Why US is not the only winner of the trade deal

January 20, 2020 12:31
US President Donald Trump and Chinese Vice Premier Liu He sign the trade deal at the White House on Jan. 15. Photo: Reuters

The long-awaited Phase 1 trade deal between China and the United States was signed last Wednesday.

The talks hit a serious snag last year, but since then China has apparently yielded to some of the US requests to make the agreement possible.

In May 2019, both sides hinted that they had reached a consensus on the major points of the trade agreement. Then, US President Donald Trump suddenly accused China of watering down commitments it had made.

Trump raised tariffs on US$250 billion of Chinese goods from 10 percent to 25 percent. This indicated an escalation in the trade conflict between the world's two largest economies, which rattled the financial markets.

Liu He, China’s chief negotiator, told reporters at the time that China had several bottom lines, including the complete removal of the US tariffs and that China’s sovereignty cannot be compromised.

In the initial agreement, China will purchase US$200 billion worth of goods and services from the US within two years. In return, the US has agreed to reduce the tariff on US$120 billion of Chinese goods from 15 percent to 7.5 percent within one month.

China has promised to further open up its financial services industry. Beijing has also pledged to let the market determine the exchange rate of renminbi, and publish relevant data every month and quarter.

China will amend its laws – this part is only mentioned in the English version of the agreement – to stop forced technology transfers to Chinese companies. It also promises to enhance the protection of intellectual property rights.

There would be a mechanism to monitor the enforcement of the above agreements. With regard to the exchange rate issue, the International Monetary Fund would be responsible for following up on the matter.

So in the end, the tariff won’t be fully lifted and China has to allow some sort of monitoring process. Despite the concessions, the trade deal, in a certain sense, should be good for China.

Opening up of its financial services market, a more market-based exchange regime, stronger protection of intellectual property and the purchase of more quality overseas products and services: all these are going to benefit China as well.

More importantly, as China gets the deal done, it has successfully bought the time it needs to restructure its economy.

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Hong Kong Economic Journal columnist