- If the agreement is good news for Donald Trump’s voter base, it is even better for the country that will become the No 1 economic superpower within a decade or two
China and the United States have finally reached an agreement that halts escalation of their 18-month trade war, though it is far from over and uncertainty remains. In return for Beijing's pledge to buy US$200 billion of American goods and services over two years, the US is to reduce tariffs on some Chinese imports and cancel extra duties set to take effect. The deal signed by China's chief negotiator Liu He and President Donald Trump also includes provisions for financial market access and intellectual property protection.
It is the first time since the trade dispute began that both sides have formalised any commitments, and the first in what could be a series of incremental steps towards ending the conflict. But tariffs, the protectionist weapon with which the US started the trade war, remain in place on hundreds of billions of dollars' worth of trade between the world's two biggest economies, disrupting global supply chains and markets. That includes China's retaliatory tariffs.
On the face of it, Beijing may not seem to be getting much out of the deal. If there is a real gain for China, however, it is political. Its commitments to buy more US goods serve a longer-term strategy. Time is on its side. Even with a slower growth rate it is on course to become the No 1 economic superpower within a decade or two.
A strategic misstep, such as a premature clash with the US, could cloud that vision. Management of China-US relations is therefore a strategic priority. It can be a challenge, as the recent past shows with conflict over Hong Kong, Taiwan, the Belt and Road Initiative and more. So even though, on paper, Beijing may not seem to have much tangible to show for the so-called phase one deal towards resolving the conflict, it can afford to take a long-term view.
China's Liu warns against 'impatiently launching' into phase two trade talks
China needs a circuit-breaker to snap a run of negative news and stabilise the relationship, particularly in an election year in which the mercurial and unpredictable Trump is seeking another term in the White House. It needs a deal that can be sold as good news " for the US " and hopefully tone down the China-bashing characteristic of US election years. The phase one agreement could provide it.
Trade experts are already expressing doubts as to whether the deal may pave the way for consensus on thornier issues such as China's subsidies for state-owned enterprises, likely to be addressed in phase two. But, assuming, as Trump says, that a phase two deal will not be concluded before the election, the trade issue is less likely to become electorally politicised.
If phase one is good news for Trump's voter base, all the better therefore for China. It fits with Beijing's long-term strategy for managing the relationship between the world's two biggest economies.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
