Both countries will suffer but China will take the bruntby George Magnus / May 14, 2019 / Leave a comment
Barely a couple of weeks ago, President Trump referred to the prospect of “an epic trade deal,” describing the negotiations between the US and China to bring an end to the trade war.
Yet last Friday, with Chinese negotiators in Washington, Trump authorised a hike in punitive tariffs on Chinese goods, which was originally set for 1st January but was put into the deep freeze pending the outcome of these talks.
Over the weekend, Trump said that the US would publish a plan to extend such tariffs to the half of imports from China not yet affected, taking effect in a month if the talks make no progress. The Chinese delegation has gone home, and there may yet be a twist that allows a weak agreement to push back a full-scale trade war. The optics, though, are not good. How worried should we be?
In spite of the theatrics, the US and China have most likely already agreed some things, for example that China will buy more US agricultural products, as well as energy goods and aircraft. It will be also be prepared to allow US financial firms improved access to Chinese markets, perhaps some other firms too. Restrictive regulations capping foreign ownership of Chinese firms could be addressed.
But these comprise the low hanging fruit. What the US really wants is meaningful and verifiable change in China’s laws and regulations, associated with forced technology transfer to local companies, inadequate intellectual property protection, cybersecurity, and the protectionist practices underlying China’s industrial and technological development policies.
The US believes China reneged on certain commitments that it thought had been agreed. China disagrees and says there were simply disagreements over the text of a deal. But the issue arose late in the day. It could have been a misunderstanding that was lost in the language of trade diplomacy. It might have been a miscalculation by China that the US negotiating position and economy were weaker than they are. Or it might have been a deliberate last minute pushback to try and change the terms of the agreement, reflecting a hardening of view in Beijing.
Whatever the circumstances, China’s chief negotiator Liu He gave a press conference in Washington to the Xinhua News Agency…