The US-China Trade Deal Is Finally Here

 In China, Agriculture, GDI, Environment

The United States and China announced on December 13 that they have reached agree­ment on their “phase one” trade deal, a major devel­op­ment in the 20-month trade war. In exchange for tariff relief, China will increase its pur­chas­es of U.S. goods and address U.S. con­cerns relat­ing to intel­lec­tu­al prop­er­ty (IP) pro­tec­tion, cur­ren­cy manip­u­la­tion, and agri­cul­ture, among others.

“China and the United States have agreed on the text of a phase one eco­nom­ic and trade agree­ment based on the prin­ci­ple of equal­i­ty and mutual respect,” Xinhua, China’s state run news agency, report­ed on Friday. “The text includes nine chap­ters: the pref­ace, intel­lec­tu­al prop­er­ty rights, tech­nol­o­gy trans­fer, food and agri­cul­tur­al prod­ucts, finan­cial ser­vices, exchange rate and trans­paren­cy, trade expan­sion, bilat­er­al assess­ment and dis­pute set­tle­ment, and the final terms, accord­ing to a state­ment issued by the Chinese side Friday night.”

The full details of what, exact­ly, China agreed to change in these areas remain unclear.

According to a state­ment from the Office of the United States Trade Representative, the phase one deal “requires struc­tur­al reforms and other changes to China’s eco­nom­ic and trade regime in the areas of intel­lec­tu­al prop­er­ty, tech­nol­o­gy trans­fer, agri­cul­ture, finan­cial ser­vices, and cur­ren­cy and for­eign exchange.”

“President Trump has focused on con­clud­ing a Phase One agree­ment that achieves mean­ing­ful, fully-enforce­able struc­tur­al changes and begins rebal­anc­ing the U.S.-China trade rela­tion­ship,” said United States Trade Representative Robert Lighthizer. “This unprece­dent­ed agree­ment accom­plish­es those very sig­nif­i­cant goals and would not have been pos­si­ble with­out the President’s strong lead­er­ship.”

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That state­ment added, “Importantly, the agree­ment estab­lish­es a strong dis­pute res­o­lu­tion system that ensures prompt and effec­tive imple­men­ta­tion and enforce­ment.” The need for an enforce­ment mech­a­nism has long been a cru­cial con­cern of US nego­tia­tors, given per­ceived lack of follow-through on pre­vi­ous promis­es from China. Here again, details on how, pre­cise­ly, the dis­pute res­o­lu­tion system will work remain to be released.

For its part, China framed any con­ces­sions as “gen­er­al­ly in line with the main direc­tion of China’s deep­en­ing reform and open­ing up as well as the inter­nal needs for advanc­ing the high-qual­i­ty eco­nom­ic devel­op­ment.”

As Xinhua put it:

Implementation of the agree­ment will help enhance intel­lec­tu­al prop­er­ty rights pro­tec­tion, improve the busi­ness envi­ron­ment, expand market access, better safe­guard the legit­i­mate rights and inter­ests of all com­pa­nies includ­ing for­eign firms in China, and pro­tect the legit­i­mate rights and inter­ests of Chinese firms in their eco­nom­ic and trade activ­i­ties with the United States.

Xinhua also noted that the “The increase in imports is con­ducive to boost­ing the country’s con­sump­tion upgrad­ing and meet­ing Chinese people’s grow­ing needs for a better life.” Translation: the “sub­stan­tial addi­tion­al [Chinese] pur­chas­es of U.S. goods and ser­vices in the coming years” antic­i­pat­ed by the USTR state­ment are for China’s own ben­e­fit.

The Chinese media fram­ing main­tains the fic­tion that China was plan­ning on these moves all along, rather than being pres­sured into them by the U.S. trade war.

China’s main con­cern in any trade deal was secur­ing imme­di­ate tariff relief. That was not total­ly forth­com­ing. The USTR state­ment made a point of noting that “The United States will be main­tain­ing 25 per­cent tar­iffs on approx­i­mate­ly $250 bil­lion of Chinese imports, along with 7.5 per­cent tar­iffs on approx­i­mate­ly $120 bil­lion of Chinese imports.” Trump did note in a tweet, how­ev­er, that “The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal.”

According to the Chinese sum­ma­ry released by Xinhua, the deal also includes a com­mit­ment for the United States to “to phase out its addi­tion­al tar­iffs on Chinese prod­ucts, so as to achieve a switch from hiking to cut­ting addi­tion­al tar­iffs.” Importantly, no “phase out” of tar­iffs was men­tioned in the U.S. announce­ment, hint­ing at a pos­si­ble gap that could cause a relapse into ten­sions in 2020.

China’s own inter­nal eco­nom­ic delib­er­a­tions pro­vide an inter­est­ing foil to the phase one trade deal state­ments.

Just ahead of the deal announce­ment, China con­clud­ed its annual Central Economic Work Conference (CEWC). Held from December 10 to 12, the CEWC “reviewed the country’s eco­nom­ic work in 2019, ana­lyzed the cur­rent sit­u­a­tion and out­lined key tasks for 2020,” as Xinhua put it. The CEWC oblique­ly empha­sized the need for eco­nom­ic reform, con­clud­ing that “we must see that China is at a piv­otal stage of trans­form­ing its growth model, improv­ing its eco­nom­ic struc­ture, and fos­ter­ing new dri­vers of growth.” However, its bottom line is that all eco­nom­ic growth – past and future – came because China has “upheld the cen­tral­ized and uni­fied lead­er­ship of the CPC [Communist Party of China] Central Committee, main­tained strate­gic resolve, kept pur­su­ing progress while ensur­ing sta­bil­i­ty, deep­ened reform and open­ing-up, and given full play to the enthu­si­asm of cen­tral and local gov­ern­ments” – in that order. “Reform and open­ing” (includ­ing the promis­es made in the phase one deal) thus falls behind tight Communist Party con­trol, keep­ing a firm “resolve” (pre­sum­ably in the face of exter­nal pres­sure), and main­tain­ing sta­bil­i­ty on the list of pri­or­i­ties.

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It’s little wonder, then, that the CEWC state­ment includ­ed a hint of pes­simism, warn­ing that “We need to be well pre­pared with con­tin­gency plans” in 2020.

There was no such cau­tion on dis­play from Trump, how­ev­er. He’s already look­ing ahead to the next agree­ment, announc­ing on Twitter that “We will begin nego­ti­a­tions on the Phase Two Deal imme­di­ate­ly, rather than wait­ing until after the 2020 Election.”

He con­clud­ed: “This is an amaz­ing deal for all. Thank you!”

Source: The Diplomat

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