US-China trade deal: Much depends on its implementation

Chinese Vice-Premier Liu He and US President Donald Trump after signing phase one of the trade deal between their countries in Washington on Wednesday. The deal had China committing to buy another US$200 billion (S$269 billion) of US goods and servic
Chinese Vice-Premier Liu He and US President Donald Trump after signing phase one of the trade deal between their countries in Washington on Wednesday. The deal had China committing to buy another US$200 billion (S$269 billion) of US goods and services over the next two years, a target some analysts say Beijing is likely to fall short of. PHOTO: REUTERS
Chinese Vice-Premier Liu He and US President Donald Trump after signing phase one of the trade deal between their countries in Washington on Wednesday. The deal had China committing to buy another US$200 billion (S$269 billion) of US goods and servic
President Trump hosting Vice-Premier Liu at a luncheon after the signing of the deal on Wednesday at the White House in Washington.PHOTO: NYTIMES

Deal welcomed but observers note how thorniest issues have been left for next stage of talks

The United States-China trade deal inked on Wednesday brought some measure of relief all around, with the Trump administration touting it as a victory for American farmers and workers, and China calling it beneficial to the world.

But much depends on how the deal is implemented, said economists and observers, who expressed reservations about how it left the most contentious issues, such as China's use of industrial subsidies, to the next stage of negotiations.

President Xi Jinping, in a letter that was read out by chief trade negotiator and Vice-Premier Liu He at Wednesday's signing ceremony, said the deal was testament to how the world's top two economies could iron out their differences "on the basis of equality and mutual respect".

He urged both countries to carry out the agreement "in real earnest", and for the US to treat Chinese companies fairly, as well as support collaboration between American and Chinese businesses, research institutes and schools.

The phase one trade deal had China committing to root out intellectual property theft and forced technology transfers, and to open up its financial services market, among other things. It also promised to buy another US$200 billion (S$269 billion) of American goods and services over the next two years.

Beijing is likely to fall short of the highly ambitious purchase targets, a potential source of friction particularly in an American election year, Eurasia Group analysts Michael Hirson, Jeffrey Wright and Paul Triolo said in a note.

"A shortfall from the target in 2020 will not be fatal for the deal so long as (President Donald) Trump is getting enough purchases from China to claim a victory for his base - he can always say that China will make up the difference and achieve the full target in the second year, 2021," they wrote.

But if US-China foreign policy tensions escalate, it could be politically unpalatable for Beijing to continue major purchases, leading to a serious and very visible shortfall of purchases, they said.

That failure could test Mr Trump's patience and his credibility on the campaign trail, and possibly even lead him to re-escalate tariffs, they added.

Criticism and support of the trade deal in Washington were largely partisan, even at the signing ceremony in which Republicans filled the front rows and were acknowledged by the President from the rostrum.

In contrast, Democratic front runner and former vice-president Joe Biden said in a media statement: "China is the big winner of Trump's phase one trade deal with Beijing... True to form, Trump is getting precious little in return for the significant pain and uncertainty he has imposed on our economy, farmers and workers."

 
 
 
 

The trade deal was only the third on Chinese microblogging site Weibo's list of trending topics yesterday, with netizens mostly praising it as a win-win outcome, although some questioned if the unpredictable US President would follow through on the agreement.

The American Chamber of Commerce in China said the agreement has created positive momentum to make progress on the outstanding perennial structural issues, while noting that significant work remains in addressing those problems.

US Trade Representative Robert Lighthizer acknowledged the unresolved structural issues in his comments at the signing ceremony, at which he called the US and China two great countries with two great economies, but two very different economic systems.

"It is imperative that we develop trade and economic rules and practices that allow us both to prosper. The alternative is not acceptable for either of us," he said.

Trade watchers said the deal had not achieved that yet.

"This does not in any sense resolve the big systemic issues the US and China have with each other on trade," said Peterson Institute for International Economics trade economist Chad Bown.

"This is only an interim agreement. In that sense, it is very unsustainable unless you begin to tackle some of those other bigger issues," he added.

Mr Stephen Olson, a research fellow at Hong Kong-based Hinrich Foundation and a former trade negotiator, said: "The agreement is a positive step, but an extremely modest one, which will defer the most important - and difficult - issues to subsequent negotiations.

"Unless and until those more difficult issues such as industrial policies and subsidies are meaningfully addressed, the trade war might simmer down, but it will not be resolved."

 
A version of this article appeared in the print edition of The Straits Times on January 17, 2020, with the headline 'US-China trade deal: Much depends on its implementation'. Print Edition | Subscribe