it is, the administration is not limiting itself to the new Economic and Trade Agreement to solve all the problems it identified. The Department of Justice has initiated intellectual property theft cases, the Department of Commerce is expanding controls over the export of dual-use technologies, and the Treasury Department oversees a process to tighten reviews of proposed inward investments.
A Chinese proverb says that “a journey of a thousand miles begins with a single step.” Concerns the administration will not limit or end its quest with Phase One were evident in the letter from President Xi read aloud at the signing which urged continued engagement to avoid further “discriminatory restrictions” on China’s economic activity in the United States.
Just a Phase?
Beyond engagement with China, the administration has nearly consistently favored partial deals, with the U.S.-Mexico-Canada agreement (USMCA) the exception. NAFTA needed to be modernized. Our economies have changed too much for the deal to keep pace without some upgrades. Could the modifications have been achieved without replacing the deal? Probably, but perhaps not politically, or it might have been done years sooner. NAFTA’s facelift as USMCA offered a chance for the administration to fashion provisions it intends for broader application, such as those on currency and state-owned enterprises. Though it replaced NAFTA, USMCA changes constitute a partial re-negotiation.
With Japan, the administration set much narrower parameters, hiving off-market access and digital trade as an initial set of deliverables. Last September, President Trump finalized a partial trade deal with Prime Minister Abe that went into effect on January 1. Limited in scope, it encompasses two separate agreements that only cover market access for certain agriculture and industrial goods and digital trade.
The White House characterized the partial deal as a set of “early achievements,” with follow-on negotiations on trade in services, investment and other issues to commerce around April this year. But crucially, the partial deal enabled the United States to avoid addressing its own tariffs on autos and auto parts, which comprise nearly 40 percent of Japan’s merchandise exports to the United States, while securing access to Japan’s market for U.S. agricultural exports.
The United States also restarted talks in 2018 on a partial trade agreement with the European Union that is stalemated over whether to include agriculture.
Preferential market access deals are an exception to WTO commitments. WTO members have agreed that free trade agreements outside the WTO should cover “substantially all trade” among the parties and that staging of tariff reductions are part of interim arrangements, not an end state. But with comprehensive negotiations stalled in the WTO itself, members are trying new negotiating approaches such as focusing on single sectors, like information technologies.
Although there was little mention of state-owned enterprises and subsidies in the U.S.-China Phase One deal, something important happened on the margins of that ceremony that received little attention: The trade ministers of Japan, the United States and European Union released a joint statement proposing ways to strengthen the WTO’s provisions on industrial subsides, which they called “insufficient to tackle market and trade distorting subsidization existing in certain jurisdictions,” a reference to China. The statement proposed elements of new core disciplines – a first phase if you will in launching more formal negotiations among WTO members.
The deal signed with China this week envisions reforms to China’s laws, regulations and policies as they apply to any foreign company operating in China, not just the American ones. Perhaps our trading partners see it (only partially) as a go-it-alone strategy and partially as a way to create a corps of provisions that can be migrated to the WTO.
Construction Phases: Trump’s Real Estate Mindset
How is the real estate business like trade policy? It isn’t, except in the mind of Donald Trump. Buildings can be demolished or imploded in seconds. A giant hole is dug before its replacement is built. The builder then pours the concrete foundation constructs the frame long before wiring the interior and installing the finishes.
Maybe a phased trade deal represents the opportunity to reset the footing and frame out a solid structure for the future of US-China trade relations – and the finishing touches will come later.
Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.
This article originally appeared on TradeVistas.org. Republished with permission.