Tag Archives: trade war

US-China Trade Deal: Not Much Win-Win; Not Much Loss-Loss

Screen grab or Annex 6.1 of US-China phase one economic and trade agreement, January 2020.

FROM THE SIGNING ceremony and the detailed text, this Bystander takes two overarching points from the new US-China phase one economic and trade agreement.

First, the agreement will work as long as China decides to make it work, and the deal provides a stick for the United States to help Beijing keep its mind resolved. Second, the biggest risk may be that what US President Donald Trump tells himself China has committed to do under the deal is different from what China thinks it has. Or, indeed, based on Trump’s inflation at the signing ceremony of the agreed numbers for Chinese imports of US goods and services over the next two years, what the agreement says.

For all the talk of this being an equal agreement, most of the commitments to action fall on China: the text contains 20 times as many ‘China shall’ as ‘the United States shall’ (h/t to Sinocism for that tidbit). That said, commitments and concessions are not the same, and what concessions there have been on both sides are small, even if China, on balance, made more and still faces tariffs on the majority of its exports to the United States.

However, over two years of intensifying tariffs pressure, Beijing successful resisted US attempts to make fundamental structural changes to its economy, which may be its biggest win of all.

Most notable among the ‘China shalls’ is strengthening its intellectual property protection, including providing better legal remedies to aggrieved foreign companies, and greatly increasing its imports from the US over the next two years.

The latter is largely a question of money and capacity to absorb the imports, plus dismantling non-tariff barriers.  One set that will go immediately pertains to low-risk foodstuffs, which will be able to be imported requiring only US Department of Agriculture health and safety certifications.

The former is the direction that China’s economic reformers are headed regardless as they move the economy up the value chain, resulting in more Chinese companies with intellectual property to protect and brands to defend from counterfeiting and piracy.

The same is true for pharmaceutical and financial-services market opening, and for the commitment not to devalue the currency competitively.  Even in the area of agriculture and food, the changing expectations and appetites of middle-class consumers for a safe, varied and international diet makes 1970s-90s-era protectionism for farmers as outdated as it is in most countries.

In that sense the, new agreement pushes on an open door, at least at the national level. Implementation will be key. Local government can be more recalcitrant and inconsistent, but the new Foreign Investment Law takes that on, as it does another long-standing complaint of foreign businesses, forced technology transfer, now explicitly forbidden.

If we set aside the loopholes, those are two ‘deliverables’ in the new trade agreement already delivered, as are many of the other commitments. That prompts the thought that this is a deal that could have been papered much earlier, saving many months of tariffs-induced pain on both sides.

There is no doubt that there are many cracks through which implementation could fall, intended or otherwise. That is where the stick comes in. Including an enforcement mechanism in the agreement was non-negotiable to the United States.

Part of that is just greater transparency required of China. It will need to provide regular reports of enforcement actions over IP infringements, institute a mandatory 45-day public comment period for all changes to IP rules and regulations, and present by mid-March an ‘action plan’ with deadlines for further IP protections. That will be more sunshine than to which many are accustomed.

But the heart of enforcement will both sides having compliance teams charged with monitoring the other side’s implementation and then resolving any disputes where one side feels the other is falling short.

The text offers little insight into how the monitoring will be done. There will be regular meetings between the staff of the two compliance teams, but points of complaint will likely have to come into each team from companies. That may test some companies’ willingness to put their heads above the parapet.

It will be up to each team to investigate complaints brought against their country. Resolution is to be reached by consensus within set deadlines. If it cannot be achieved, the complaint gets escalated up the chain of command. If it reaches the highest political level (a designated vice premier and the US Trade Representative) still without resolution, the aggrieved party can take punitive actions (e.g., slap on tariffs) without fear of retaliation.

If it believes the other side has acted in bad faith, it can withdraw from the agreement unilaterally. Either side can end the agreement with 60-days written notice. A Trump tweet will be the perennial wild card.

This procedure looks rickety. It has the feel of an effort by the Chinese negotiators to insert as much process into disputes resolution as possible short of denying the Trump administration the ability to restore tariffs unilaterally if the US president takes it into his mind that China is no longer adhering to the agreement. If he can say he can do that, he probably does not care too much about the rest of the details.

The mechanism may get to November this year unscathed. However, it would be a bold Bystander who would bet on it getting through another four years after that, especially if the incumbent US president is re-elected to office.

As has been noted here and widely elsewhere, phase one tackles a limited range of the issues at dispute between the Trump administration and Beijing. Unresolved and probably intractable fundamental differences over China’s state-led economic model, including government support for Chinese enterprises, indigenous technology development under Made in China 2025 and cyber theft, are deferred to Phase Two.

That will start, Trump says, as soon as he visits Beijing soon. However, it is unclear when substantive negotiations will start and even less so when they will conclude, if ever. China is in no hurry on either front.

It may be that the only way forward will be small, issue-specific settlements. It  remains hard to envision a comprehensive phase two acceptable to the United States that would not undermine the Party’s monopoly grip on power, equally unacceptable on the other side.

Meanwhile, one way we shall amuse ourselves is by filling in the blank order grid in the agreement (see screenshot above) for the $200 billion of additional US imports China promises to buy this year and next over and above the baseline level of 2017’s imports, the last year before the tariff wars.

We have the high-level numbers for the four categories, manufactures, energy, agriculture and services, but no details. These are being kept secret to avoid price and supply distortions in the market, it is said. We suspect there is still work being done on the final numbers down in the bowels of the international trade categorisation system at the six-digit level, and on China’s capacity to absorb such an increase in imports over that relatively short time.

One question the text of the deal has answered, however, is on how the agricultural imports numbers will be got to add up to their targets. The answer is that ethanol purchases will count under agriculture. US ethanol is produced from corn.

China, too, converts some of its corn stockpiles into the fuel. Like their US counterparts, Chinese farmers will now have to start making calculations about how much acreage to plant in the light of the import targets and how much to devote to soy in the face of falling demand for soy meal for hog feed because of the African swine fever epidemic. Such are the real calculations of trade wars.


Filed under China-U.S., Trade

US-China Trade Deal: A Less Than Wonderful World

Vice Premier Liu He and US President Donald Trump present the signed US-China Phase One economic and trade agreement during a ceremony at the White House in Washington DC on January 15, 2020. Photo credit: Xinhua/Wang Ying.

DONALD TRUMP TODAY applied his humungous signature and, in a tiny but telling sign of the continuing competition between the two powers, Vice Premier Liu He inscribed his name in matchingly large characters on the Phase One US-China trade agreement. The signing of the deal in a White House ceremony signals a pause to the escalating tariffs war between the two countries, but, as this Bystander has noted before, far from its conclusion.

The US president left the room to the strains of ‘What a Wonderful World’. Nonetheless, the next year and beyond in the world’s most critical bilateral relationship is likely to be uneasy. As Liu noted, both sides now must focus on the implementation of the deal.

However, even what that deal is still seems open to interpretation. In another telling couple of moments during the signing ceremony, Trump said that China had agreed to buy $50 billion worth of US farm produce. In his remarks, Liu put the figure at $40 billion, which is in line with the numbers in the actual agreement behind Trump’s signature.

Game on.


Filed under China-U.S., Trade

When Does An American Car Become A Chinese Export?

A locally made Tesla Model 3 electric car seen in a Tesla showroom in Shanghai on November 22, 2019. Photo credit: Xinhua/Ding Ting.

TRADE WARS, US President Donald Trump famously said, are easy to win. But how do you keep score? A new blueprint for China’s car manufacturing sector raises precisely that question.

Jointly produced by the Ministry of Commerce and China Automotive Technology and Research Centre, it signals a switch of policy emphasis from attracting foreign carmakers who will partner with local manufacturers selling to the domestic market to attracting foreign carmakers who will use China as the production base for their global exports (report via the South China Morning Post).

A consequence of Trump’s tariff war with China is a somewhat-accelerated opening up of many sectors of industry to full foreign ownership. The car industry is expected to be included in that. The pencilled-in 2022 target date may be advanced under the Phase One trade agreement with the Trump administration.

The timing is not all trade-deal driven by any means. Chinese vehicle makers have probably got as much technology transfer as they can from their foreign partners and the domestic market for new car sales is soft. Thus the time is ripe to rally foreign carmakers to the cause of boosting China’s exports.

These account for a small share of the cars made in China. For example, 3.2% of the 2.6 million vehicles manufactured in November were exported, according to the China Association of Automobile Manufacturers (CAMM). (The figures exclude knock-down kits assembled in third countries.) At less than $9 billion, the value of the exports was one-sixth that of those of US carmakers.

China’s largest automobile exporter, Cherry, is aiming to export 500,000 vehicles by 2025, four times as many as now, indicating the scale of exports growth for the sector that the government is anticipating. As long as the vehicles are made in China, the government will not worry too much about the nationality of the badge on the car.

Electric vehicles will be a big part of the auto industry’s export drive. China’s manufacturers are already making headway in sales of electric-powered buses and trucks. Still, passenger cars are the potential mass market, especially the emerging middle-class consumers in the rest of Asia and Africa.

Tesla, the US electric carmaker, is the latest foreign car company anticipating the change; indeed it has got a head start as authorities have already allowed it to operate as a wholly-owned enterprise with no local partner. The first of its Model 3 sedans have just rolled off the assembly line at its new $2-billion Shanghai plant, its first outside the United States. Tesla is getting more breaks than most foreign carmakers because the new energy sector is one of the ten industries tabbed for Chinese global leadership under the ‘Made in China 2025’ programme.

But the question will be, does, say, an Indonesian buying a Tesla made in Shanghai think he or she is buying a Chinese or a US car? In other words, whose export is it? And will the opening up of China’s car market and manufacturing prove to do much for carmaking jobs in North America? Perhaps by then the few remaining unionised car workers at Detroit’s ‘Big Three’ should be pushing for their contracts to provide for profit-sharing on worldwide revenue and not just that from North America to reflect the new scorecard Trump’s trade wars will create.

Leave a comment

Filed under China-U.S., Industry

US Farmers Will Struggle To Fulfil Trump’s Deal With China

A farm seen alongside US Rte 322 in 2018. Photo credit: Mike Procario. Licenced under Creative Commons CC BY-ND 2.0.

THE DEEPER ONE peers into the phase one trade agreement announced with the United States on December 14, the more opaque it becomes. Neither side appears to agree on what they have agreed.

To say the devil will be in the details is not the half of it. A big-figure dollar target for Chinese purchases of US agricultural products, energy and services makes for easily digested headlines. However, for producers, especially farmers who by their nature have to plant a season in advance, it will be the categories and volumes that matter.

For now, those remain unknown, and, we hazard, still not finalised. Take farm produce. We can guess that soybeans, the largest US agricultural export to China by far in the past, and hogs, much needed to compensate for the domestic African swine fever epidemic, will feature prominently in the buying, but not much more than that.

What of other US agricultural products such as beef and poultry, both recently unbanned by China and, one assumes, about to have retaliatory tariffs removed but still facing non-tariff barriers such as regulations on hormone use? Or rice, corn and wheat, which have not significantly figured in the bilateral trade and of which China has had reasonably abundant harvests this year, according to the UN’s Food and Agriculture Organization?

Related, will the energy sales be of crude oil products or ethanol, which in the United States is produced from corn and is a crucial government price-setting mechanism for the crop? And what of cotton, which although covered by import quotas, could be converted in China into more of the millions of T-shirts that Americans buy yearly? China’s textile manufacturers need higher grade cotton to stay competitive in international export markets where low-cost Asian producers are undercutting them.

China’s US farm imports in 2017, the baseline year being used in the phase one agreement and the last full year before the tariffs war started, totalled just over $24 billion (see the table below for a breakdown.) To lift them by the nearly $16 billion necessary to meet the target the United States says has been agreed of $40 billion a year for the next two years — a two-thirds increase — will not be easy.

China’s agricultural imports from US, 2017


Oil seeds, inc soya, and oleaginous fruits












Fruit and nuts


Fodder and forage


Misc prepared food




Prepared vegetables and fruits




Animal and vegetable fats




Prepared cereals and flours


Misc animal products


Sugar and confectionary




Fur skins




Malts and starches


Gums and resiins


Coffee, tea and spices






Misc vegetable products


Prepared meats and fish






Source: UN Comtrade

Total: $24.3 billion

To put the task in some sort of context, in recent years total US exports of corn, soya beans, beef and pork have averaged the $40 billion a year China alone is now meant to be buying. This raises the question not only of China’s capacity to absorb imports on that scale but also that of US farmers and ranchers to produce them in the near term without disruptively switching their exports from other markets. China, too, has concerns about not disrupting broader geopolitical relationships with import partners such as Argentina and Brazil, and with staying compliant with its World Trade Organization commitments.

Next year’s US soya crop will have to go into the ground in the spring (around the time of the first party primaries to select the nominees for next year’s US presidential election.) The 2020 corp is forecast to be the fourth largest on record based on planned expansions of acreage. But even that would only likely let US farmers get back to the little more than their 2017 export levels to China (32.8 tonnes, worth $13.9 billion) unless they were to cut into their domestic sales.

However, the demand for soya in China has fallen. Its two main uses in China are as oil and meal for pig feed. China’s herds have more than halved because of African swine flu. That opens possibilities for more pork exports as well as for other meats, once China removes the tariffs on US meats, so they are competitive with Australian, Brazilian and European exports. Even then, the issues over non-tariff barriers will persist; the flow of new red tape on both produce and proceed foods in the name of food safety has been incessant.

US pork exports to China were worth $286 million in 2017. US estimates of the potential market for US pork in China have ranged from $8 billion a year upwards. Last year, China’s total pork imports were worth barely $2 billion, which seems a more realistic short term target for US pork producers (the largest of which is Chinese owned). Similarly for beef, of which China imported $4.6 billion worth last year. US ranchers and meatpacking companies lay great store on the hope that a more prosperous China will be a beef-eating China. US poultry producers, whose products were banned until November on health concerns, also see a market potentially worth $2 billion a year to them.

Dairy products are also a promising category, riding on the back of Chinese middle-class consumers’ preference for foreign foods, ingredients and nurishment for children perceived as safer than domestic varieties. Overall dairy consumption is stable, but changing in composition as consumers, especially young professionals in the tier one cities, turn to higher-end products such as fresh UHT milk and yoghurts. Similarly, with nuts, where imports such as almonds, pistachios, pecans, and macadamias are increasingly vying with domestic walnuts as a health food. Regulation of e-commerce channels in China that let consumers buy directly from abroad is a point fo trade friction waiting to happen.

China’s farm sector is modernizing and consolidating, turning what was a vast patchwork of smallholdings into regionally or vertically integrated agribusinesses that span farming to food processing and distribution. These will potentially be formidable competitive barriers for US exporters.

One point of entry into these supply chains is animal feeds. The demand for imported high-quality fodder and forage, such as alfalfa for dairy herds, is expected to increase. The drive to upgrade domestic animal husbandry will require nutritional and efficient feed that China cannot currently produce itself in quantity..

In the same vein, getting market access to second- and third-tier cities will be critical to US agricultural exporters. These are largely untapped markets for them. Up until now, most US food imports have not ventured far from from the ports near first-tier cities, with their large populations. Improvements in the ‘cold chain’ and logistics along with the rise of e-commerce means this no longer needs to be so.

Putting together all these opportunities still leaves adding $16 billion a year in US farm exports looking a stretch over the next couple of years, short of authorities buying for purely political reasons. Given the repeated references in state media to buying US farm products at competitive prices, there will be no free lunches, so to speak.

There are, however, two ways the numbers could be massaged. One is that higher prices could boost the dollar sales numbers. Global farm commodity prices are at cyclical lows with an upswing having been stalled for more than a year by the US-China trade dispute. Some increase would be in the natural order of things. When the US exported a record $29.6 billion in agricultural goods to China in 2013, the soya bean price, for example, was more than $14 a bushel; it is currently $9. For much of 2017, the price was below $10 a bushel.

The other is to include forestry products in the grand total. In 2017, US wood, pulp and paperboard exports to China were worth $8.3 billion. Adding in those would raise the baseline to $33 billion, making $40 billion appear a lot more achievable.


Filed under Agriculture, China-U.S., Trade

Prospective US-China Trade Deal Is Little Matter

THE ‘PHASE ONE’ trade agreement reportedly (update: now confirmed) struck between China and the United States amounts to little more than an invoice for a barter sale: the United States exchanging a suspension of new tariffs and a rollback of some old ones for the annual purchase of some $40 billion-50 billion worth of additional US farm produce and some promises on intellectual property and currency.

New US tariffs on $160 billion worth of Chinese imports were due to have come into force on December 15, adding to the existing 25% tariff on goods worth $250 billion and 15% tariff on products worth $110 billion. Neither side wants the economic pain that brings (higher prices for Chinese goods in the United States, retaliatory tariffs on US firms selling to China, and diminished exports for Chinese firms). A truce is mutually advantageous, as the US concession to China on reducing existing tariffs indicates.

US President Donald Trump will present this as an outstanding victory for himself, as is his wont. However, the core issues between the two countries— intellectual property protection, technology transfer rules, market access and industrial subsidies — remain substantively unresolved, and no easier to reconcile except on Beijing’s timetable for the structural adjustment of China’s economy.

Update: Details remain few and far between. US President Donald Trump has tweeted that the December 15 tariffs will not be imposed, the 25% tariffs will continue and the 15% tariffs cut to 7.5%. The Chinese side is being as opaque, saying little more than Washington and Beijing “have agreed on the text of a phase one economic and trade agreement based on the principle of equality and mutual respect”.

Further update: The Wall Street Journal quotes U.S. Trade Representative Robert Lighthizer briefing that China will over the next two years buy an additional $32 billion worth of US farm produce, taking purchases to $40 billion a year as part of a package designed to raise US exports to China by $200 billion over the two years. Curiously, Lighthizer said that the exact products involved will remain classified. He was similarly coy over the details of Beijing’s specific commitments on intellectual property, including counterfeiting, patent and trademark issues and pharmaceutical rights. These he said would be announced in the future.

‘Phase two’ negotiations are to start straight away, according to Trump’s tweets. Phase one is not likely to be signed until next month as it will still require ‘legal review, translation and proofreading’ by both sides, according to state media — providing a last-minute opportunity for details to be lost or found in translation, no doubt.


Filed under China-U.S., Trade

Beijing Roughs Up US-China Diplomatic Waters Slightly

The USS Essex, a Wasp-class amphibious assault ship, seen during a five-day visit to Hong Kong in June 2015. Photo credit: US Navy/Mass Communication Specialist 3rd Class Bradley J Gee. Public domain.

THERE IS MORE bark than bite to China’s response to US President Donald Trump signing into law last month the Hong Kong Human Rights and Democracy Act. The legislation mandates an annual review of whether Hong Kong remains sufficiently autonomous from China to justify its special trade status with the United States among other provisions.

The US Navy will be refused requests to visit Hong Kong, and several US-based non-governmental organisations concerned with human rights will be sanctioned. These include the National Endowment for Democracy, the National Democratic Institute for International Affairs, the International Republican Institute, Human Rights Watch and Freedom House.

These NGOs are among the ‘foreign forces’ Beijing claims are instigating the Hong Kong protests and are about as close to the authors of the legislation it can get without sanctioning members of the US Congress directly. However, sanctioning them may be a shot across their bows in warning that their operations in Hong Kong and China may come under yet further scrutiny.

US Navy ships visit Hong Kong typically several times a year. The photo above shows the USS Essex visiting in June 2015. The last one was the Seventh Fleet’s USS Blue Ridge in April; it had visited previously in 2013. The USS Lake Erie and USS Green Bay were refused permission to visit in August, by when the protests in Hong Kong were well underway.

The suspension will have little if any military impact on the US Navy.  Beijing has done this before, and there are alternative bases the US Navy can use in the region, although it maintains a small logistics office in the US consulate in Hong Kong to support its forward-deployed forces in the area. There are eight such logistics offices in the region, coordinated from Japan. Hong Kong, one of the smallest, is used for coordinating US Navy visits to China. There has not been any indication that the latest measures will affect those visits. Three ports in China are open to it, Shanghai, Qingdao and Zhanjiang.

A Foreign Ministry spokesperson said:

China will take further necessary actions in accordance with the development of the situation to firmly defend the stability and prosperity of Hong Kong and safeguard national sovereignty, security and development interests.

That is a pro-forma condemnation of the United States.

None of this suggests any easing of US-China diplomatic relations, though equally no significant deterioration. Where this all leaves the putative trade deal between the two countries remains mired in who-the-hell-knows country. Sovereignty always trumps trade for China, but the routineness of Beijing’s response to the legislation supporting Hong Kong’s protesters suggests it will not let it sidetrack the trade discussions. But then there are plenty of other reasons that they may come off the rails anyway.

Leave a comment

Filed under China-U.S., Hong Kong

Options Narrow For A China-US Trade Deal

SUMMITS ARE FOR signings. US President Donald Trump’s second summit meeting with North Korean Leader Kim Jong-un in Hanoi should never have taken place. Or at least not until after officials had worked out what the agreement between the two countries was going to be. President Xi Jinping is not prepared to put himself at risk of the sort of fall-out that followed Trump walking out on Kim and that summit ending prematurely with no agreement.

The presidents meeting at Trump’s Florida resort Mar-a-Lago pencilled in for the end of this month to sign-off on a China-US trade agreement remains no firmer that, with Terry Branstad, the US ambassador in Beijing confirming to the Wall Street Journal that a date had not been finalised. The boosterish talk a couple of weeks back that a deal was near enough to completion to suspend the introduction on March 1st of 25% US tariffs on $200-billion-worth of Chinese exports is heard no more.

The sticking points of the agreement are proving as intractable as this Bystander has suspected all along that they would be, particularly over state subsidies, market access and forced technology transfers. No country readily changes its economic development model without either good cause or great pressure.

However, even the mechanism for monitoring and enforcing an agreed timetable for China to remove tariffs is proving difficult to nail down, as is getting the US side to agree to a schedule to withdraw its tariffs. The enforcement mechanism must be “two way, fair and equal,” Vice Commerce Minister Wang Shouwen said this weekend.

The US president is pushing for an early conclusion to a deal for political reasons. He needs demonstrable benefits from it to take into his 2020 re-election campaign. Xi also needs a deal that avoids him looking as if he has come off second best to the United States or has done anything to exacerbate the current slowdown in the economy.

For both, a narrow trade deal with enforcement mechanisms around only tariff-removal regimes seems more and more likely. Beyond that, Beijing will agree to buy more US produce and industrial goods and codify economic reforms that it is already planning to introduce. The more significant structural issues will be kicked down the road.

Leave a comment

Filed under China-U.S., Trade

US-China Trade Dispute Moves From Technical To Political Phase

US PRESIDENT DONALD TRUMP has extended the March 1 deadline for raising tariffs on $200 billion of Chinese imports pending a summit meeting with President Xi Jinping in Florida probably in the second half of next month.

Trump tweeted that ‘substantial’ progress had been made in the high-level trade talks between the two countries.

State media have used the same description of the progress.

The negotiating teams have been working on the text of an agreement that will cover currency, cyber theft and forced technology transfers, services, agriculture, intellectual property and non-tariff barriers. These texts will provide the framework for what state media call ‘the next phase’ of discussions.

There is no official readout from either side of what that progress is but it is thought to have been greatest over the yuan-dollar rate, technology transfer, intellectual property protection and non-tariff barriers — all areas in which Beijing has already been moving in support of its long-term economic reforms to rebalance the economy. China will also be making some immediate large purchases of US goods and produce to cut its headline trade deficit with the United States.

The sticking points are likely to remain subsidies and other supports to state-owned companies, which go to the heart of China’s economic development model.

Until the finalised texts can be seen, it will be impossible to judge what ‘substantial progress’ means, what the pace and scope of it will be, what remains unsettled and what mechanisms will be put in place to monitor and enforce whatever is agreed.

The US team will make one more visit to China for further discussions on that. The fact that Xi is going to meet Trump in Florida in late March rather than on Hainan Island immediately after the Trump-Kim Jong-un summit is a sign of how much of a gap there is between the two sides still, and how little Beijing has conceded on that score.

There is also the little-mentioned question of what concessions will be expected of the United States.

For now, however, it will be all about appearances and how the two presidents control the ‘optics’ of an agreement, which both men need to appear to domestic constituencies as a ‘win-lose’ deal more than a ‘win-win’ one.

Leave a comment

Filed under China-U.S., Economy, Trade

US-China Trade Deal: The Devil Is In The Enforcement

BEIJING AND WASHINGTON are both talking up progress by their trade negotiators as they each look to come up with a formula for avoiding the damaging consequences of the imposition of tariffs on US-China trade that will otherwise occur at the end of next week.

News that the Chinese team led by Vice-Premier Liu He will be extending this week’s two-days of talks in Washington can be read either way: that agreement is nearing and just needs a final push; or that it remains elusively far away.

On one superficial level, this Bystander believes, it is the former, but deeper down it remains the latter.

What is likely to be agreed by March 1, the deadline to conclude an agreement set by Presidents Xi Jinping and Donald Trump over dinner at last autumn’s G20 meeting in Buenos Aires, is a framework for further talks with six tracks: currency, cyber theft and forced technology transfers, services, agriculture, intellectual property and non-tariff barriers.

Each track would have binding objectives in terms of structural economic change in China. In addition, there would be an agreement to cut China’s bilateral merchandise trade surplus with a number of immediate big-ticket buys of US goods and produce, notably soybeans, which had been a $12 billion a year sale for US farmers before the tariff tit-for-tat started. Energy and industrial goods will also be on China’s shopping list.

The sections in the agreement for the six tracks would have been called memoranda of understanding in the old diplomatic language. Donald Trump does not like the term, and slapped down the US Trade Representative Robert Lighthizer for using it. Trump is a ‘dealmaker’, not a memorandum of understanding sort of guy; and to be fair to the president, touting that he has secured the ‘greatest memorandum of understanding  — ever’ just does not have the same ring as being able to boast of the making the ‘greatest deal — ever’.

Trump’s intent is to tie the big red bow on a deal at a meeting with Xi sometime after his summit with North Korean leader Kim Jong Un in Hanoi on Wednesday.

The six areas are all ones in which Beijing will be prepared to agree binding objectives. They are aligned with the structural changes it anyway needs to make to rebalance the economy. The sticking points are how far and how fast Beijing is prepared to go at this point, and, crucially, what monitoring and enforcement mechanisms it is prepared to accept.

Each of the six tracks has obstacles of differing degrees of difficulty to overcome. The currency one has already reportedly been settled. It was probably the easiest to tackle, given that China has a managed float for its currency in place and the yuan-dollar rate provides a clear and transparent measure, even if there is plenty of scope for argument over what constitutes a ‘fair-value’ rate.

On the other five, finding the right language that meets the Trump administration’s tough demands for structural change yet gives Beijing the room to soft-peddle has been proving as difficult as would have been expected.

The most progress has been made on intellectual property rights and improved market access; the least, on the role and practices of state-owned enterprises, subsidies, forced technology transfers from US companies operating in China and, thorniest of all, cyber theft of US trade secrets.

That last one goes to the heart of the issues between the two sides. If China is to succeed in ‘catching up’ with the US economy industrially and rebalancing its economy so the next phase of growth is driven by high-value manufacturing and services based on the next generation of industries, then it will need to acquire the technology to do so by fair means or foul and nurture the national champions to develop and exploit it.

Those priorities will not be given up lightly.

For Trump, a big political win on China, one of his core issues in the 2016 presidential election campaign, is essential going into his 2020 re-election bid. With the newly energised Democrats snapping at his heels, he needs headline concessions that sound grand and victorious to his electoral base, especially in the tightly contested states of the (formerly) industrial MidWest.

Xi, too, needs to demonstrate domestically that he has got the measure of Trump and that he is not yielding any sovereignty to Washington over the reform process. Any sign of the latter will be seized upon by his political critics.

So for both men, perceptions at home are critical. That is what an agreement at or around the end of the month will deliver above all.

Negotiating the details of implementation of what is agreed will take far longer. China will drag its feet on that to the extent that it can get away it until if and when US attention switches elsewhere whether under the current president or his eventual successor. Even a two-term Trump would be out of office ahead of the delivery year for Made in China 2025.

For that reason, this Bystander will be reading closely the details of the enforcement and monitoring procedures that are agreed.

1 Comment

Filed under China-U.S., Economy, Trade

Trade Figures Bring No Cheer To Trade War

THERE IS NOT much comfort to be drawn from the latest monthly trade statistics. The 4.4% year-on-year fall in exports for December to $221.25 billion, and 7.6% decline in imports to $164.2 billion were the opposite of the increases on both sides of the ledger that had been expected. The increase in the trade balance, to $57.1 billion from $44.7 billion last month, is just the result of the arithmetic.

The trade dispute with the United States appears to be starting to bite after several months of front-loading of orders to get ahead of tariffs, but there have been plenty of straws in the wind suggesting the economy is slowing, from the first fall in annual car sales in two decades to Apple’s warnings about slumping iPhone sales.

The question is whether this will make the need to strike a trade deal with the United States by the March 1 deadline self-imposed by Presidents Xi Jinping and Donald Trump  more pressing on Beijing’s part. Or will it stiffen the resolve of the leadership to tough it out, knowing that it can only make superficial concessions unless it is willing to make structural changes that it will not?

It may also judge that a slowing global economy and jittery equity markets worldwide impose pressures of their own on the US administration, which has plenty of domestic distrctions of its own right now.

Vice Premier Liu He, Xi’s point man on the trade talks with the United States, is due in Washington before the end of the month. He might arrive with a willingness to make some big-ticket purchases to cut the headline number for the trade surplus with the United States (2018’s was the largest in a decade) and some token concessions on greater market access for US firms. Last week, the sherpas preceding his visit made some if unspecified progress on both fronts.

However, he is unlike to bring significant concessions in the contentious areas such as intellectual property and Beijing’s support for state-owned enterprises. The slowdown in China’s economy may more likely encourage Washington’s China trade hawks to believe that they need to continue to until he does.

Leave a comment

Filed under China-U.S., Economy, Trade