US-China Trade Agreement: Celebrations in Washington, Concerns in Beijing

It seems China was forced to compromise due to economic slowdown and its diplomatic alienation from the international community. Devdiscourse has been highlighting the multidimensional nature of trade war which requires a holistic outlook.

 

HIGHLIGHT

• China will import US$200 billion products from the US in the next two years, including an additional US$ 32 billion of agriculture products.
• In exchange, the US will cut import duty by half on selected Chinese goods amounting US$150 billion. China will also continue high import duty on selected items to the tune of US$110 billion.
• Both the US and China have committed to further reduce tariffs on more items in Phase 2.
• Phase 1 is silent on the US ban on Chinese companies such as Huawei and other controversial issues between both the countries.

 

If the mood is any indication, the US is the ultimate beneficiary in the first phase of US-China Trade Agreement. This is because since the signing of the agreement with China, the US agencies are celebrating the deal while their Chinese counterparts are busy in addressing the concerns of various stakeholders at home.

Besides hailing the deal which ‘marks a sea change in international trade’, the US President Donald Trump continued appreciating the deal even on Thursday. “One of the greatest trade deals ever made! Also good for China and our long term relationship. About US$250 billion will be coming back to our country (US), and we are now in a great position for a Phase 2 start. There has never been anything like this in U.S. history! USMCA (US-Mexico-Canada Agreement) next!” said Trump in a tweet on January 16. The Senate Republicans in a video message also applauded the deal, “Secures trade certainty for America’s farmers and Ranchers. This is the second historic deal; republicans have delivered this year. Just 15 days in 2020 and we are not done yet,”.

✓ SIGNED@realdonaldtrump just signed the Phase One Trade Agreement with China. This is the SECOND historic trade deal Republicans have delivered this year—just 15 days in to 2020!and we're not done yet. pic.twitter.com/5rZzdeqFMY

— Senate Republicans (@SenateGOP) January 15, 2020

On the other side, Chinese President Xi Jinping did not attend the event. In a message read out by Chinese Vice Premier Liu He, Jinping said, “It shows that the two countries have the ability to act on the basis of equality and mutual respect, and work through dialogue and consultation to properly handle and effectively resolve relevant issues”. Here are some important aspects of the agreement to reveal the two different moods in the two countries after signing of the US-China Trade Agreement which marked the formal end of trade war between the two superpowers, started in 2018.  

Partial Reduction in Discriminatory Tariffs  

The first action of the Trump Administration in the Trade War was increasing tariff on Chinese products from 7.5 percent in 2017 to 15 percent to 25 percent. In response, China also imposed high tariffs on US imports.

As per the agreement, the US has reduced tariffs on Chinese products up to 7.5 percent with a ceiling of US$120 billion. The exempted Chinese goods include mobile phones, toys and laptop computers, flat-panel televisions, Bluetooth headphones and footwear. However, the US will continue to impose 25 percent tariff on US$360 billion Chinese products. In response, China will also continue retaliatory tariffs on over $110bn US commodities. 

Though this aspect of the deal is largely bilateral but is likely to promote other countries to impose anti-dumping laws on Chinese goods. For instance, India has formally declared to impose anti-dumping duty on yarn from China. 

Mandatory Import of Agriculture Products by China

The agreement makes it mandatory for China to import US$ 200 billion products from the US in the next two years including US$32 billion agriculture produce. This will be in addition to agriculture products China was importing from US in 2017. According to experts, this is a tough target for China. Beijing is finding it difficult to convince its people about this clause of the deal.

Chinese Vice Premier Liu He, who signed the deal with Donald Trump, tried to address the concerns on this aspect on Thursday. He explained that the Chinese companies would buy $40bn in US agricultural products annually over the next two years ‘based on market conditions’. If implemented, the price of home grown agriculture products will go down in China. The Beijing will have no option but to provide subsidies to its farmers.

Besides, the commitments to import US$54bn in additional energy products, US$78bn in additional manufacturing purchases, and $38bn in services products would be easy to implement.

China’s Agriculture Produce Purchase Agreement with other countries

The US-China Trade Agreement is most likely to affect Beijing's trade agreements with other countries as it will shrunk room to adjust others. Presently, China has an agreement to import Soybean from Brazil. If it implements the mandatory farm product import from the US, Beijing will have to cut farm imports from Brazil and other countries. China purchases about 80 percent of Brazil’s total Soybean exports.

Addressing the concerns of bipartisan agreements with other countries Liu He argued that China's other suppliers of agricultural commodities would not be impacted by the Sino-U.S. trade deal since buying will be based on market principles.  

US's silence on ban on Chinese Companies 

In his message, Jinping expressed hope of ‘fair treatment’ with Chinese companies but the US remained non-committal. Interestingly, the content of Jinping’s letter was released by the White House not by Chinese official media. The US ban on Chinese telecom giant Huawei has no mention in the deal.

Will the US allow China to hide behind the excuse of ‘market’?

Chinese Vice Premier Liu He is emphasizing on two phrases – ‘market conditions’ and ‘market principles’ to allay concerns in Beijing. However, the million-dollar question is – Will the US allow China to hide behind market conditions? There is no denying the fact that both the countries will try their best to get maximum benefit of the deal.

Political Perspective

While China is not going to get any political mileage of the deal, the US President Donald Trump and his fellow Republicans have already started to project the deal as one of the major achievements under Trump Administration. Trump has now one more achievement to publicize in the ensuing Presidential elections. Besides, the Trump has indicated to travel to China to work out second phase of the deal. The deal has also come a huge relief for Trump who is facing impeachment in the Senate.

Silent on Militarization of Trade War

In the period of about two years of trade war, Washington and Beijing were engaged in several military conflicts in the South China Sea. Besides, US’s support to pro-democracy protest in Hong Kong, Vietnam issue, China-Pakistan Economic Corridor etc. are the contentious issues which are absent in the trade agreement.

It seems China was forced to compromise due to economic slowdown and its diplomatic alienation from the international community. Devdiscourse had raised multidimensional aspect of trade war which needs a holistic outlook. 

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)