US president Donald Trump is poised to sign a deal with China on Wednesday that for the first time would punish Beijing if it fails to deliver on pledges related to its currency, intellectual property and the trade balance.
But the question set to dog Mr Trump the moment the ink dries is whether the pact will rewire the relationship between the world’s biggest economies. For many in Washington, US-China economic ties have become an example of the evils of globalisation, the tensions of 21st century technology and geopolitics, and the missteps of past presidents.
The “phase one” deal that Mr Trump recently called a “big, beautiful monster” is by no means a standard trade agreement: At 86 pages, it’s thinner than most on substance and commitments. The US agreed to halve 15 per cent duties on $120 billion of imports and delay others in return for Chinese promises to make structural reforms and purchase an additional $200 billion in American goods and services over the next two years. The full text will be released on Wednesday.
Still, it leaves significant issues at the heart of China’s model of state capitalism, such as restraining industrial subsidies and state-owned companies, to future phases. Punitive tariffs are expected to remain on almost two-thirds of US imports from China – some $360 billion in goods – until at least November’s election: US treasury secretary Steven Mnuchin said on Tuesday the US would only consider more tariff relief if China signs a phase-two trade deal.
“This is an enormous achievement for the president and the economic team,” Mr Mnuchin told reporters in Washington, adding that no firm date was set for phase-two trade talks to begin. Vice Premier Liu He, China’s top trade negotiator and President Xi Jinping’s main economic adviser, will be leading the Chinese delegation at the signing ceremony.
Different by design
The deal also embraces a level of Socialist-style central planning that would have made past American presidents wince.
While trade pacts traditionally set the rules and leave the details of actual commerce to markets, the one that Mr Trump’s team has negotiated includes a classified annex that details the $200 billion Chinese buying spree. That includes some $32 billion in additional purchases of American farm exports and $50 billion in natural gas and crude oil, according to people briefed on its contents.
The administration insists the different nature of the deal is by design and that it won’t need the approval of Congress. “This is not a free trade agreement,” it told supporters in a memo last month. “Its purpose is to rectify unfair trade practices.”
Still, its failure to address issues like industrial subsidies prompted some China experts to insist the deal falls short of Mr Trump’s promises and raise questions over whether the economic pain it has yielded in some sectors of the US economy was worth it.
“I’m prepared to be disappointed by underwhelming details, but I’d love to be surprised with previously unreported major Chinese concessions that would make this long and windy trade conflict feel worth it,” said Scott Kennedy, an expert on US-China economic relations at the Centre for Strategic and International Studies.
Supporters of the president and former aides argue Mr Trump has been able to accomplish many of the goals he set when he began to push China to embrace a new round of economic reforms in 2017.
“It’s a major victory for the president,” said Stephen Vaughn, who until last year helped oversee Mr Trump’s trade policies as the general counsel and right-hand man to US trade representative Robert Lighthizer. “He has gotten China to make stronger commitments than it has made in previous agreements.”
For Mr Xi, the deal stops the bleeding on a nearly two-year trade war at a time when he’s facing an economy growing at the slowest pace in three decades and unprecedented protests in Hong Kong. He struck an optimistic tone at the start of 2020, touting “extraordinary Chinese splendour and Chinese strength.”
“In the face of severe and complex domestic and foreign situations and various risks and challenges, we have been able to move forward firmly,” Mr Xi told party leaders last week. – Bloomberg