The trade war took an unexpected turn as the United States put something harsh on the table. The White House unveiled discussions are underway to limit U.S. investment in China. U.S. stocks tumbled a bit from the news, but the impact wasn’t too severe. The eventual effect in China, however, might be dramatic.
China relies heavily on U.S. manufacturing outsourcing to employ millions of people. If investment suffered limitations, U.S. companies would go elsewhere. Losing investment opportunities would surely drive unemployment in China upwards. High unemployment might lead to unrest. China likely doesn’t want to deal with domestic protests, nor would it desire a wide-scale recession.
Nothing specific has come out of the discussions in the U.S. Nothing concrete has been announced, and a timeframe for implementation isn’t available. However, the talks are serious ones. Leaking the news to the press is likely intended to put China on notice. Recently, China canceled a planned visit to Montana to meet with U.S. representatives. Hope existed the talks featured a potential breakthrough in the trade war negotiations. At this point, both China and the United States seem interested in ending the trade war. Not surprisingly, both sides wish to end things in a manner favorable to them. However, too many disputes between the parties exist for the conclusion to arrive soon.
China isn’t the only one facing economic hardships if U.S. investment experienced restrictions. American companies looking for foreign investment opportunities could go elsewhere, but doing so takes time. Revising and scrapping current plans take time. Disinvestment comes with struggles. And even countries interested in taking U.S. investment might not be fully ready to do so. To build automobiles at a plant, the plant has to exist. Moving to a new country could take years.
Would the stock market suffer from the resultant instability and confusion? Likely, stock prices for affected companies would drop. How hard the overall Dow Jones average would suffer is unknown. The potential for a recession to occur exists, says businessmirror.com. Then again, the market could survive and thrive even amidst the overseas investment restriction.
The White House wants an edge in the trade war. Threatening to pull Chinese companies out of government pension funds could do so. Maybe things won’t come to such a harsh situation — the odds of working out a deal increase when both sides face stock market and overall economic harm.
Dil Bole Oberoi
