Donald Trump’s ‘phase-one’ deal will not resolve issues behind US-China trade war, Larry Summers says

A partial deal by the United States and China to de-escalate the 16-month trade war will reduce the uncertainty weighing on global business sentiment, even if it will not resolve the underlying issues that drove the world’s two largest economies into a tariff battle, said the White House’s former chief economic adviser.

The deal, dubbed “phase one” by US President Donald Trump, and expected to be sealed before a 15 per cent tariff on US$160 billion of Chinese import kicks in on December 15, would “probably act as a spur to growth”, said Lawrence H. Summers, the treasury secretary during the Bill Clinton administration, and director of Barack Obama’s National Economic Council.

“I think there are legitimate concerns that the United States has in some areas – probably more in the technology area than in the trade area – that China ought to be willing to address,” Summers said in an interview with South China Morning Post during Credit Suisse’s 10th China Investment Conference in Shenzhen. “[If] China does address those difficulties, that will help the relationship and is likely to help both economies.”

The comment by Summers, the top economic and finance adviser to two US presidents, underscores how a “grand deal” to solve the myriad disputes between the two countries, with US$420 billion of bilateral trade last year, is probably not to be expected. Instead, tensions will remain high “as long as China remains a substantial economic success” story, Summers said.

Trump has placed tariffs on hundreds of billions of dollars of Chinese goods in the past year as he tries to force Beijing to change decades of industrial, technology and trade policy. China has responded with its own tariffs.