US-China phase one trade deal likely to give state-owned companies more sway over Chinese economy, report says

The phase one trade deal will be counterproductive to US President Donald Trump’s policy goals, as it is likely to make state-owned enterprises (SOEs) even more influential in the Chinese economy, according to new research by the Washington-based Peterson Institute for International Economics.

SOEs only accounted for about a quarter of imports last year. But the trade truce reached in January will put more pressure on Beijing to force these companies to buy more to fulfil agreements on purchasing an additional US$200 billion of American-made goods by the end of 2021, according to Peterson research fellows Chad P. Bown and Mary E. Lovely.

At the same time, most of the American-made products covered by the trade deal have primarily been bought by the private sector, and the tariffs that remain in place in China make these goods more expensive for privately-owned businesses, according to the report. US agricultural products, for example, remain 25 per cent more expensive in China because of tariff increases on US exports and lowered duties on imports from Brazil and other countries, the report found.

“The Trump administration justified its costly trade war as a necessary evil to confront the Chinese economic model. Yet, by structuring the deal so that US exports grow only if China’s SOEs increase in importance and at the expense of the Chinese private sector, Beijing hears double talk,” Bown and Lovely said in the report released on Tuesday. “The message is that the Trump administration cares little about China becoming more market-oriented after all. And the rest of the world will hear it the same way.”

Since the trade agreement was signed in January, the coronavirus epidemic has infected more than 90,000 people worldwide, closed factories for weeks in mainland China and caused economists to lower their expectations for global growth this year, because of disruption to global supply chains.