Trade war: China, US face tough reality ahead after the pomp of phase one deal signing
- US and Chinese camps send differing signals over prospect of a phase two deal, while many wonder if China can keep to its phase one commitments
- After trade deal, average US tariffs on Chinese goods will be 19 per cent compared to 3 per cent before the trade war, with European Union already voicing fears
A US-China trade deal that had long been in the works was signed with all the pomp we have come to expect from President Donald Trump, and for some the setting was fitting as this has been billed as a victory for style over substance.
While Trump proclaimed it “a momentous step – one that has never been taken before with China”, it had long been clear that this phase one deal would be lightweight in the grand scheme of trade agreements, which often run to thousands of pages compared to just 86 in this case.
After talks dramatically collapsed in April last year, it was determined that the more difficult elements would be shifted into a second phase of negotiations. The document, then, is seen to contain the low-hanging fruit – items both sides could bear to agree on as their broader geopolitical relationship continues to deteriorate.
“What the hell. This is a big celebration,” Trump said, as he launched into lengthy introductions of gathered business and political luminaries, including Henry Kissinger.
In China, It was spun as “win-win” – a phrase which has popped up continually over a tumultuous year and a half of negotiations and which Liu also used as he spoke at the dais after Trump and US Vice-President Mike Pence.
Beijing was eager to assert that it had not capitulated, with state-owned tabloid Global Times writing that it should not be viewed as a “one-sided win”. The official Xinhua News Agency said it showed both sides are looking for “a more reasonable approach” to managing their differences.
Other provisions include an intellectual property (IP) chapter which was “surprisingly comprehensive”, said Bryan Mercurio, a law professor specialising in IP at the Chinese University of Hong Kong, who added that it “has a mix of commitments and demonstrable results”, and a currency chapter that was dismissed by Brad Setser at the Council on Foreign Relations as “a reiteration of China’s [International Monetary Fund] and existing G20 commitments”.
The US cancelled a tariff planned for December on Chinese-made consumer goods, and will halve a 15 per cent tariff on US$110 billion worth of products as of February 14.
However, rafts of tariffs remain in place. The average US tariff on Chinese products will be 19 per cent after the deal is implemented, compared to 3 per cent before the trade war, research by the Peterson Institute for International Economics showed.
An enforcement mechanism means the US can unilaterally resurrect the tariffs should it deem that China has not upheld its side of the bargain.
American markets rallied, despite the fact that the signing had been diarised for weeks, with all three major benchmarks reaching record intraday highs. The Dow and S&P 500 closed at record highs, while Hong Kong’s Hang Seng Index closed higher for the first time in three days.
Chinese markets, on the other hand, retreated for a third day, as traders looked past the tentative truce to focus on lingering issues that could still fray the relationship between Beijing and Washington.
“Phase two is more difficult because it is about more so-called structural reform, related to China’s political and social system. The early stage is easy to reach, because it’s about trade issues,” said Yiwei Wang, a professor at Renmin University.
For China, a ceasefire with the US may lead to skirmishes elsewhere, as switching its imports to the US, it risks angering its other trading partners, with the initial reaction suggesting this is the case.
The purchase element of the deal represents “managed trade, meaning the US tells China” what to buy, leaving European firms to “wonder where our place is”, Joerg Wuttke, president of the EU Chamber of Commerce in China, told a press conference in Beijing on Thursday.
Additional reporting by Simone McCarthy and Wendy Wu.