The weekly trade report by L.C.
US and Chinese negotiators reached – by the US account – a limited, partial trade agreement when they met in Washington on October 11th for their 13th negotiating round. As President Trump told reporters, “We’ve come to a very substantial phase one deal, subject to getting it written.” He declared it “a deal on intellectual property, financial services, a tremendous deal for the farmers.”
But the Chinese didn’t talk of reaching an agreement. By their account, negotiators made “progress on some parts of the agreement under consultation.” Chinese media noted that the US didn’t deliver on Beijing’s demand for removal of the tariffs, so while welcoming the trade truce they stressed that there is much uncertainty over the future course of events. Bloomberg (Monday October 14) reports that “China wants to hold more talks this month to hammer out the details of the “phase one” trade deal touted by Donald Trump before Xi Jinping agrees to sign it, according to people familiar with the matter.”
What appears to have been agreed to this week is similar to the deal that was on offer last May (and earlier) when the administration walked away from the talks. In order to not appear to be simply capitulating, the White House is selling the deal by calling it an interim first-phase agreement that will set the stage for talks leading to a comprehensive, second-phase agreement.
With characteristic understatement, a presidential tweet on October 12th claimed that “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. In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!….Other aspects of the deal are also great – technology, financial services, 16-20 Billion in Boeing Planes etc., but WOW, the Farmers really hit pay dirt!”
Or a dirty deal. What has been revealed of the details does not suggest China vowed to purchase more US farm products than they regularly did before the trade war began and doesn’t indicate a breakthrough on technology, nor has information been released about promises to buy Boeing planes – a promise that could run afoul of WTO non-discrimination rules.
Underlining why the President is so concerned about farmers and their perception of the success of his policies was a report this week from the Agriculture Department that for calendar year 2019, the US looks to be on track to run its first agricultural trade deficit in 40 years. Agricultural imports have risen while exports declined, a stunning reversal of the US’s traditionally strong global position in farm trade.
There was no written US-China agreement released this week; President Trump said that would happen over the next three weeks and it might be signed when he and President Xi meet in Chile for the Asia-Pacific Economic Cooperation (APEC) summit on November 16th-17th. After the signing, he said, negotiations would continue for a larger agreement. Though the President said he expects this week’s deal to be finalized and signed, “Anything can happen” but “I don’t think” it will fall apart.
This week’s narrow outcome is what had been expected. However, it was thrown into doubt when the Trump administration took new punitive steps just before the talks began – imposing restrictions on some Chinese individuals and entities for human rights violations in Xinjiang. Washington has also recently brought a new point of potential leverage into the talks by considering restrictions on Chinese companies’ access to US capital markets. An October 8th White House meeting of senior officials considered barring government pension managers from investing in funds that include Chinese companies.
What the President called a “substantial phase one deal,” is an arrangement that was almost surely achievable at any point. It doesn’t involve any of the hot-button US demands Beijing has rejected, led by ending forced tech transfer, disciplining subsidies to state-owned enterprises, and imposing strong IP protections for patents and technology. At best, it puts the US-China trade relationship back to where it was before the major escalation of the bilateral trade war. The Chinese will resume significant purchases of US commodities — grains and especially pork — and the US will pause its tariff escalation.
Members of both US political parties have long warned against settling for a small-bore deal that doesn’t tackle the underlying problems of China’s anti-market practices and have been further angered by Chinese abuses in Hong Kong and Xinjiang. Democrats have an added incentive to be critical now, since the President is politically vulnerable for the scant victories and more numerous injuries that have ensued from his trade policies. One critic referred to the deal as “awfully close to nothing.”
Two new measures
The administration did announce two punitive moves early in the week directed at Chinese entities and individuals who play a role in the surveillance and repression of the Uighurs in Xinjiang. They follow the sanctions previously placed on Huawei, ZTE, and certain other Chinese companies that were put on the Commerce Department Entity List. But in this case the targets are chosen not for threatening US national security but for facilitating human rights abuses within China, an unusual use of the Entity List.
This will prevent the companies from purchasing US technology or other products without a license. An interesting dimension to this is that the technologies now used for surveillance/repression in China are among the most advanced, related to such cutting-edge areas as artificial intelligence, sensing, and facial recognition. This will help crimp the ability of Chinese companies to use US technology to become dominant in these capabilities.
In the October 8th action, Secretary of State Mike Pompeo imposed visa restrictions on certain Chinese officials (government and Communist Party) found to be complicit in the human rights abuses in Xinjiang. Restrictions will limit ability to travel to the US.
Beijing responded angrily to the moves. The Commerce Ministry’s statement said the US should “immediately stop making irresponsible remarks” and “interfering with… China’s internal affairs, and remove relevant Chinese entities from the Entities List as soon as possible.”
President Trump could really attract Chinese attention by drawing attention to the trade risks for China if it continues to violate its treaty agreement with Hong Kong. So far, the president has been giving the Beijing regime a pass on the Hong Kong people’s struggle for freedom. The Wall Street Journal (October 14th) reports that
Tens of thousands of protesters waving U.S. flags and with the Star-Spangled Banner blaring from loudspeakers gathered in downtown Hong Kong late Monday to call for U.S. lawmakers to pass legislation that would increase scrutiny of freedoms in the city…. Protesters believe its passage would compel Hong Kong’s leaders to maintain the city’s separate system of government from mainland China’s…. Republican Sen. Josh Hawley of Missouri, a co-sponsor of the Hong Kong bill, said on a visit to the city on Monday that it was possible that the House of Representatives could vote on the bill as soon as this week, though that would depend on House Speaker Nancy Pelosi. Republican Sen. Ted Cruz of Texas also visited Hong Kong over the weekend.
The administration has also not been inactive on another important front. Commerce Secretary Wilbur Ross was in Asia this week. On his visit to Australia he promoted joint development of rare earth resources. The issue gains importance as China continues to threaten a cut-off of its rare earth exports. The US, Japan, and the EU won a World Trade Organization (WTO) case brought against a previous Chinese export ban, after which China complied. As Ross told reporters, China — which produces 70% of the world’s rare earths — has subsidized them so heavily that the low price makes private investment “uneconomical” for these materials despite the dependence of the high-tech and defense sectors on them. Ross also told reporters that “something needs to be done… quickly. It takes a year or so to get a mine developed. Most projects in rare earths are in the feasibility study stage so it will take a while for them to come into reality.”
Leave a Reply