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Partial US-China trade deal only ‘baby step’ as thorny issues remain
BEIJING, Oct 12, 2019 (BSS/AFP) – A partial US-China deal may only offer a
temporary tariff reprieve because it lacks specifics and leaves the thorny
issues for later, analysts said, allowing both economic powers to claim
success.
Friday’s initial agreement — which included increasing US farm product
purchases, and also covers intellectual property, financial services and
currencies — finally breaks an 18-month trade spat.
Engulfed in an impeachment inquiry, US President Donald Trump heralded the
deal as a major breakthrough.
But it will take weeks to finalise and the details are not clear — nor
will it roll back tariffs already in place on hundreds of billions of dollars
in two-way trade.
“The lack of specificity and even the fact this baby stepped agreement
could take weeks to iron out, quickly cooled trader optimism,” said Axi
Trader analyst Stephen Innes.
After earlier attempts at a truce between Trump and his Chinese counterpart
Xi Jinping did not pan out businesses remained cautious, Innes said.
There is “fear this could be more of the same old lather rinse and repeat
trade detente followed by trade escalation,” he said.
For now, Washington will hold off on a massive tariff increase planned for
next week and — as negotiations progress — new December tariffs could also
be cancelled, US officials said.
Trump said China had pledged to rapidly increase purchases of American farm
products to $40-50 billion — a stunning feat, and more than double 2017
levels.
But China is yet to confirm these details.
“Substantial progress had been made in such areas as agriculture,
intellectual property rights protection, exchange rate, financial services,
expansion of trade cooperation, technology transfer and dispute settlement,”
state-run Xinhua news agency reported citing Liu He, the country’s top
negotiator.
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“The two sides also discussed arrangements for future consultations,” Liu
said when he met Trump Friday, according to Xinhua.
Previously, Trump has blamed China for backtracking on its promises.
– ‘Major deal unlikely’ –
On Friday, the US president played up the “substantial phase one” deal as a
result of his hard-line stance with China.
“It’s not much and it doesn’t get us very far in the big issues, so whether
it will lead to anything important is still very unclear,” said Barry
Naughton, an expert on China’s economy at the University of California, San
Diego.
The Chinese Communist Party mouthpiece People’s Daily warned in an
editorial Saturday the trade war would only be resolved by “abolishing all
tariffs.”
But to get there, the two sides need to address issues such as scaling back
Chinese government subsidies that have skewed competition, and opening up
sectors dominated by state-owned enterprises (SOEs).
In a step in towards that, China recently announced a timetable to remove
foreign ownership limits in finance companies beginning next year.
Beijing also passed a foreign investment law in March, promising a level
playing field for overseas investors, addressing a major US complaint.
But “a significant improvement is… not very likely,” said Song Houze, a
research fellow at The Paulson Institute.
“The existence of thorny issues like SOE and tech make a major deal
unlikely, which means the existing tariff will most likely stay.”
The latest truce, however, was essential for both sides as both face
cooling domestic growth, he said.
– Off the table –
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US restrictions on Chinese investments in its high-tech sectors — blocking
Huawei from government contracts — and sanctions on a series of China’s tech
giants have also cast a shadow on trade negotiations.
The US commerce department said last week it will blacklist 28 Chinese
entities it says are implicated in rights violations and abuses in China’s
Xinjiang region.
“Even if the US and China reach a comprehensive trade deal, the US will
likely tighten restrictions on China’s access to technology in the coming
years,” said Wang Tao, head of Asia economics at UBS Investment Bank.
“The US has elevated this issue to national security and it may be hard to
reverse, no matter what kind of agreement they reach (or not) on Huawei,”
said Wang Tao, head of Asia economics at UBS Investment Bank.
BSS/AFP/SR/1900 HRS