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Opinion: You call this a trade deal?


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Alan Tonelson, Marketwatch  /  December 14, 2019

OK, let’s assume that something deserving the name “U.S.-China trade deal” has been reached — even one dubbed “Phase One” or “preliminary.” Deep doubts would remain justified about whether it can possibly serve American interests.

For example, where’s even an English-language version? There’s nothing new about such agreements coming out in both English and Chinese, raising thorny questions about ensuring that key terms in both languages are commonly understood — on top of all the towering issues raised by China’s long record of flouting official commitments it’s made.

But if something worth announcing officially on both sides has actually been produced, why is the most detailed description so far this statement from the U.S. Trade Representative’s (USTR) office?

No specifics

Why does this statement contain plenty of specifics about U.S. tariff reductions (except for the actual dates by which American levies on imports from China will be cut) but no specifics about China’s own pledges?

In that vein, no useful accounts have been released of what China will actually buy from the United States (though it’s interesting that President Donald Trump has included manufactures on the list — not simply agricultural products and other commodities), and by when the Chinese will buy these goods. Special bonus — shortly after noon, the President said he “thinks” China will hit $50 billion in U.S. agriculture imports. Over what time period? Heaven only knows.

Don’t forget — such import increases will be the most easily described and verifiable aspects of any agreement.

Structural reforms

So maybe since these terms are still being left so vague, it shouldn’t be surprising that there’s absolutely nothing from the administration so far about “structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.”

Even the Trump administration has viewed these issues — which lie at the heart of the intertwined U.S.-China technology and national security rivalries, as well as of the purely economic rivalry — as so challenging to address diplomatically that rapid progress can’t be made.

Why else would Trump have settled for now for seeking a shorter term, interim agreement?

If genuine breakthroughs have been made that will strengthen and safeguard and enrich Americans, terrific. But if so, what’s the point of couching them in generalities? And if not, what’s the point in claiming major progress?

Dispute resolution

Also completely, and crucially, omitted are any indications of what’s actually meant by “a strong dispute resolution system that ensures prompt implementation and enforcement.”

In particular, if the United States doesn’t insist on the last word in judging Chinese compliance and meting out punishment when agreement terms are broken, then this deal will work no better on behalf of U.S.-based producers (employers and employees alike) than previous arrangements under the World Trade Organization (WTO) and the old North American Free Trade Agreement (NAFTA) that pleased only the corporate Offshoring Lobby, its hired guns in Washington, D.C., and the Mainstream Media journalists who have long parroted its talking points.

So if the United States is not recognized as sole judge, jury, and court of appeals when dealing with Chinese compliance, history teaches that will be the case that the agreement literally will be worthless.

Politics are puzzling

The politics of this U.S. announcement are puzzling in the extreme as well.

China’s economy obviously has taken a much greater trade war hit than America’s — of course mainly because it’s so much more trade-dependent. Beijing’s dictators are struggling to contain unrest in Hong Kong.

The new U.S.-Mexico-Canada Agreement (USMCA), which will replace NAFTA, will offset some of the China-related losses suffered by the agriculture-heavy states so critical to Trump’s re-election hopes. The polls show unmistakably that the president is winning the impeachment battle in the court of public opinion.

And even before the congressional Democrats’ efforts to remove him from office began bogging down, their party’s slate of presidential candidates had started looking so weak to so many in Democratic ranks that a gaggle of newcomers jumped into the primary campaign on stunningly short notice.

In short, this is no time for Trump to reach any deal with China — whatever phase it’s called. In fact, it’s the time for the president to keep the pressure on (because whatever weakens the Chinese economy ipso facto benefits the United States these days).

And since a deal that promotes real U.S. interests remains impossible to reach because of verification obstacles, it’s also time for Trump to start signaling to American business that major tariffs on China are here to stay for the time being, and may even increase down the road.

That’s one way to eliminate any uncertainty employers are feeling about doing business with China that will increase the odds of building a new, improved bilateral relationship — not restore its epically failed predecessor.

Reasons to hope

The only reasons for optimism on the U.S.-China trade front right now? Just two that I can identify, but they’re hardly trivial.

First, for all the reasons cited above, the supposed Phase One deal is clearly still so tentative and, frankly, so flimsy, that it’s likely to fall apart sooner rather than later.

Second, U.S.-China decoupling will continue — precisely because the closely related technology and national security gulf dividing the two countries can’t be bridged diplomatically, and because even previously gullible U.S.-owned companies in numerous industries will now be thinking twice about exposing themselves, or exposing themselves further, to the whims of China’s utterly lawless and unreliable government.

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Trump’s China Deal Flirts With the Curse of a Phase One and Done

Bloomberg  /  December 14, 2019

President Donald Trump unveiled an interim deal with China on Friday that will avoid further escalation of a trade war that for almost two years has hung over the world’s largest economies and thus almost any country or company doing business with them.

But that agreement is already facing a question from political allies, foes, analysts and business groups alike that is likely to define the deal’s place in economic history: What if, after all those tariffs and all that drama, that’s it? What if it’s cursed to be Phase One and Done?

Trump and his aides have promised that the partial deal the president first announced on Oct. 11 will be followed by others. That’s because while the initial accord may see China increase its agricultural purchases to as much as $50 billion annually and make commitments on currency and intellectual property enforcement, it includes nothing on more potent structural issues such as the vast web of subsidies that has fueled the global rise of many Chinese companies.

While Trump has insisted that as many as two further phases will follow, many analysts are skeptical much more progress can be made going into an election year in the U.S. That could allow the Chinese to run out the clock.

“After the ups and downs over the past two years that led to a partial deal, I’m not sure both countries have the stomach to get back into these issues with any urgency,” said Wendy Cutler, a veteran trade negotiator now at the Asia Society Policy Institute. “A phase one trade deal is a welcome step. But it looks like this deal will fall way short of the long-term fundamental changes in China’s trade regime that the administration laid out a couple of years ago.”

That Trump appears ready to offer tariff relief in return has agitated China hawks in Washington who fear that after daring to take on Beijing in a way no prior president has with his tariffs, Trump is giving up leverage that might extract future concessions.

Marco Rubio, who has staked his claim as the most vocal Republican China hawk in the Senate, on Thursday urged the White House in a tweet to not surrender tariff leverage. Beyond China’s sub­sidies for do­mes­tic firms, he said, those included its historical practice of forcing foreign companies to hand over technological know-how as a cost of market entry and the blocks facing U.S. firms wanting to do business in some sectors in China.

.@WhiteHouse should consider the risk that a near-term deal with #China would give away the tariff leverage needed for a broader agreement on the issues that matter the most such as sub­sidies to do­mes­tic firms,forced tech transfers & blocking U.S. firms access to key sectors

— Marco Rubio (@marcorubio) December 12, 2019

All of those concerns remain priorities for a U.S. business community that has lobbied heavily against the Trump administration’s tariffs and questioned the efficacy of its tactics, even as it has endorsed its diagnosis of the problems that need to be addressed in China.

In reactions sent out by business groups after Bloomberg and then others reported that Trump had signed off on the deal during a meeting with aides Thursday, the common theme was that there had to be more to come.

“While this would be an important step, more work would remain to fully address longstanding concerns regarding China’s unfair trade policies and practices,” Jason Oxman, president and CEO of the Information Technology Industry Council, said in a statement.

Business groups are also eager to see Trump work multilaterally with allies to take on China, arguing that should both add pressure and deliver more substantive and longer-lasting changes.

The U.S. has been engaged with the European Union and Japan in drafting potential rules to tackle industrial subsidies. Those talks have stalled, however, in part because of a lack of interest from the Trump administration, making some skeptical the new rules will ever amount to anything.

Adding to the mistrust among historical allies like the EU is the U.S. administration’s move to hobble the World Trade Organization’s dispute resolution process by blocking the appointment of new judges to its appellate body. Around the world many other countries remain concerned by what they see as Trump’s efforts to dismantle a multilateral system the U.S. spent decades building.

Trump’s aides have characterized the moves at the WTO as part of an effort to modernize a moribund institution that has failed to address what they see as China’s systematic cheating of the system since it joined the WTO in 2001. And there are signs some American business leaders are willing to play along with that as well as Trump’s broader trade disruptions.

Jamie Dimon, the chief executive officer of JPMorgan Chase & Co. and outgoing chairman of the Business Roundtable, which represents U.S. CEOs, expressed doubts this week that a deal with China would go beyond an initial phase one agreement. But he told reporters in Washington that Trump was right to take on China.

Moreover, after the administration delivered an update of Nafta in the form of the U.S.-Mexico-Canada Agreement now headed for approval in Congress, notched a partial deal with Japan and freshened up an existing pact with South Korea, many in business were willing to give Trump the benefit of the doubt on trade, he said.

“If we accomplish those things it’s going to be important for the global economy for decades to come,” Dimon said.

Then again, he also warned it was unclear whether Trump would succeed in remaking America’s trade relationships with China and others for the better. “We don’t know yet because it’s not done yet,” Dimon said. “We’ll know in five years.”

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I don’t know what they’ve done lately but for a few weeks or so containers went away and my area  ... But here lately I see a lot of them coming out of Long Beach going north they’re all empty that means they’re picking up to export out so apparently both governments have a greed on something......bob

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The Trade Deal Will Intensify The U.S.-China Rivalry

Forbes  /  December 15, 2019

The U.S. and China have reached a trade deal that is meant to de-escalate the trade war. It commits China to buy $40 billion of American agricultural products annually, tighten measures for protecting American intellectual property, and stop forcing American companies to transfer their technology when doing business in China. In return, the U.S. agrees to halt the planned tariffs on $156 billion of Chinese goods that is due to take effect on December 15, and it will also cut the tariffs from 15% to 7.5% on $120 billion of Chinese goods that was imposed in September. However, the 25% tariff on $250 billion of Chinese imports imposed in March 2018 stays. Predictably President Trump boasted that this is a big deal that will lead to the “opening of China’s markets.” As positive as this partial trade deal is, it is not what Trump claims. If anything, it will intensify the U.S.-China rivalry.

The fundamental issues that ruptured the U.S.-China trade relationship have not been resolved. America’s dispute with China is more than just America’s trade deficit even though Trump sees it as proof that America is the loser in trading with China. The real U.S.-China rivalry is that of a head-to-head struggle between an incumbent superpower and a rising challenger. In the U.S., there is a rare bipartisan consensus that the structure of the Chinese economy and how it is managed is at the heart of the problem, which puts foreigner companies at a disadvantage when competing with Chinese companies. The real objective of Trump’s trade war is to force China to dismantle its state sector and conform to the standards and practice of a market economy as defined by the West.

China has indeed proved to be very skillful in manipulating the multilateral system that governs global trade, bending its rules when and where it is advantageous to do so. China is now snapping at the heel of the U.S. in closing the technology gap. According to UN data (UNIDO Competitive Industrial Performance Database, the proportions of total export considered to be of medium and high tech are about the same between the U.S. and China.

Furthermore, Xi Jinping’s signature “Make in China 2025” program is designed to propel China forward to becoming a world beating technology leader in ten key sectors in the next few years.

And central to China’s stupendous economic and technological advances in the last four decades is its ability to combine market forces with state intervention; which is the very economic structure that the U.S. wants China to abandon. Not surprisingly, China has absolutely no intention to do so.

In this context, the announced trade deal is merely an admission that a trade war against China through higher tariffs has not and will not work. Both sides will now refocus their efforts in achieving their strategic goals by other means. The U.S. will certainly toughen its scrutiny of Chinese investment in its tech sector, and putting more Chinese companies under surveillance, and there will be more aggressive actions in blocking China’s attempts in acquiring advance technology knowhow. The sanctions against Huawei and its role in the rollout of 5G is only a foretaste of what is to come. Beijing, on the other hand, will surely push ahead with the Make in China 2025 program regardless of what the U.S. may do, while preparing for a worst case scenario of decoupling from the U.S. economy over the longer term. The global economy should be prepared for many destabilizing storms to come.

The U.S.-China rivalry is made more acute because of an asymmetry in time horizon. The U.S. fears that time is not on their side, which is reflected in its bipartisan consensus that stronger actions are urgently needed to prevent a further weakening of America’s position relative to China. Beijing, on the other hand, believes that time is on its side, and is confident that it can out-last America’s belligerence. It will work gradually to reduce its dependence on the U.S. market and American technology knowhow while building new networks of alliances outside of the U.S. This asymmetry in time horizon thus reduces incentives on both sides to compromise. Now that there is a trade deal, the U.S.-China rivalry is set to intensify. 

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Bloomberg is reporting today that China is considering re-routing trade that currently passes through Hong Kong to mainland ports. That could enable around $10 billion a year in goods transshipped there from the U.S. to be directly booked in the mainland, thus reducing the actual purchase amounts of $40 to $50 billion by that amount. The U.S. does not count shipments that go through Hong Kong as part of its trade with China.

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  • 4 weeks later...

Bloomberg  /  January 14, 2019

Existing tariffs on billions of dollars of Chinese goods coming into the U.S. are likely to stay in place until after the American presidential election, and any move to reduce them will hinge on Beijing’s compliance with the terms of a phase-one trade accord.

The two sides have an understanding that no sooner than 10 months after the signing of the agreement at the White House Wednesday, the U.S. will review progress and potentially trim tariffs now in place on $360 billion of imports from China.

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Associated Press  /  January 14, 2019

After 18 months of economic combat, the United States and China are set to take a step toward peace Wednesday. At least for now.

President Trump and China’s chief negotiator, Liu He, are scheduled to sign a modest trade agreement in which the administration will ease some sanctions on China and Beijing will step up its purchases of U.S. farm products and other goods. Above all, the deal will defuse a conflict that has slowed global growth, hurt American manufacturers and weighed on the Chinese economy.

But the so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies —that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018.

U.S. Trade Representative Robert Lighthizer says the details of the agreement will finally be made public Wednesday.

Most analysts say any meaningful resolution of the key U.S. allegation — that Beijing uses predatory tactics in its drive to supplant America’s technological supremacy — could require years of contentious talks. And skeptics say a satisfactory resolution may be next to impossible given China’s ambitions to become the global leader in such advanced technologies as driverless cars and artificial intelligence.

“The signing of the Phase 1 deal would represent a welcome, even if modest, de-escalation of trade hostilities between China and the U.S.,” said Eswar Prasad, a Cornell University economist and and former head of the International Monetary Fund’s China division. “But it hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.’’

Senate Democrat Chuck Schumer said Monday the Phase 1 deal appeared to make “very little progress in reforming China’s rapacious trade behaviors and seems like it could send a signal to Chinese negotiators that the U.S. can be steamrolled.’’

The thornier issues are expected to be taken up in future rounds of negotiations [good luck with that]. But it’s unclear when they will begin. And few expect much progress before the November U.S. election.

Phase 2 — I wouldn’t wait by the phone,’’ said John Veroneau, who was a U.S. trade official in the George W. Bush administration and is now co-chair of the international trade practice at Covington & Burling. “That is probably a 2021 issue.’’

Under the Phase 1 agreement, which the two sides reached in mid-December, the administration dropped plans to impose tariffs on an additional $160 billion in Chinese imports. And it halved, to 7.5%, existing tariffs on $110 billion of good from China.

For its part, Beijing agreed to significantly increase its purchases of U.S. products. According to the Trump administration [but not the Chinese side], China is to buy $40 billion a year in U.S. farm products — an ambitious goal for a country that has never imported more than $26 billion a year in U.S. agricultural products.

The deal may be most notable for what it doesn’t do. It leaves in place tariffs on about $360 billion in Chinese imports — a level of protectionism that would have been unthinkable before Trump took office.

Chad Bown of the Peterson Institute for International Economics calculates that the Phase 1 agreement will leave nearly two-thirds of Chinese imports covered by Trump’s tariffs. Beijing’s retaliatory tariffs affect more than half of American exports to China. The average U.S. tariff on Chinese imports has risen from 3% in January 2018 to 21% now.

High tariffs between the world’s two biggest economies, Bown says, are now “the new normal.’’

The Trump administration argues that the Phase 1 deal is a solid start that includes Chinese commitments to do more to protect intellectual property, curb the practice of forcing foreign companies to hand over sensitive technology and refrain from manipulating their currency lower to benefit Chinese exporters. In advance of the Phase 1 signing, in fact, the Treasury Department on Monday dropped its designation of China as a currency manipulator.

And by maintaining significant tariffs on Chinese imports, the administration retains leverage to force Beijing to abide by its commitments — something the United States says Beijing has failed to do for decades.

“We’ve never punished them before,” said Derek Scissors, China specialist at the American Enterprise Institute. “If you don’t have tariffs, you can write down anything you want, and the Chinese will cheat.’’

The administration contends that, however narrow the Phase 1 agreement may be, it represents a significant breakthrough.

“Across the board, it’s a really, really good deal for the United States,’’ says Lighthizer. “And it will work if reformers in China want it to work. And if that happens, great. If it doesn’t happen, (the pact) is fully enforceable... We expect them to live up to the letter of the law. We’ll bring cases — we’ll bring actions against them if they don’t.’’

Scissors said the trade war has already delivered a benefit for Trump, even if it hasn’t forced Beijing to make major changes to its economic policy: Trump’s tariffs have reduced Chinese exports to the United States and narrowed America’s trade deficit with China.

The president has long lambasted the U.S. trade gap with Beijing as a sign of economic weakness, though many economists disagree. A wide trade deficit can actually reflect economic strength because it means that a nation’s consumers feel prosperous and confident enough to spend freely — on imported goods as well as on home-grown goods.

So far this year, the U.S. deficit with China in the trade of goods has declined by 16%, or $62 billion, to $321 billion compared with a year earlier. And the deficit will narrow further if Beijing lives up to its pledges to buy dramatically more American imports.

Trump’s tariff hikes have proved to be a headwind for China’s economy, which was already slowing, though the damage has been less than some forecasters expected. Chinese global exports eked out a 0.5% increase in 2019 despite a plunge in sales to the United States, according to Chinese customs data.

Chinese exporters responded to Trump’s tariff hikes by shipping goods to the United States through other countries and by stepping up sales to Asia, Europe and Africa. The government reported double-digit gains in 2019 exports to France, Canada, Australia, Brazil and Southeast Asia.

Economists said the tariff war slowed Chinese growth, which hit a multi-decade low of 6% in the quarter ending in September, by as little as 0.6 percentage point. Weak domestic demand and the cooling of a construction boom inflicted more damage.

“It is unrealistic for the U.S. government to think they could defeat China by exerting extreme pressure,” said Tu Xinquan, director of the China Institute of WTO Studies at the University of International Business and Economics in Beijing. “As an economy with a massive size, China will gradually absorb such external shocks.”

“China didn’t get everything they wanted out of this deal, and the U.S. has obviously not got the structural changes in the Chinese economy they wanted,” said Julian Evans-Pritchard of Capital Economics. “But they are going to get a substantial increase in exports and a reduction in the bilateral trade (deficit), which I think the Trump administration will clearly see as a win.”

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