US-China accord: Not a 'BIG DEAL' but better than nothing

December 16, 2019 15:25
Though US and China have announced a ‘Phase One’ trade deal, each side appears to have expectations of the other that may not be realized, the writer observes. Photo: Reuters

President Donald Trump, with his fondness for superlatives, hailed the first-phase US-China trade agreement as "historic," "an amazing deal" and one in which China would make "massive purchases" from the United States despite evidence that Washington had to roll back tariffs to achieve this accord.

Chinese officials and scholars, in a more sober vein, described it as a ceasefire that enables the two sides to take "a step forward."

In October, the two sides appeared close to an agreement but then spent weeks more negotiating the topic of tariffs at China’s insistence.

China wanted all tariffs removed. In the end, Washington agreed to suspend plans to impose a 15 percent tariff on roughly US$160 billion worth of Chinese imports scheduled to kick in on December 15 and to cut in half 15 percent tariffs on US$120 billion worth of Chinese goods, leaving in place a 25 percent tariff on an additional US$250 billion of Chinese goods.

China, on its part, suspended planned retaliatory tariffs on December 15.

Wang Shouwen, China’s vice minister of commerce, said at a press conference that "the US side will fulfill its commitments of removing tariffs on Chinese products phase by phase, reversing the trend of tariff hikes.”

In return for rollbacks of American tariffs, China agreed to increase purchases from the United States, particularly of agricultural products.

Robert Lighthizer, the United States Trade Representative, told the media that China would raise agricultural purchases by US$32 billion over the next two years. As a result, he said, total agricultural purchases would reach an annual level of US$40 billion, and China would make efforts to raise that to US$50 billion.

However, the Chinese side only said that it would increase purchases “by a notable margin,” citing “market demand.”

Each side appears to have expectations of the other that may not be realized. Additional negotiations are clearly needed to nail down what each party agrees to deliver.

But the second phase goals are much trickier. China would still want the total elimination of all tariffs while the United States will demand concessions on structural changes, such as non-tariff barriers, as well as resolution of issues involving intellectual property, technology transfer, state subsidy of Chinese companies and market access.

With the 2020 elections looming, Trump has decided to launch the next round of talks immediately. But it seems questionable whether a second accord can be reached before next November.

The phase-one agreement won’t be ready for signing until the agreed text passes legal review in both countries, a process that is by no means a formality.

Originally, the plan was to have the agreement signed by Trump and his Chinese counterpart, Xi Jinping, in October on the sideline of the APEC meeting in Chile. But that proved impossible after a last-minute cancellation of the meeting due to domestic Chilean problems. Besides, the tariff issue remained unresolved at that time.

Now the talk is of the signers being not the two presidents but the chief negotiators, Chinese Vice Premier Liu He and Robert Lighthizer, the US Trade Representative.

This may well be a reflection of the accord’s actual importance.

While Trump had insisted to the end that the accord was a “BIG DEAL,” in reality it does little beyond buying some time and lowering tensions with China but it’s certainly better than no deal. Perhaps the “biggest deal” for Trump is its possible impact on voters next November.

It certainly doesn’t even begin to narrow the gulf between the two countries.

On Dec. 12, the day before the announcement of the trade accord, David Stilwell, US assistant secretary of state, spoke on US-China relations at the Center for Strategic and International Studies in Washington and said: "For decades, American policymakers have extended the hand of friendship to the PRC—yet Beijing has not reciprocated. The historical record shows this clearly.”

One of the many examples he cited was China’s eagerness to send students to the United States. Stilwell recounted that when China’s then paramount leader Deng Xiaoping met Frank Press, the White House science adviser, before normalization, he insisted that Press call President Jimmy Carter immediately with a request to accept 5,000 students.

"Awakened by the call at 3 am,” Stilwell recounted, "Carter replied, ‘Tell him to send a hundred thousand.’ So he did.” Today, there are hundreds of thousands.

The day after Stilwell’s talk, China’s Foreign Minister Wang Yi addressed a symposium on foreign policy and called the United States "a troublemaker in today’s world."

Such contrasting sentiments underline the difficulties of a phase-two accord and sadly suggest that there is little likelihood of the gulf between the world’s two biggest economies being narrowed anytime soon.

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Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.