President Trump in a highly publicized and televised ceremony signed the Phase One US-China Trade Deal/Agreement on January 15, 2020, at the White House with the Chinese Designated Chief Trade Representative Vice Premier Liu He. The fact that President Trump personally signed the agreement with Vice Premier Liu signifies his belief that he, different from previous Administrations, had taken a tough stand in trade negotiations and made significant achievements, including USMCA (trade agreement with Mexico and Canada), Japan Deal, and South Korea Deal. From President Trump’s White House Announcement (White House Website), he said: “My Administration has fought tirelessly (nearly 20 months) to achieve a level playing field for the American workers.” He has signed a landmark fully-enforceable Phase One Trade Agreement with China.
Prior to the trade war/negotiation, the U.S. was suffering under a trade deficit with China (-$375.6B in goods and +$37.72B in services, 2017, -419.2B/+41B 2018, ~-$353B/+$33B 2019), figuring out how to get manufacturing industries to return to the U.S. and trying to stop technology transfer to China enticed by entry into the vast Chinese market. China, on the other hand, was struggling to sustain her economic growth (6.8% in 2017, 6.6% 2018 and 6.25% 2019),upgrading her manufacturing base and innovating into higher technology industries. Trade is subject to government and WTO regulations but at the end trading is done between corporations with voluntary deals. Thus, there were no simple and quick fixes to balance the trade deficit as the two largest economies each has a huge inertia and each is slowly transforming based on each’s own economic policies. Trump chose to start a tariff war but it could not fix the trade imbalance but it did force the two countries come to the negotiation table.
With tariff and counter tariff, both countries suffered from economic damages. The Chinese economy is obviously hurting as seen from the above GDP figures although part of the decrease can be attributed to China’s own structural reform in upgrading her industries. Although the U.S. GDP growth had been maintained at 2.4-2.6% under Trump’s Administration, but the US farmers were definitely hurt. In addition, the manufacturing supply chain supporting each country’s production were seriously damaged causing uncertainties and complaints in both exporting and importing corporations of a number of countries. In particular, the silicon chip industry was drastically upset by the US technology export sanctions which uprooted not only the high-tech product supply chain but also many other industries’ steady need of semiconductor imbedded finished parts. Any prolonged disruption of manufacturing supply chain, from material to parts to services will potentially creating a world recession.
After the signing of the Phase One US-China trade deal, many analyses have got into overdrive not only in the U.S. (somewhat low key in China) but also world-wide immediately reaching the agenda of Davos Economics Conference held in the Vaillant Arena, Davos, Switzerland on January 21-24, 2020. In the U.S., the narrative is mainly focused on what the U.S. has won in the deal and the expression of caution in the next phase of negotiation on issues such as cyberspace and State Owned Enterprise (SOE) which require legislation changes on the government of China. There are five major ‘wins’ typically cited by analysts and correspondingly, one can find a few responses in Chinese media offering their interpretations.
First, the White House claims a win that China agreed to a deal that is enforceable. China agreed to buy $200B American goods over 2017 level (Agriculture $32B, Manufacturing goods $78B, Energy $52B and $38B Services). Second, China agreed to place greater effort in preventing counterfeit (easier legal action) and IP rights. Third, U.S. maintains 25% tariff on $360B Chinese goods (China maintains tariff on $100B Am goods). Fourth, language to restrict currency devaluation and allowing both sides to seek IMF interference. And Fifth, China agreeing to remove barriers for entry in banks, insurance and other financial services. These five points do appear as China’s concessions and U.S. victory, although tough issues such as cyber hacking, forced technology transfer with market entry and State Owned Enterprises (SOE) were postponed to future phase of negotiation.
Examining the interpretations of Chinese scholars on the Phase One Trade Negotiation, one find little counter argument but some explanation of China’s rationale for agreeing to the phase one agreement. The Chinese government regarding the agreement of having a structured mechanism for resolving dispute and negotiation as a major concession from the U.S. China seems to have concluded a basic position - willing to reduce trade imbalance through rational negotiation. Hence one finds that the Chinese scholars’ response and interpretation of the trade deal are more on explaining their rationale than claiming victory.
First, China regards the substantial tariff maintained on each side as a mutual incentive and leverage to continue into the next phase of negotiation, a somewhat positive attitude. Second, China claims that she welcomes and needs enhanced IP protection to upgrade her industries. Third, increasing purchase of American agriculture products satisfies China’s consumption needs, however, the scholars underscored that the purchase must be made under competitive pricing. Fourth, Importing services, especially financial services is mutually beneficial, thus, China also welcomes orderly entry of services. Fifth, Increasing imports meets China’s needs, however, consumption (hence purchase) must obey market principle. Based on the interpretations from both sides presented above, we are not surprised that this 86-page phase one deal was agreed on after the negotiation teams walked away from the previous 150 -page document.
Scott B McDonald, in his article, ‘Phase One of Trump’s Trade Deal Is a Win for America’ (1-20-2020 Nationalinterests.org) considers the phase one a truce for Trump and Xi. McDonald is agreeing with most commentators that the next phase of negotiation is more challenging. While his article claims a win for America, he did not elaborate who is the real loser in the phase one deal. Based on the above analysis, I think China did not lose in the deal, who are the losers then? As a consumer, my simple deduction is that American consumers will be the loser since the tariff remains on $360B Chinese imports. Most of these imports are household goods American citizens buy, now at a higher price than prior to tariff war. Secondly, I believe that exporters from other country traders to China will also be losers. If China is obligated to purchase $200B more goods and services from the U.S., it is likely China will reduce purchase from her other trading partners, for example, Germany and France in EU, Canada, and South America. Indeed, there is such complaint in the Davos Forum.
Ifay Chang. Ph.D., Inventor, Author, TV Game Show Host and Columnist (www.us-chinaforum.org) as well as serving as Trustee, Somers Central School District.
President Trump in a highly publicized and televised ceremony signed the Phase One US-China Trade Deal/Agreement on January 15, 2020, at the White House with the Chinese Designated Chief Trade Representative Vice Premier Liu He. The fact that President Trump personally signed the agreement with Vice Premier Liu signifies his belief that he, different from previous Administrations, had taken a tough stand in trade negotiations and made significant achievements, including USMCA (trade agreement with Mexico and Canada), Japan Deal, and South Korea Deal. From President Trump’s White House Announcement (White House Website), he said: “My Administration has fought tirelessly (nearly 20 months) to achieve a level playing field for the American workers.” He has signed a landmark fully-enforceable Phase One Trade Agreement with China.
Prior to the trade war/negotiation, the U.S. was suffering under a trade deficit with China (-$375.6B in goods and +$37.72B in services, 2017, -419.2B/+41B 2018, ~-$353B/+$33B 2019), figuring out how to get manufacturing industries to return to the U.S. and trying to stop technology transfer to China enticed by entry into the vast Chinese market. China, on the other hand, was struggling to sustain her economic growth (6.8% in 2017, 6.6% 2018 and 6.25% 2019),upgrading her manufacturing base and innovating into higher technology industries. Trade is subject to government and WTO regulations but at the end trading is done between corporations with voluntary deals. Thus, there were no simple and quick fixes to balance the trade deficit as the two largest economies each has a huge inertia and each is slowly transforming based on each’s own economic policies. Trump chose to start a tariff war but it could not fix the trade imbalance but it did force the two countries come to the negotiation table.
With tariff and counter tariff, both countries suffered from economic damages. The Chinese economy is obviously hurting as seen from the above GDP figures although part of the decrease can be attributed to China’s own structural reform in upgrading her industries. Although the U.S. GDP growth had been maintained at 2.4-2.6% under Trump’s Administration, but the US farmers were definitely hurt. In addition, the manufacturing supply chain supporting each country’s production were seriously damaged causing uncertainties and complaints in both exporting and importing corporations of a number of countries. In particular, the silicon chip industry was drastically upset by the US technology export sanctions which uprooted not only the high-tech product supply chain but also many other industries’ steady need of semiconductor imbedded finished parts. Any prolonged disruption of manufacturing supply chain, from material to parts to services will potentially creating a world recession.
After the signing of the Phase One US-China trade deal, many analyses have got into overdrive not only in the U.S. (somewhat low key in China) but also world-wide immediately reaching the agenda of Davos Economics Conference held in the Vaillant Arena, Davos, Switzerland on January 21-24, 2020. In the U.S., the narrative is mainly focused on what the U.S. has won in the deal and the expression of caution in the next phase of negotiation on issues such as cyberspace and State Owned Enterprise (SOE) which require legislation changes on the government of China. There are five major ‘wins’ typically cited by analysts and correspondingly, one can find a few responses in Chinese media offering their interpretations.
First, the White House claims a win that China agreed to a deal that is enforceable. China agreed to buy $200B American goods over 2017 level (Agriculture $32B, Manufacturing goods $78B, Energy $52B and $38B Services). Second, China agreed to place greater effort in preventing counterfeit (easier legal action) and IP rights. Third, U.S. maintains 25% tariff on $360B Chinese goods (China maintains tariff on $100B Am goods). Fourth, language to restrict currency devaluation and allowing both sides to seek IMF interference. And Fifth, China agreeing to remove barriers for entry in banks, insurance and other financial services. These five points do appear as China’s concessions and U.S. victory, although tough issues such as cyber hacking, forced technology transfer with market entry and State Owned Enterprises (SOE) were postponed to future phase of negotiation.
Examining the interpretations of Chinese scholars on the Phase One Trade Negotiation, one find little counter argument but some explanation of China’s rationale for agreeing to the phase one agreement. The Chinese government regarding the agreement of having a structured mechanism for resolving dispute and negotiation as a major concession from the U.S. China seems to have concluded a basic position - willing to reduce trade imbalance through rational negotiation. Hence one finds that the Chinese scholars’ response and interpretation of the trade deal are more on explaining their rationale than claiming victory.
First, China regards the substantial tariff maintained on each side as a mutual incentive and leverage to continue into the next phase of negotiation, a somewhat positive attitude. Second, China claims that she welcomes and needs enhanced IP protection to upgrade her industries. Third, increasing purchase of American agriculture products satisfies China’s consumption needs, however, the scholars underscored that the purchase must be made under competitive pricing. Fourth, Importing services, especially financial services is mutually beneficial, thus, China also welcomes orderly entry of services. Fifth, Increasing imports meets China’s needs, however, consumption (hence purchase) must obey market principle. Based on the interpretations from both sides presented above, we are not surprised that this 86-page phase one deal was agreed on after the negotiation teams walked away from the previous 150 -page document.
Scott B McDonald, in his article, ‘Phase One of Trump’s Trade Deal Is a Win for America’ (1-20-2020 Nationalinterests.org) considers the phase one a truce for Trump and Xi. McDonald is agreeing with most commentators that the next phase of negotiation is more challenging. While his article claims a win for America, he did not elaborate who is the real loser in the phase one deal. Based on the above analysis, I think China did not lose in the deal, who are the losers then? As a consumer, my simple deduction is that American consumers will be the loser since the tariff remains on $360B Chinese imports. Most of these imports are household goods American citizens buy, now at a higher price than prior to tariff war. Secondly, I believe that exporters from other country traders to China will also be losers. If China is obligated to purchase $200B more goods and services from the U.S., it is likely China will reduce purchase from her other trading partners, for example, Germany and France in EU, Canada, and South America. Indeed, there is such complaint in the Davos Forum.
Ifay Chang. Ph.D., Inventor, Author, TV Game Show Host and Columnist (www.us-chinaforum.org) as well as serving as Trustee, Somers Central School District.
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