Last week the US and China announced some
details of a tentative trade agreement. Many observers are scratching their heads.
Commerce Secretary Ross says the goal is to reduce
the roughly $360 bln bilateral deficit. There is little in the agreement
that will achieve this.
The beef and other agricultural goods that
the US can begin selling China are not on favored terms, and US producers will
be competing, for example, with Brazil. Moreover, the amounts are too small to produce much of the trade
imbalance. The US has agreed to be more open to cooked poultry from
China, but this too is not on favored terms, and will health concerns may limit
Some observers have played up the
agreement on natural gas, but there was not a real
agreement. The US welcomed
Chinese orders, but there were not
concrete numbers associated with it.
In fact, we suggest that the most
important parts of the agreement are not
about trade per se. From the US
side, it got long overdue concessions from China on access to the US
credit card payments system. China had thrown up numerous obstacles, but
now that its own firms are well established, and in some ways, are
thought to be ahead of the US-based companies, officials are willing to accept
competition. Also, China will allow foreign-owned rating agencies to rate
local companies. This too will not
do much for the bilateral trade imbalance, but it is an opportunity for US
concessions are largely about implementing past agreements, for which officials
have dragged their feet. If the Trump Administration strategy is to make bold (outlandish?)
claims that later are used as negotiating chits,
China's modus operandi is to make agreements and then require additional
concessions to implement the agreement. The US concessions are not covered in much detail in the US press,
but it does seem like China gave up nothing it had not already committed to or
tentatively planned on doing at some juncture.
To show quick trade results, the Trump Administration may have made some
strategic concessions. Reports suggest that the US may reconsider the extent of
sophisticated arms sales to Taiwan, and President Trump will reportedly refrain
from talking to Taiwanese President Tsai without notifying Beijing first.
US recognized the importance of China's One Belt, One Road initiative and
agreed to send delegates to the OBOR forum. The Obama
Administration had been cautious about support any Chinese initiative,
including the Asian Infrastructure Investment Bank and was cool to the OBOR
initiative, which is becoming a signature program for President Xi.
issues were not tackled in this
preliminary agreement, including the recently launched US investigations into
steel and aluminum. The larger issue of the how China is going to address the huge
excess capacity in numerous industries, which has trade implications is
unaddressed. The US may also be delaying efforts that challenge China's
claims to parts of the South China Sea. China appears to be making some
headway with a few ASEAN countries with which it has a conflicting claim.
the agreement buys some time and eases tensions. The Trump Administration
appears to recognize the need for Chinese cooperation in addressing North
Korea. China's ability to influence the pariah state is an open question, and North Korea's missile test over
does not help matters. China may not mind a US irritant, but the US has
used it as the reason to put a missile defense system in South Korea, which
Beijing realizes, could change the balance of power in Asia.
little concessions, China has avoided
being named a currency manipulator by the Trump Administration. Trump has also not levied the
large tariff on Chinese goods that he threatened on the campaign trail.
Recall that Trump's predecessors, Bush and Obama, also had threatened China with the currency manipulation
label during the campaign and drew back
from them once in office. The Trump Administration says that the period
of strategic patience with North Korea is over. While it sounds important, the meaning is still not
clear. More sanctions are likely, but that is more of the
same. Many thought Trump was threatening a military option, but
this too does not seem particularly likely.