Resurgent Trump likely to prove unyielding in next phase of trade deal talks
- Both the US and China were willing to compromise to reach the first phase of their tariff agreement, but recent good news for the American president has left him emboldened, which should have Beijing worried
China’s decision to halve tariffs on some American imports is a gesture of goodwill as it moves to implement phase one of the trade deal with the United States. Rather than granting waivers or offering only a temporary easing on those tariffs, Beijing will go ahead with a permanent reduction. It is unlikely, though, to smooth tough negotiations ahead as the two nations prepare to enter into the much more complicated phase two bargaining.
But what Beijing has done is to reassure Washington it will go to the negotiation table in good faith and that it is committed to honouring their phase one deal. Also, while fighting a pandemic, the last thing that China wants is for trade tensions to flare up.
The reduced tariffs will affect 1,717 type of goods, with some dropping to 5 per cent from 10 per cent, while others will be lowered to 2.5 per cent from 5 per cent. Goodwill and compromises on both sides are needed if China is to fulfil its commitment to raise American imports by US$200 billion over two years relative to 2017 levels, a deal that has been billed by United States President Donald Trump as the centrepiece of the phase one settlement.
Even before the coronavirus outbreak, economists have questioned whether China could buy so much more in such a short time. Beijing has signalled that some purchases may be delayed. Top White House economic adviser Larry Kudlow has acknowledged such a delay may be inevitable because of the health crisis in China. He said the “export boom” promised by Trump as the president begins campaigning for re-election may take longer to realise.
This may be a rare show of leniency from Americans. A self-styled world-class deal maker, Trump likes to emphasise the importance of leverage in negotiations. Right now, he is on a roll. After he beat an impeachment, news came the US created 225,000 new jobs in January while average hourly earnings continue to rise. The jobless rate is the lowest in half a century. Stocks, Trump’s favourite barometer, are at an all-time high.
Meanwhile, the Chinese economy is in the doldrums while party officials are facing public anger over their handling of the virus outbreak. If he wins a second term, a re-energised Trump may be in no mood to give quarter.