Jan 17, 2019 09:21 PM

JPMorgan Sees U.S.-China Tensions Escalating in 2019

The headquarters of JPMorgan Chase & Co. is seen in New York City. Photo: VCG
The headquarters of JPMorgan Chase & Co. is seen in New York City. Photo: VCG

Tensions between China and the U.S. are expected to escalate in the second half of the year, broadening beyond tariffs to geopolitical confrontation, with increasing competition likely to define the relationship, American investment bank JPMorgan Chase & Co. has warned.

“In the long run, the US-China relationship is unlikely to go back to the old days,” the bank’s economists, led by Zhu Haibin, said in a report published this week.

“We expect the competition between the two economic super-powers, in areas of trade, technology, and geopolitical influence will become a new normal,” they wrote.

They urged Beijing to think over policy choices on key issues such as “how to avoid Thucydides’s trap with the US.”

“Thucydides’s trap” is a term coined by Graham Allison, a professor at the John F. Kennedy School of Government at Harvard, that assumes an established power’s fear of a rising power almost inevitably results in war.

Hopes have grown high that progress has been made in bilateral talks last week in Beijing toward finding a long-term solution to the tariff disputes between the two countries.

Presidents Donald Trump and Xi Jinping agreed on Dec. 1 to put new tariffs on hold until March 1. The Chinese government confirmed Thursday that Vice Premier Liu He will pay a two-day visit to the U.S. starting Jan. 30 at the invitation of U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer to continue the negotiations.

But the JPMorgan analysts are pessimistic that a final deal will be struck during the 90-day truce because of chasms between the two countries on some issues, such as China’s ambitions for innovation and technological upgrading, as well as Beijing’s insistence on maintaining the nation’s fundamental political and economic systems. “Some of the US demands either are fiercely resisted by Chinese policymakers or will prove difficult to deliver with-out intrusive implementation monitoring (e.g., intellectual property protection),” they wrote.

They predict the trade row will re-escalate in the second half of 2019, with 25% U.S. tariffs imposed on all imports from China.

Even more worrying, the conflict could spill over into other areas to trigger actions including “a ban on technology transfers and cross-border investment, sanctions on companies, and geopolitical confrontation,” they warned.

“The ZTE and Huawei cases are more likely the beginning, not the end, of such confrontation. The impact of non-tariff actions could be equally damaging to the economy and financial markets,” they said.

Washington in April barred U.S. companies from selling to Chinese telecom-equipment maker ZTE Corp. for several weeks due to sanctions violations, forcing the firm to temporarily suspend operations. American media this week reported that the country’s authorities are investigating Huawei Technologies Co. Ltd., another Chinese technology giant, for allegedly stealing trade secrets from U.S. partner companies. The news followed the detention of Meng Wanzhou, Huawei’s chief financial officer and a daughter of company founder Ren Zhengfei, last month in Canada in connection with alleged violations of U.S. sanctions on Iran.

Nontariff actions by the U.S. will tend to be more specifically targeted to sectors that are critical to China’s ambitions and pose more challenges to China’s efforts to maintain productivity growth, which is crucial to achieving solid, sustainable economic expansion in the long run, the JPMorgan economists said.

They project growth in the Chinese economy to slow to 6.2% this year from an estimated 6.6% in 2018, dragged down by investment and net trade, and the yuan to weaken to 7.1 against the dollar by the end of 2019.

Contact reporter Fran Wang (

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