US-China Trade Conflict’s Likely Aftermath for Iran

EghtesadOnline: Will the US-China trade war grow to affect Iran’s economy? Experts present two diverse perspectives on this escalating tension and its impact on Iran’s economy. One group believes that because of Iran’s small economic role in global trade, the country is highly unlikely to be seriously affected by the fallout of trade war whereas another group cites its strong ties with China to express concerns about the seemingly unending conflict’s negative consequences for Iran.

News ID: ۷۴۸۳۶۹

07 September 2019

US President Donald Trump’s administration has been pressuring China for more than two years now to make a trade deal that would strengthen its protections for American intellectual property and result in large purchases of American products, according to New York Times.

However, the two sides continue to have significant disagreements, including which of Trump’s tariffs should be rolled back and what kind of legal changes China must make to treat American companies more fairly.

Since talks between the two countries stalled in May, Trump has moved ahead with his threat to tax nearly everything China sends to the United States, Financial Tribune reported.

On Sunday, the Trump administration placed a 15% levy on roughly $112 billion worth of Chinese goods and plans to place tariffs on roughly $160 billion worth of cellphones, laptops, clothing and toys on Dec. 15.

Trump has also said the United States will raise tariffs on $250 billion worth of products to 30% from 25% on Oct. 1.

Those barriers are quickly reconfiguring the global economy, including Iran’s. The latter group of economic commentators who believe Iran will be caught in the crossfire of US-China trade conflict say the country’s economy might be hurt through three channels: the decline in the value of Chinese renminbi, the Asian country’s probable recession and the side effects of China’s ban on imports of agricultural goods from the United States, the Persian daily Donya-e-Eqtesad reported.

As the trade war between Washington and Beijing drags on, the value of renminbi is increasingly at the heart of the global fight over trade, technology and economic dominance between the world’s two largest economies. The Chinese have been keeping their money artificially cheap to give their exporters an advantage. This would add to the appeal of imports from China. Imports from Iran’s top trading partner are expected to rise in coming months.

Another impact of a weaker yuan is on Iran-China petroleum contracts. If the contracts are denominated in Chinese yuan, it would lead to leaner foreign currency revenues for Iran. On top of that, Iran holds some RMB assets. The falling value of yuan will translate into a decline in the value of Iran’s assets.

US-China trade war and use of tariffs as an excuse for businesses struggles may drive two economies, as well as other world economies, into the brink of recession.

The slowdown in economic growth of China as the world’s second largest economy would impact its trade with other countries, including Iran. It will result in a decline in imports of energy from Iran.

China is one of the countries that has continued to buy Iran’s oil despite US sanctions. The Asian country’s modest economic growth would put a damper on its thirst for Iran’s energy.

Nevertheless, it would open up an opportunity for Iran to switch away from the policy of exporting unprocessed commodities to creating added value for its exports, facilitating business environment, promoting technology and lending support to the private sector.

Following China’s announcement in August that it will cease importing agricultural products from the United States, the Asian country would look for other markets, namely Brazil and India, Iran’s main trading partners for importing agricultural products.

China’s offers might interrupt economic relations among Iran, Brazil and India and drive up the prices of agricultural goods.

The United States and China have discussed a meeting in Washington in September, and American and Chinese officials will both be present on the sidelines of the United Nations General Assembly meeting in New York later in the month.