US-China trade deal may be little more than a truce
Donald Trump and Chinese Vice Premier Liu He are making final preparations to next week sign a stage one bilateral trade deal. While the agreement is being warmly welcomed, it may prove to be no more than a relatively brief respite in the US-China tensions of Trump’s presidency.
The reason the deal was finalized late last year, despite recent bilateral differences on a range of issues including Iran and Hong Kong, is that both sides decided even a truce, however temporary, is in their domestic interests. As Trump enters his re-election year, he will claim — however far-fetched it is in reality — to have brought Beijing to heel.
Meanwhile, the agreement provides a degree of stability in China’s most important economic bilateral relationship after some recent sub-par national economic data, and continued political unrest in Hong Kong. A further incentive for both sides to last month move the negotiations on quickly was that the next tariff deadline was due to fall on Dec. 15, after which additional US levies on Chinese exports were scheduled.
While the deal could have a broader, positive effect on international relations, possibly even underpinning a renewed basis for bilateral relations into the 2020s, it is just as likely that it will presage further bilateral tensions in 2020, or even beyond. The “great” agreement Trump is now hailing is less substantive than he claimed he would achieve when negotiations began, and this contains the seeds of potential future problems.
For instance, disagreements will probably arise over key elements of the deal going forward, including the scale of Chinese purchases of US farm goods. This could mean enforcement protocols need to be negotiated and, should these be perceived to have “failed,” the Trump team has asserted that Washington will put tariffs back on Beijing.
Moreover, both sides are acutely aware how difficult it was to even agree the elements of the stage one deal, and that a stage two agreement focusing on longstanding issues kicked out from negotiations to date, including intellectual property violations, Chinese business subsidies and technology transfers, will be much harder. The twists and turns of the last 18 months underline how tricky a process could now be in play.
Part of the reason why a breakdown of talks in the next phase cannot be ruled out is simply day-to-day events. Take the example of bilateral differences between the two sides over Hong Kong, where unrest continued into the New Year. In November, Trump signed the Hong Kong Human Rights and Democracy Act, which had been approved by Congress. This legislation, which has infuriated China as an “intervention” in its affairs, will require an annual check on whether Hong Kong has sufficient political autonomy from Beijing to qualify for a continued special US trading consideration that enhances its status as a world financial center. This creates a yearly mechanism around which future tension could coalesce.
Another factor adding uncertainty is the ever-mercurial Trump himself and his potentially fast-moving perceptions of his political interests in 2020 and beyond (should he get re-elected) in the context of seeking to fulfill his “America First” agenda. It is quite possible that, for the rest of 2020 at least, Trump may want to bring US-China relations onto a more stable footing, especially amid the increased tensions with Iran and North Korea, both allies of Beijing. However, “steady as she goes” in 2020 may not necessarily prove to be Beijing’s modus operandi and, as US Trade Representative Robert Lighthizer has asserted, “whether the whole (stage one) agreement works is going to be determined by who is making decisions in China, not the United States.”
This underlines that, even though a stage one deal is (apparently) already in the bag, tensions will by no means disappear and still have the potential to severely disrupt what is probably the world’s most important bilateral economic and political relationship. For instance, should the stage two negotiations not yield fruit in the first year or two of a Trump second term, Beijing will know there remains the possibility that his rhetoric could get very hostile again.
The ‘great’ agreement Trump is now hailing is less substantive than he claimed he would achieve when negotiations began.
He has previously slated China for alleged misdemeanors from currency manipulation to intellectual property theft, none of which are addressed by the stage one deal. Moreover, outside of the economic realm, Trump genuinely appears to believe China represents the primary threat to US interests globally.
Here Trump has previously asserted that “everything is under negotiation,” and what he ideally favors — building on the diplomacy of 2018 and 2019 with Xi Jinping over North Korea — is a wider grand bargain with China extending beyond the economics arena, where one of his key asks is to see the Chinese currency floated, to other security issues.
Yet, while any such grand bargain may never happen, even a stage one deal will potentially offer greater overall stability in the world economy and limit damage to the currently creaking international trade system, which risks being undermined further by an extended US-China trade war. It would also show that the direction of America’s bilateral relations with Beijing need not inevitably be a force for greater global tension, but still have the capacity to evolve into a deeper strategic partnership that can help drive a new era of global growth and stability.
- Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics