The United States and China finally, after almost two years of hostilities, signed a “phase one” agreement. But it only covers the easiest aspects of their difficult relationship, and only eliminates some of the tariffs. The biggest obstacles are yet to come, and could hamper a second phase agreement, one that would theoretically eliminate all tariffs, bringing much-needed relief to the global economy, which is the interest of all of us.
What is not in the agreement of phase one tells us where the critical points are in the relationship between the United States and China, and what could derail the second round of negotiations.
So what was not included in the agreement?
1. Industrial subsidies and ‘Made in China 2025’
The agreement does not address Beijing’s ambitious ‘Made in China 2025’ program, which is designed to help Chinese companies stand out and become world class leaders in emerging technologies. Nor does it address the subsidies that China grants to its state-owned companies, says Paul Triolo of the Eurasia Group.
Washington sees “Made in China 2025” as a direct threat to its supremacy in technology, and says that Chinese companies have only caught up with American companies, sometimes overcoming them, because they receive unfair and disproportionate assistance from the Chinese government in the form of subsidies
These were some of the most thorny problems the Trump administration had with China, but they were pushed to phase two of the process, says Triolo, along with “market access in sectors such as cloud services, cybersecurity and data governance problems. “
Beijing argues that it does not unfairly subsidize these industries or companies, but the reality is that China will not give up dominance in these sectors so easily.
The trade agreement will not reduce US pressure on Huawei, the Chinese telecommunications giant that has been caught in the crossfire of the trade war, and US Treasury Secretary Steve Mnuchin said the company is not a “chess piece” in the negotiations.
That will disappoint both Huawei and the Chinese government, who have been furious about how Washington has linked the company’s fate to the relationship between the United States and China.
The Chinese firm became a symbol of the technological rivalry between the United States and China and Washington has been pressuring its allies, including the United Kingdom, to not use Huawei’s 5G technology services in critical communications infrastructure, claiming that Beijing could use it to spy on customers. Huawei has denied this and hoped that if the relationship between the United States and China improved, their fortune would too.
Analysts tell me that it is unlikely. With the signing of this agreement, there is a clear separation between national security and trade, and Huawei and other Chinese companies must still expect them to continue pressured. Therefore, expect more bans on US exports not only in Huawei, but also in several other Chinese companies and greater US scrutiny of Chinese investments abroad.
3. Access for foreign financial services companies.
While the agreement speaks of opening market access for financial services companies, some analysts have said it does not go far enough to ensure they have the same market access.
China had already said publicly that it was opening its financial services sector, and recently it has allowed foreign companies to have a greater share in Chinese companies. But Beijing doesn’t give up much when doing that, because China’s financial services sector is now dominated by national digital payment players. Even if the US payment companies. UU. They have greater access to the Chinese market, it is difficult to see how they could compete. The Trump administration will also closely monitor whether China sincerely applies its commitments to treat foreign and domestic companies alike, and this could be a potential area where the approach could derail.
4. Execution and interpretation
The agreement has a dispute resolution mechanism, which basically requires that China, once a complaint has been filed, begin consultations with the US. UU., With Beijing’s responsibility to solve it.
But what the agreement leaves aside is “how the United States will monitor the application of the law,” says Derek Scissors of the American Enterprise Institute. “American companies do not like to report intellectual property theft,” he told me, “so, first, what mechanism is the United States using to gather information on this. All that is in the document are consultations.”
The agreement also ignores how the two parties will interpret these key aspects of the agreement. There are already signs of differences. Chinese state media have suggested that the dispute resolution mechanism is not dictated by the United States, not entirely according to Washington’s messages.
This could indicate that, although there is an agreement, Beijing could ignore it, as Dan Harris points out, of the China Law blog.
“The problem is not the law,” he says. “It is that when something is important for China, a cutting-edge technology that wants, then those laws have no use.”
5. New tariff reductions
The agreement does not include a definitive schedule on when the rates that are still in force will fall. According to an investigation by the Peterson Institute for International Economics, the average tariffs on both sides still increase approximately 20% from pre-war levels, six times more than when the dispute began. That means that companies and consumers continue to pay more.
It is true that the Trump administration has left the threat of tariffs as a stick to beat China, in case Beijing does not fulfill its commitments.
And there is always that risk, as the Global Times points out, the spokesman for the Chinese hardline Communist Party: “Can a preliminary trade agreement, reached during a period when strategic relations between China and the United States are clearly diminishing, really Will it work, will it be replaced by new conflicts or new advances as negotiations continue?
The potential for commercial tensions to resume on both sides remains a very large possibility.