BEIJING – President Trump and China say their new trade pact is just the beginning of a new relationship between the two largest economies in the world. Future agreements will make China a better business partner, says the White House. Beijing claims to provide for the end of US tariffs and trade war.
Probably both are wrong.
Wednesday’s partial trade agreement, presented by both parties as a temporary truce, may be the lasting legacy of more than two years of economic conflict. I could guarantee that US purchases of Chinese products, which are already falling, will fall even more. And instead of healing the relationship, it could separate the two economic titans, transforming the way global business is done.
The agreement signed Wednesday by Trump and Deputy Prime Minister Liu He, China’s main trade negotiator, cuts some of the US tariffs imposed on products made in China in the past two years and further prevents. It commits China to buy $ 200 billion more in US grains, pork, airplanes, industrial equipment and other goods for two years. It requires that China open its financial markets more and protect US technology and brands, while establishing a forum for the two sides to discuss their differences.
Solving those problems could take years. Already, the prospects for a second quick agreement seem limited. Trump said he could wait until after the November elections to finish what the two sides call a “phase two” agreement.
Until then, American consumers and businesses will continue to buy fewer products from China. The Chinese government, for its part, will continue to look for clients in other places. The US-Chinese relationship, One of the main drivers of global economic growth for decades will be further weakened.
“The trade war has unleashed a set of structural forces that are likely to have a damping effect on China’s imports for some time,” said Eswar Prasad, an economist at Cornell University who specializes in China.
Unforeseen circumstances could change all that. An economic depression could lead one or both to the negotiating table. Mr. Trump It has broken trade agreements before. Americans could choose a less aggressive leader in November.
But so far, both countries have shown that they are willing to receive the economic blow. The US economy, the labor market and the stock market have only improved since the commercial war began almost two years ago, although many question how long it can last. On the political front, many Democrats have pressured Trump to make it harder, not softer, in trade with China.
In China, the trade war has been only one factor behind the economic slowdown. Beijing seems comfortable with its ability to handle the problem.
In recent weeks, Chinese government advisors have emphasized the discussion of the steps Beijing can take, such as helping the labor market or finding new business partners in other places, rather than the steps it cannot take. Although China’s exports to the United States have plummeted, its sales elsewhere, particularly to poor countries, have remained strong. Beijing has searched a lot in recent months to open even more markets.
In addition, complaining about the agreement could make China appear weak, an unpleasant position in a country where the Communist Party presents itself as the savior of a century of humiliation by foreign powers.
State media and Chinese economists on Thursday welcomed the agreement as a respite for what has been two years of almost relentless focus on the commercial issue by the government and many in the general public. Wednesday’s pact “will provide at least a truce in the trade war,” said He Weiwen, a leading Chinese commercial economist and former official at the Ministry of Commerce.
Even under Wednesday’s agreement, China negotiated itself when it comes to its commitment to buy $ 200 billion more in US products. The agreement says that real purchases must be “based on commercial considerations,” which means that China could still object to the price and terms.
The pact showed that China could not be intimidated and that the United States “is learning to live with China and accept China on its own terms,” said Andy Mok, a geopolitics and trade specialist at the Center for China and Globalization, an investigation of Beijing Institute.
Chinese officials have not been uncompromising. In recent months, even before signing the trade pact, government limits on foreign companies have been loosened. in the automotive and financial industries and promised to ban the efforts of Chinese companies to force foreign partners to reveal their most sensitive trade secrets.
However, on the main issue of government support and control of the economy, Beijing has remained firm.
The Trump administration and US companies have complained that China unfairly uses the vast government coffers to build industries that will compete directly with established players in the West. China played down these efforts in recent years as trade tensions increased.
Now China seems to be less shy with its efforts. At the beginning of the trade war, Xi Jinping, the main leader of China, publicly visited a Chinese semiconductor business, an industry that Beijing has bathed with subsidies, to show its support. New data shows that China has stepped up its Belt and Road Initiative, a plan promoted by Beijing to finance and build roads, telecommunications networks and other infrastructure throughout the developing world, clearing the way for more Chinese exports.
The price of China’s hard stance is the rearrangement of the global supply chains that its factories have fed for a long time. Companies had kept them in China even when wages and other costs increased in the last decade.
The trade war has broken that inertia, and many companies have begun to move their supply chains to other places to avoid new tariffs or the prospect of even more. In November, Chinese exports to the United States fell by more than a fifth compared to the previous year. Exports to the United States now represent only 4 percent of the Chinese economy.
“This was the shock, the impetus to get people moving,” said Ker Gibbs, president of the US Chamber of Commerce in Shanghai.
That should please Mr. Trump, who has long complained about the annual gap of more than $ 320 billion between what the United States buys from China and what it sells to China.
However, it does not mean that the jobs that left for China in the last two decades will return to the United States. High labor costs and regulatory compliance in the United States, along with the persistent shortage of skilled labor, have led most multinationals to distrust manufacturing change to the United States. Instead, the big winners seem to be American allies like Vietnam, Taiwan, Indonesia and possibly India, all of whom are receiving floods of multinational executives in search of alternatives to China.
Even if both parties came to the table with new concessions, trade agreements are difficult to complete. Wednesday’s pact followed more than two years of detention and start negotiations. Important pacts such as the North American Free Trade Agreement between the United States, Mexico and Canada took even longer.
The longer it lasts, the more economically drifting countries will be.
Without the trade war, the United States would probably have been on the way to buying $ 550 billion or more of Chinese products this year, said Brad Setser, an economist who has specialized in Chinese data first as a Treasury official in the Obama administration and now at the New York Council on Foreign Relations. Even with Wednesday’s trade agreement, US imports from China this year are more likely to be around $ 400 billion, he said.
“The tariffs,” he said, “have clearly had a great impact.”