US-Chinese trading pax: Political maneuver or end of disputes?

Author : Georgiy Kuhaleyshvili

Source : 112 Ukraine

December 31, US President Donald Trump announced that on January 15 he would sign the first part of a trade agreement with China
14:00, 6 January 2020

Nikkei montage/Source photos by Reuters

December 31, US President Donald Trump announced that on January 15 he would sign the first part of a trade agreement with China. The official ceremony will take place at the White House.

US Trade Representative Robert Lighthizer and Chinese Deputy Prime Minister Liu He have not yet disclosed the details of the 86-page document. It is believed that the first part of the agreement will be an important step towards ending the trade war between the United States and China.

However, the document does not cover all trade disputes existing in relations between the two countries. Most likely, the Trump administration will try to use the document for political interests.

Intermediate results

The document, which the Americans and Chinese are going to sign in a week and a half, represents the interim results that were achieved in a year and a half of negotiations.

Lighthizer emphasized that a number of serious issues need to be resolved in subsequent negotiations. Perhaps the most beneficial for the White House in the first part of the agreement are the conditions for the protection of American intellectual property and the obligation of China to buy more products made in the USA.

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China agreed to refuse to require foreign companies to transfer their technology as a condition for gaining access to the Chinese market of various permits or preferences from the authorities.

Beijing is prepared to abide by the principle of transparency when foreign firms go through administrative procedures and in matters relating to technology transfer or licensing (so that intellectual property owners have a clear idea of ​​where it can be used).

The United States was dissatisfied with the fact that China had appropriated billions of dollars of American intellectual property without paying a dime for it.

China agreed to increase purchases of American goods, including agricultural products and services by at least $ 200 billion over the period 2020-2021.

Americans have long struggled to force the Chinese to import more American goods in order to reduce the trade deficit.

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Today, the US trade deficit is about $ 890 billion. From May 2018 to September 2019, it fell by $ 52.5 billion. China is the largest trade and economic partner of the United States.

The Chinese are more likely to export their goods to the US market than they are importing American products. The terms of the deal echo the recent decision by the Chinese government to reduce duties on 706 foreign consumer goods in the amount of $ 400 billion due to the growing needs of the Chinese people.

The United States has pledged to reduce duties from 15% to 7.5% on Chinese goods in the amount of $ 120 billion. This is less than half of the Chinese-made products that Washington has levied duties on since 2018.

In total, the United States increased duties on electronics, consumer goods, equipment, metallurgical products from China in the amount of 360 billion dollars.

The US government has pledged to refrain from imposing 160 billion dollars in fees on Chinese smartphones and toys.

The agreement provides a mechanism for discussing trade disputes at the ministerial level and punitive measures if one of the parties violates obligations. Alternatively, this may be an increase in fees. This concludes the first part of the trade agreement.

Unresolved disputes

Disputes regarding China subsidizing state-owned enterprises in the domestic market are unresolved. The Chinese authorities believe that this issue is beyond the scope of the trade deal and is the subject of domestic policy.

The US attempts to force China to refuse to allocate money for the development of state enterprises are perceived as a violation of sovereignty. On the other hand, state-owned enterprises can be considered the rudiment of the Chinese economy, and they impede free competition.

They get preferences while participating in tenders, despite the fact that private companies are the driver of economic growth. Unequal competition is disadvantageous for Chinese and foreign private companies.

Only 15% of 109 large companies operating in China are private. However, private firms are the driver of China's economic growth.

Their share in China's GDP is 60%, they offer 70% of innovations, are jobs for 80% of the urban population and create up to 90% of new jobs, representing 70% of investments and 90% of exports.

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A private initiative is a backbone on which the Chinese economy rests, and state-owned enterprises hamper the country's development. Another issue is that the Communist Party, which keeps the public sector in the orbit of its influence, feeds on the allocated subsidies. The Chinese Communists do not want to act to their own detriment.

There are disputes between the USA and China in the field of electronic commerce, data localization, transnational information flows, data exchange over the Internet.

The United States and China have two opposing approaches. Since 2003, China has operated the Internet Great Wall of Fire filtering system, which blocks access to foreign electronic services.

The US authorities are defending the interests of their high-tech companies, including Dell EMC, IBM, which produce data backup and recovery software in data centers, Google and Facebook, which offer their electronic services around the world.

Chinese authorities fear losing control over the information space in their country. Having abandoned the Internet filtering system, citizens will gain access to foreign information resources that cover events in the world and China in an alternative way, go beyond the censorship of the Communist Party.

Trade war continues

Andrew Sheets, a partner at Porta Advisors, is confident that there will be no full-fledged trade agreement with China. Washington and Beijing have not yet clearly decided on the timing of negotiations to resolve the remaining disputes.

Trump believes that the discussion will begin after the signing of the first part of the trade agreement. Lighthizer does not name clear dates. Apparently, the US and Chinese authorities have decided to consolidate at least part of the agreements reached in 2019 and to postpone the remaining issues.

Patur Armstrong, chairman of the Plurimi Investment Managers investment group, doubts the end of the trade war and believes that the first part of the trade agreement is needed by the American president as a reminder that he will still have time to conclude a full-fledged deal with China, but for now, he needs to focus on confronting with other partners.

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At the end of 2019, Trump expressed his intention to introduce duties on steel and aluminum from Brazil and Argentina in response to the fact that their authorities depreciate their currencies and act to the detriment of American farmers (Argentinean and Brazilian agricultural products are cheaper than American ones).

Trump was going to introduce duties on French champagne in response to the introduction by the President of France, Emmanuel Macron, of fees from foreign high-tech companies, including American firms Amazon, Facebook, Google, Apple.

Beijing could take a break in the negotiations and watch how Washington would fulfill the obligations of the first part of the trade agreement.

If the Chinese are satisfied, the next step will be to discuss the settlement of the remaining disputes and, at best, to sign the second part of the trade agreement.

When this happens, it's hard to judge. In a year and a half, the United States and China were able to resolve only two trade disputes.

Trump's political maneuver

For Trump, the ceremony of signing the first part of a trade agreement with China has some political importance. The owner of the Oval Office adores a sensation around the settlement of only part of the trade disputes with China, in order to give the impression of the actual victory of the United States in the trade war.

Trump behaved similarly on the eve of the summit with DPRK leader Kim Jong-un in Singapore in June 2018. Although the document, which will be signed at the White House on January 15, is much more substantial than the declaration following the summit in Singapore.

Trump and Kim Jong-un just expressed their intention to denuclearize the Korean Peninsula and normalize bilateral relations without any specifics.

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Trump seeks to build and strengthen ratings on the eve of the presidential election, before which there are less than 11 months left. He expects to strengthen the confidence of American business in his candidacy, which is not eager to share trade secrets and know-how with China.

According to Five Thirty-Eight, 53% of Americans do not approve of Trump as of January 2. According to a Hill-HarrisX poll, from August to November 2019, the level of support for the U.S. president among the Republican Party electorate dropped from 85% to 83%.

Trump portrays the US diplomatic victory in one of the battles of the trade war with China as a major achievement and confirmation of the effectiveness of the protectionist policy in order to strengthen its reputation after impeachment.

The U.S. House of Representatives, dominated by Trump opponents from the Democratic Party, has already voted to remove the president from power. Next is a vote on this issue in the US Senate in January, where most of the seats are held by members of the Republican Party.

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