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USA, China sign first deal to end trade war

Publishing Date : 20 January, 2020

Author : REARABILWE RAMAPHANE

Following months of intensified US –China Trade war which eroded business sentiments across the globe resulting in uncertainties, and subdued market in manufacturing and diamond industries amongst others, this week the world largest economies put pen to phase one of a historic trade agreement that is intended to put an end to the year-long geo political tension.


Representing the world‘s largest economy Donald Trump, President of the United States (POTUS), signed the landmark trade agreement alongside China’s Vice Premier, Liu He, representing the world most populated and second most powerful economy. According to American media houses, the agreement is a preliminary phase of a broader deal that President Trump says may come in as many as three sections. "Together, we are righting the wrongs of the past; it doesn't get any bigger than this," Trump said in a pomp-filled signing ceremony at the White House in Washington DC on Wednesday.


The US- China trade war was fueled by decades of complaints that Beijing was manipulating its currency and stealing trade secrets from American firms. This then was met by United State President Donald Trump putting up tariffs policy which White House said was to encourage US consumers to buy American by making imported goods more expensive.


 So far, the US has imposed tariffs on more than $360 billion of Chinese goods, and China has retaliated with tariffs on more than $110 billion of US products. Washington delivered three rounds of tariffs last year, and a fourth one in September.  The recent tariff punch by United States was 15 % duty on Chinese imports from meat to musical instruments China then hit back with tariffs ranging from 5% to 25% on US goods. Its latest tariff strike included a 5% levy on US crude oil, the first time fuel has been hit in the trade battle.


After more than two years of this rising tension, the two countries have signed a deal aimed at calming trade frictions. Economists say the agreement has been hard-fought, but it is unclear how much economic relief from their trade war it will offer.  Experts say tariffs in most cases at a lower rate will remain in place. Analysts say it's unlikely that the deal will produce gains sufficient to outweigh the losses already suffered.

DOMESTIC EFFECT OF THE TRADE WAR

During this US-China trade war, Africa‘s 3rd world countries, frontier markets, emerging economies, and lower to middle income countries were the most hit economies, standing in the mix, vulnerable to the net effect of negative business sentiment and uncertainties as the leading economies went throat to throat.


Economic uncertainty generated by this unstable geopolitical climate led to widespread shock and a global downturn in the diamond industry during the first half of 2019. These have also fostered a heightened sense of caution among the banks that finance the trade, as well as diamond brokers and consumers of luxury goods.


The global diamond industry in the first half of 2019 faced a variety of challenges leading to widespread uncertainty and declining commerce across all segments. The uncertainty brought about by increased trade barriers and geopolitical risks weighed on business sentiment and activity.


Botswana in particular is a middle income country largely dependent on the mining sector as its economic nucleus, by in large the diamond industry. The sector accounts for more than 30 % of the country‘s GDP, it is the largest foreign income earner, largest private sector employer and second largest source of direct business for the private sector after Government.


According to Bank of Botswana (BoB) during this tough year Real Gross Domestic Product (GDP) have grown by 3.9% in the twelve months to June 2019, compared to a faster expansion of 4.9% in the corresponding period in 2018. The lower rate of increase in output is mainly attributable to a deceleration in growth of the mining sector. Growth in non-mining GDP also slowed in the review period. Mining output grew by 1.4% in the year to June 2019, compared to an increase of 5.6% in the corresponding period in 2018.


Due to by in large this uncertainty Botswana ‘s partner in diamond mining De Beers Group sold less rough diamonds during the year. Sales went down by over P14 billion. Botswana Government owns 15 % of De Beers Group, the mining behemoth is 60 % fed by local mining giant Debswana, a 50-50, 50 year old partnership between the two. Ministry of Finance & Economic Development noted in the Budget Strategy paper for the coming financial year that Botswana’s fiscal position faces potential headwinds.


“Weak diamond sales pose downside risks to mineral revenues, which remain low following the decision by Debswana to finance the Cut 3 and Cut 9 projects from the dividends. Furthermore, risks to the revenue outlook take into account the continued weak market for rough diamonds which has affected sales through De Beers Global Sightholder Sales.”


However some observers say the first deal between Washinton and Beijin means nothing .According to CNN economic experts the signing of phase one deal doesn't mean simmering conflicts and uncertainty over trade won't drag down the global economy this year.   “Tensions between the world's two biggest economies are likely to persist in 2020 as Beijing and Washington enter a second round of trade talks that are expected to be more difficult than the "phase one" process that culminated in a deal Wednesday in Washington”.

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