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The U.S. and China are the No. 1 and No. 2 largest economies in the world. Combined, these two economic behemoths account for more than 40 percent of the world’s economic output. However, with the one-year anniversary of the U.S.-China trade dispute just having passed, a final resolution has yet to be reached.

At the heart of President Trump’s contention is America’s mounting trade deficit with China. In other words, we buy a lot more goods and services from China than they buy from us. As of Dec. 31, America’s trade deficit with China reached a record high of $419.2 billion, our largest trade deficit with any one nation.

Another concern is China’s unfair trade practices, including manipulation of its currency. In an open market, the value of a nation’s currency is determined by global forces of supply and demand. By intentionally devaluing its currency relative to other global currencies, including the U.S. dollar, China makes its goods cheaper to buy. Thus, China’s currency manipulation unduly hurts U.S. manufacturers and businesses.

Trump also wants to address China’s continuing theft of American corporate assets. U.S. companies have long complained that to gain access to the Chinese marketplace, they are often required to turn over their intellectual property and technology to the Chinese government.

For China, the end goal in this dispute is to limit its concessions to the U.S. while continuing its global economic ambitions.

After multiple rounds of tariff escalations in 2018, on Dec. 1, the U.S. and China established a 90-day truce, which has since been extended. On Thursday, U.S. trade representatives arrived in Beijing to continue negotiations. Follow-up discussions will continue in Washington, D.C. later this week. Except for this recent flurry of discussions, negotiations between the U.S. and China have been few and far between.

So, what exactly has changed to stimulate this sudden dialogue? The answer: a rapidly deteriorating global economy.

Apart from the U.S., most nations had a marked pullback in economic growth in 2018, with further decline expected this year. More importantly, much of this weakness comes from America’s top trading partners — China, Canada, Mexico and the European Union.

During 2018, Trump’s strategy was to use the size and robust economic power of the U.S. economy as a hammer, forcing weaker economies to renegotiate more U.S.-friendly trade agreements. This strategy succeeded with Canada, Mexico, the European Union, Australia and South Korea, among others. But China has held firm, even as its economic growth was driven to a near-30-year low.

The global economic pandemic has worsened, and this year, China’s economic growth should further decline. For the U.S., our stellar 2018 economy is starting to show increasing signs of stress and fatigue.

And therein lies the common denominator from this economic turmoil — self-preservation. For Trump, economic prosperity has been the hallmark of his presidency and will remain a cornerstone of his 2020 election platform. For China, it must seek an end to a punishing economic decline.

Negotiating common ground and ending this trade dispute would be a monumental step in stabilizing the global markets. It would also limit further collateral damage to the U.S. and Chinese economies. Yes, it may have taken more than a year for the U.S. and China to begin negotiations in earnest. But with the continued declined of the global economy, neither side can afford to wait another year.

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Mark Grywacheski spent more than 14 years as a professional trader in Chicago, where he served on various committees for multiple global financial exchanges and as an industry Arbitrator for more than a decade. He is an expert in financial markets and economic analysis and is an investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment advisor with the U.S. Securities Exchange Commission.

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