US-China trade tensions to rise with recent deal only a ‘sticking plaster’, warns Verisk Maplecroft

Corporates are caught in the middle of elevated geopolitical tensions between the US and China over trade, according to new analysis by Verisk Maplecroft that forecasts increased levels of competition between the two economies and a more permanent shift towards adversarial bilateral relations. Hugo Brennan, principal Asia analyst at Verisk Maplecroft, said the Phase One trade deal between the two countries is only a “sticking plaster” that will not hold as pressure points build up. “The Phase One trade deal announced in December 2019 does nothing to change the fact that we are in the dawn of a new era defined by strategic competition between the United States and China. This dynamic will likely serve as a significant source of geopolitical risk for companies and investors in the year ahead, as they are in danger of becoming pawns in a broader confrontation. Corporate entities will need to adapt their business strategies in order to navigate this evolving geopolitical landscape or risk becoming collateral damage,” he said. US firms are at risk of featuring on China’s proposed Unreliable Entity List of foreign businesses and individuals that pose a threat to China’s national security or economic interests, in part a response to the US Entity List. “Corporates are no longer mere bystanders in the geopolitical power struggle,” Mr Brennan said, after FedEx was named by a Chinese newspaper as a contender for the list based on allegations it worked for US law enforcement to redirect Huawei documents. Mr Brennan said a Chinese blacklist would provide some clarity to China’s current ad hoc avenues that punish corporates for either their own transgressions or those of their governments. Meanwhile, US President Donald Trump’s US administration is likely to keep up its defence of US technology companies against China’s advance. Mr Brennan said the US will use criminal prosecutions and pressure allies to bar Chinese telecoms firms, including Huawei, from the development of 5G networks, and restrict exports of critical components to Chinese firms. “Strategic competition between the US and China will likely escalate in 2020 and beyond, as will the associated geopolitical risks for corporates,” said Mr Brennan. Greater strategic competition will be played out in the technology space, Mr Brennan continued. China will be pushed towards greater self-sufficiency when developing its technology as the country vies to become a manufacturing superpower across ten high-tech sectors, conversely narrowing opportunities for US tech companies in these sectors. Companies outside the US are not immune to the US-China trade tensions. Mr Brennan said international companies perceived to be allies of the US or taking sides are also at risk of a backlash from China. EU countries are facing their own trade issues with the US, while the UK’s Huawei 5G dilemma, which has rattled the US administration, has been played out in full view. Verisk said the outlook for US-China tensions could change course if President Trump fails to win a second term. It is working on a 50-50 chance of President Trump returning to office. Yet Mr Brennan said competition between the US and China predates the Trump presidency and will likely outlive his term in office.

US-China trade tensions to rise with recent deal only a ‘sticking plaster’, warns Verisk Maplecroft

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