The global head of sovereign ratings at Fitch has said he is “fearful” that the trade standoff between China and the United States will not be resolved soon.
Speaking on a panel at the St. Petersburg International Economic Forum (SPIEF) in Russia on Thursday, James McCormack told CNBC’s Geoff Cutmore that the trade debate has morphed into a situation that may harden positions.
“I am fearful that we are in for a long standoff between China and the United States,” said McCormack.
“There is a risk that we end up with the two biggest economies operating in parallel tracks in many regards and not in a cooperative way and the world economy will suffer from that.”
Fitch’s top analyst on country risk added that the United States had gone a long way from simple concerns about trade imbalance figures which bothered few in Congress or the business community.
McCormack said White House officials who wanted to take China on, finally felt momentum when the U.S. corporate sector started to complain about losses of intellectual property via forced tech transfers.
Forced technology transfer (FTT) means that when a foreign company wants to enter the Chinese market, it has to surrender its technology to Chinese companies through joint ventures.
Speaking on the same panel was the Vice Chairman of IHS Markit, Dan Yergin, who agreed that the increasing concern from the business community had put energy into White House efforts to widen their attack on Chinese practices.
Yergin said previously it was U.S. Democrats who were “kind of protectionist” while the Republicans were more amenable to free global trade. He said the switch by Republicans has allowed a coalescence of political support for Trump.
The economic historian said there was a risk that the trade spat could ultimately develop beyond rhetoric and tariffs to a “new clash of systems” between China and the United States.
White House trade adviser Peter Navarro has claimed that Trump’s isolationist tactics have been successful in bringing production back onshore to the U.S.
Addressing this claim, Yergin said he was skeptical that firms would make major investment decisions “based upon a few months of political wrangling.”
Also contributing to the discussion was the Deputy Minister of Economic Development for Russia, Timur Maksimov. He said the discussions between the U.S. and China were about trade “in form but were economic in substance.”
Maksimov added that trade deficit was not previously an issue for the Trump administration and that Washington was not particularly upset until China started to manufacture its own product rather than just assemble western goods.