29.01.2020 Author: Vladimir Terehov

“Phase 1” of US-China Trade Negotiations is Over

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On 15 January of this year, the “Economic and Trade Agreement Between the Government of the United States and the Government of the People’s Republic of China” was finally signed in Washington DC. Those interested in learning more about the contents of this comprehensive (85-page) document can do so on the website of PRC’s Ministry of Commerce.

The aforementioned pact was the key outcome of the difficult negotiation process that had lasted 18 months. Up until the very last month, it remained uncertain whether even an interim agreement (as was the case here) would be reached.

The signing of the pact was, unquestionably, the most important of numerous events happening around the globe in recent months, including yet another “white” (i.e. meaningless) flare-up in the Greater Middle East region, orchestrated (for unknown reasons) by the director of the global political drama. After all, resolving (in one way or another) issues in the trade and economic sphere has been, for almost two years now, the focal point of the entire framework of relations between the two world powers. And the global climate increasingly depends on the state of this relationship.

One such key problem stems from USA’s gigantic negative trade balance with China, which has reached approximately $400 billion in recent years. We would like to note straight away that this issue has not been fully resolved. However, both sides have made an important step forward, thus bringing their bargaining positions on 8 key points closer together. These include, for example, issues (of particular concern to the United States), such as, preventing manipulation of exchange rates of national currencies and protecting intellectual property rights.

As for specific figures, China has vouched to additionally purchase various U.S. goods (amounting to $200 billion) within the next two years. These will include $77.7 billion worth of machinery, $52.4 billion worth of energy goods, $32 billion worth of agricultural products and $37.9 billion worth of services.

The issue of lowering tariffs imposed by the United States in September 2019 on half the Chinese imports will be discussed during “Phase 2” of the negotiations. At present, it remains unclear when this next stage of talks will begin.

The author does not deem it appropriate to discuss the Agreement in question in terms of “who won” and “who lost”, as is often done. Granted, however, the contents of such a document invariably do reflect the skill of negotiators involved. And the fact that the Agreement was signed on behalf of the U.S. President Donald Trump and on PRC’s side by (“only”) the head of the negotiation team, Vice Premier Liu He, gives those in favor of such discussions something to talk about.

In principle, the only reasonable outcome of the talks was some kind of a pact on the step-by-step means of, and the timeframe for eliminating, the aforementioned imbalance in US-China trade. The only other alternative to the negotiation process could have been a complete deterioration of trade and economic ties between the two world powers, with the gravest of consequences not only for the United States and China but for the rest of the world, and not only in commercial but also in the political sphere.

We reiterate that, for many years now, China’s bilateral trade with the United States yielded hundreds of billions (in US dollars worth) of benefits for the former. We could (in our spare time) discuss the reasons for such an imbalance between not only the United States and the PRC, but also the USA and its allies. In the author’s opinion, this trade deficit, in large part, stems from the Cold War era, as during its last stage, Beijing essentially became part of Washington-led camp.  At the time, it was the responsibility of the alliance’s leader to adhere to the generic rallying cry “Everything for the front, everything for the victory!”.

However, at present (i.e. 20 years after the penultimate global conflict came to an end), the history and the reasons behind the aforementioned imbalances are of no interest to anyone.  What has come to matter is that they exist in the first place and the U.S. leadership no longer has a rational explanation for why this is so.

The current U.S. President, Donald Trump, simply brought the long pressing problem to the fore, which he probably described (of course, in private and for his “ears only”) as follows: “Why don’t you, my dear gentlemen, i.e. allies or simply partners, get off our (pardon for saying this, but it is our) money tree, which you’ve been so comfortable on for several decades? And let’s do this gradually (if possible). Otherwise, I’ll simply have to get you off myself and the consequences for you will then be quite painful.”

It is important to highlight that even after the Agreement in question is ratified, China will, for a long time, continue to benefit from a trade imbalance with the United States, of course, not as much as before, but still. And above all, the PRC will continue to have access to the key market for selling its products.

According to preliminary estimates for 2019 (official statistics are not available yet), despite the imposition of tariffs on half of Chinese imports by Washington, the trade imbalance with the PRC decreased by no more than 10% in the past year, i.e. it will probably still remain close to $400 billion.

Washington’s final goal is to ensure the U.S. trade deficit with China is reduced to a minimum, which should become the subject of agreements reached during the subsequent phases of negotiations. In view of this, representatives of both nations are to meet on a regular basis (once in 6 months) from now onwards.

At present, it is impossible to say what course these developments will follow (or what the process of fulfilling the terms of the already signed Agreement will be like). After all, there are still too many factors adding uncertainty to the equation, first and foremost, in the sphere of bilateral and global politics.

And for now, it is the political side of the China–United States relationship that “leaves much to be desired,” to put it mildly so to speak. Let us only consider all the developments lately as, for instance, those surrounding the Taiwan Issue as a whole, which in the past 2-3 years, shifted (relatively unnoticeably) to the very core of the entire system of political ties between the two world powers.

The New Eastern Outlook, in a timely manner, aims to follow the significant stages of this process, which both Washington and Taipei are involved in a concerted manner in. The shift will undoubtedly continue on account of Tsai Ing-wen’s re-election as President of Taiwan on January 11, 2020.

In her first interview after the election (with the BBC), Tsai Ing-wen addressed a key for Beijing issue in a manner in which she could not afford to do so before: “We [author’s note: Taiwanese people] don’t have a need to declare ourselves an independent state. We are an independent country already and we call ourselves the Republic of China (Taiwan).”

She also said that one could not exclude the possibility of war in the Taiwan Strait “at any time”, and that there was a need to prepare for such a conflict. And according to Tsai Ing-wen, “invading Taiwan is something that is going to be very costly for China.”

It is perfectly clear that such statements would not have been made unless Taipei had felt growing support from Washington. And, in fact, the focus of U.S. foreign-policy interests has been shifting from the Euro-Atlantic to the Indo-Pacific region for some time now. And the issue of whose sphere of influence Taiwan and other areas of the Indo-Pacific are in is becoming vital.

For instance, China reacted in a predictable manner to Pentagon’s plans to position, from 2021 to 2022, two multi-domain task forces, with the view of having extensive military control over the situation in the Indo-Pacific. The aforementioned plans were announced in the middle of January 2020 by Ryan McCarthy, the United States Secretary of the Army (i.e. of the ground troops) of the U.S. Department of Defense.

In other words, it is impossible to assess the significance and possible consequences of the completion of “Phase 1” of the trade and economic negotiations between the USA and the PRC without considering political and strategic aspects of their relationship. And the current climate in this particular sphere does not give much cause for optimism.

Hence, all one can do for now is express similar hopes to those voiced in the PRC that the signed agreement, discussed in this article, will actually serve as a road map for the positive development of ties in all spheres between the two world powers.

Vladimir Terekhov, expert on issues relating to the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook.”


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