Despite the latest Sino-American "skinny deal" to ease tensions over trade, technology, and other issues, it is now clear that the world's two largest economies have entered a new era of sustained competition. How the relationship will evolve depends greatly on America's political leadership – which does not bode well.

NEW YORK – Financial markets were cheered recently by the news that the United States and China have reached a “phase one” deal to prevent further escalation of their bilateral trade war. But there is actually very little to cheer about. In exchange for China’s tentative commitment to buy more US agricultural (and some other) goods, and modest concessions on intellectual-property rights and the renminbi, the US agreed to withhold tariffs on another $160 billion worth of Chinese exports, and to roll back some of the tariffs introduced on September 1.

    The good news for investors is that the deal averted a new round of tariffs that could have tipped the US and the global economy into recession and crashed global stock markets. The bad news is that it represents just another temporary truce amid a much larger strategic rivalry encompassing trade, technology, investment, currency, and geopolitical issues. Large-scale tariffs will remain in place, and escalation may well resume if either side shirks its commitments.

    As a result, a broad Sino-American decoupling will likely intensify over time, and is all but certain in the technology sector. The US regards China’s quest to achieve autonomy and then supremacy in cutting-edge technologies – including artificial intelligence, 5G, robotics, automation, biotech, and autonomous vehicles – as a threat to its economic and national security. Following its blacklisting of Huawei (a 5G leader) and other Chinese tech firms, the US will continue to try to contain the growth of China’s tech industry.

    Cross-border flows of data and information will also be restricted, raising concerns about a “splinternet” between the US and China. And owing to increased US scrutiny, Chinese foreign direct investment in America has already collapsed by 80% from its 2017 level. Now, new legislative proposals threaten to bar US public pension funds from investing in Chinese firms, restrict Chinese venture capital investments in the US, and force some Chinese firms to delist from US stock exchanges altogether.

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    © Project Syndicate

    © Project Syndicate

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