US-China Trade Dispute Phase 2 Negotiations Skeptical... Possibility of Renewed Financial Instability Expansion

International Financial Center 'Trends and Key Issues in the International Financial Market'

"This Year Again, the U.S. Protectionism Runs Rampant"

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[Asia Economy Reporter Shim Nayoung] Although the U.S.-China trade dispute seems to ease anxiety with progress in a small deal, skeptical evaluations prevail regarding negotiations beyond phase 2. Accordingly, it is pointed out that it is difficult to be confident that optimistic views on the international financial market will continue throughout the first half of the year.

According to the 'Trends and Key Issues in the International Financial Market' report released by the International Financial Center on the 12th, the recent official announcement of the phase 1 trade negotiation agreement is positive in terms of alleviating concerns about the deterioration of U.S.-China relations and restoring economic sentiment. The U.S. and China are scheduled to sign the phase 1 trade agreement on the 15th. However, the report stated, "Skeptical evaluations prevail regarding negotiations beyond phase 2."

The International Monetary Fund (IMF) and credit rating agency Fitch have reflected the trade negotiation settlement by raising China's economic growth forecast for this year by 0.2 to 0.3 percentage points. The IMF raised it from 5.8% to 6.0%, and Fitch from 5.7% to 6.0%.

However, despite the phase 1 agreement, additional negotiations on key issues such as subsidies and intellectual property rights are expected to face difficulties. China's limited capacity to import U.S. agricultural products and the U.S.'s new National Defense Authorization Act (extending Huawei sanctions, strengthening relations with Taiwan, supporting Hong Kong protests, etc.) are factors that increase uncertainty.

The report stated, "Despite the U.S. presidential election schedule this year, protectionism is expected to continue as the U.S. prefers bilateral agreements favorable to maximizing its own interests, such as with Japan."

It added, "It is also not possible to rule out the possibility of renewed market anxiety due to the resumption of conflicts around the U.S.-China phase 2 negotiations, limits to further easing by major central banks such as the U.S. Federal Reserve (Fed), and doubts about the robust recovery of the real economy."

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