China-U.S. trade deal – many open questions remain in place

08:43 by Hubert Fromlet, Kalmar

Handelsavtalet mellan Kina och USA- många olösta problem lever kvar

Sammanfattning

Första fasen av det planerade handelsavtalet mellan USA och Kina har nu klätts i ord. Presidenternas underskrifter saknas dock fortfarande. Positivt är att planerade nya tullar från USA:s sida nu har eliminerats och därmed också kinesiska motåtgärder. Å andra sidan bör konstateras att mycket av avtalstexten är alltför allmänt hållet. Många andra områden – för det mesta ännu mer svårbehandlade – återstår att komma överens om i den andra förhandlings- och avtalsfasen. Risken för framtida besvikelser förblir således stor trots detta första steg i rätt riktning.

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In mid-December 2019, the United States and China agreed on the words of the so-called Phase One of their bilateral trade deal, indeed expected for a long time by financial markets and non-financial international corporations. Hope was there several times before – but without seeing results.

For this reason, it does not look as a big surprise that global financial markets initially reacted very positively on the news that Chinese intellectual property treatment, technology transfer, financial services, exchange rates and transparency and also trade enlargement for America among other issues have become part of the first part of the verbally agreed deal. And negotiations in Phase Two are about to start pretty soon.

An important consequence of the trade deal is, of course, that the planned additional taxation of Chinese imports has been canceled at least for the time being. A further American escalation of the trade war has been avoided in the last minute and also probable Chinese protectionist answers. Some de-escalation is in place – but for how long time? However, it should be added that the previous 25% tariffs on American imports from China are not affected by the planned deal since President Trump wants to keep this instrument of pressure during the negotiations of Phase Two.

It should be recognized that China’s “sacrifices” for Phase One of trade normalization seem to be very limited since they are clearly in line with the already anchored Chinese reform objectives both when it comes to cross-border trade and the domestic part of the economy. This may be a forgotten angle as regards the trade deal between the two largest economies in the world. As a matter of fact, the U.S. may have speeded up the Chinese reform process a little bit.

Conclusions – many open issues and unsolved problems left 

¤  Deal still not signed:
All we have by now is the text of the deal. The two presidents still have not written their signatures on the paper. No deal before underwriting!

¤ President Trump feels good right now, as a winner:
On his blog, he wrote on Friday, December 13 on the day of the deal:”We have agreed on a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more…” My view is that President Trump does not want to end this winning feeling very soon; closer to the election, however, the risk for American trade distortions may rise again – particularly after some time of ongoing Phase Two negotiations.

¤  Slight de-escalation better than escalation:
It is not very difficult to come to this conclusion. However, successful negotiations and working agreements must be regarded as a long-term issue in this specific case. A lot of work remains to be done.

¤  Too vague text:
This is one of the real shortcomings of the Phase One text and may lead to  a lot of interpretation problems in the future. Hopefully, Phase Two text will be more concrete.

¤  Many issues hard to interpret and control:
This point is to some extent related to the previous one. Controlling the applications of the first trade deal will be very difficult despite the dispute-settlement institution to be created.

¤  Phase Two will probably become more complicated than Phase One text:
This is an extremely difficult and important point for future trade deals. Many sensitive issues still have to be taken up and included in future agreements between the U.S. and China – among them in Phase Two the enormous Chinese government subsidies to state-owned enterprises and FDI restrictions for foreigners in China.

Finally, I send you the best seasonal greetings!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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