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The US-China trade deal that wasn't

Frank Sieren
Frank Sieren
October 21, 2019

The recent trade agreement between China and the US isn't much more than a declaration of intent. Yet it's no surprise that Trump is touting its success, since he's swimming in problems at home, says DW's Frank Sieren.

USA China miniature flags on containers
Image: imago/C. Ohde

While US President Donald Trump was trumpeting the results of the latest round of trade talks with China, on Tuesday the International Monetary Fund (IMF) lowered its predictions for global economic growth this year to 3%. The last time the forecast was this low was during the financial crisis of 2008-09.

The IMF was not duped by Trump's self-praise, which he sent out on Twitter after the 13th round of US-China trade discussions: "The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country ... "Thank you China." The Chinese government was less enthusiastic. The talk was of "constructive talks" and "substantial progress." Even Trump realizes that this is not the end; his administration described the agreement as "phase one."

The agreement can truly only be described as temporary. Washington agreed to suspend an increase in tariffs from 25% to 30% on Chinese imports valuing $250 billion (€224 billion). In exchange, China agreed to buy US agricultural products worth $40 to 50 billion. Trump even wondered self-assuredly whether US farmers could keep up with Chinese demand: "In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out." 

The emphasis on American farmers shows that Trump is worried that his voters in agricultural industries are becoming impatient and dissatisfied with him. Both Trump and the US trade representative, Robert Lighthizer, had made it clear that a partial agreement was not being sought. They wanted a comprehensive trade, but this is not so easy to achieve.

Phase one not yet finished

According to Trump, progress was also made on issues such as intellectual property rights, access to the Chinese market for US financial services companies and alleged currency manipulation. However, he didn't give details of any concrete agreements. There was also apparently no substantial progress on other controversial matters such as China's financial support for state companies, which the US has criticized. The Chinese government is unlikely to allow the US to dictate how it supports Chinese industry, especially in sectors like the aviation market, where state-of-the-art technology first made China internationally competitive.

As long as the trade deal has not been signed, everything remains open. Trump has said he would like to sign before meeting his Chinese counterpart, Xi Jinping, at the upcoming Asia-Pacific Economic Cooperation (APEC) summit in Chile in mid-November. Beijing has said that there have to be further discussions before Trump's "phase one" can be declared complete.

No trade deficit in sight

While markets initially rallied at the news, the declaration of intention is too little for companies to be able to breathe a sigh of relief and start investing again. The trade war continues to put a brake on the global economy, including in China and Europe. US tariffs on imports from the EU have just come into effect, but it the situation is worse for China.

In September, Chinese exports to the US, its largest market, decreased by 21.9% compared to the previous year because of the tariffs. US imports to China fell by 15.7%. However, China's worldwide exports only fell by 3.2% to $218 billion, while imports fell by 8.5% to $178.5 billion. These are not yet dramatic figures.

It's important to point out that China still buys less than it sells, so a trade deficit is not in the near future. However, China's growth rate for the third quarter sank from 6.6% in 2018 to around 6%.

But China's economy is strong enough, especially the domestic market, which the government is focusing on more and more for growth. Prime Minister Li Keqiang has said he wants to employ countercyclical measures to support economic growth. The modernization of China's industry could take longer and cost more because of the conflict with the US, but it is unstoppable. The trade war has made it clear to Beijing that China has to catch up faster and become independent of the US.

Frank Sieren has lived in Beijing for over 20 yearsImage: picture-alliance/dpa/M. Tirl

Trump's reelection pressure

It's not surprising that Trump celebrated the harvest of "low hanging fruit" during the last round of trade talks. He has to deliver before next year's presidential election. The IMF forecasts that US economic growth will drop to 2.1% next year, following robust growth. Trump can't afford to let time play out the way Xi can.

Regardless of whether Trump is reelected or able to close a comprehensive trade deal before the election, the world's two biggest economies will continue to drift apart further. Distrust of China is widespread among both Democrats and Republicans, who see China as the greatest challenger to the US.

So in dealing with China, the tools will continue to be tariffs, punitive measures and limits on Chinese investment. This is already clear within the tech sector. Whereas Germany is allowing Huawei to help build up its 5G network, the US has threatened to ban dealings with the Chinese company. Leading artificial intelligence companies such as SenseTime and Megvii were recently added to a US blacklist because of surveillance in the western province of Xinjiang, where the Muslim Uighur minority lives. Washington has also put pressure on US firms to move their plants from China to places such as Vietnam or India.

Such a strategy will do more damage to the US than to China. At the moment, only Huawei can provide 5G technology at a good price. As more and more Chinese tech companies reach Huawei's level of international success, anti-Chinese sentiment in the US will likely only increase.

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