President Donald Trump’s long-awaited trade deal with China includes some significant changes to the economic relationship between the world’s largest economies.
The agreement signed Wednesday includes some victories for Trump: China has committed to buy an additional $200 billion of American goods and services by 2021 and crack down on business practices that the Trump administration has criticized. But text of the accord does not provide enough information to determine how it will work in practice.
— China’s $200 billion shopping list includes agricultural products and energy exports
PAGE 6-1: The Parties recognize that the United States produces and can supply high-quality, competitively priced goods and services, while China needs to increase the importation of quality and affordable goods and services to satisfy the increasing demand from Chinese consumers.
Trump said his deal is a boon for farmers, who have been among the hardest hit by his trade war. The deal includes significant commitments from China to buy agricultural products, as well as airplanes, pharmaceuticals and oil and gas.
China’s commitment to purchase additional U.S. exports is based on 2017 levels, and includes $52.4 billion of energy exports, $32 billion of agricultural commodities, $77.7 billion of manufactured goods and $37.9 billion of services.
Although U.S. businesses and farmers will be pleased by those commitments, China is only agreeing to make purchases for the next two years and is vague about what happens thereafter. The agreement says the countries “project that the trajectory” of increased purchases would continue through 2025, but it remains to be seen how it will actually play out. The shopping list also leaves several open questions: What happens to China’s existing contracts with other countries for products like soybeans? Can it get out of such commitments if there isn’t domestic demand? Will the purchases distort commodities markets?
— The deal aims to stamp out theft of intellectual property
PAGE 1-1: The Parties shall ensure fair, adequate, and effective protection and enforcement of intellectual property rights. Each Party shall ensure fair and equitable market access to persons of the other Party that rely upon intellectual property protection.
The theft of intellectual property was one of the Trump administration’s main reasons for starting a confrontation with China. Previous administrations have tried to get China to crack down on this practice with limited success.
Trump’s agreement seeks to make it easier to identify and punish such theft. For instance, the deal requires China to “enumerate additional acts that constituting trade secret misappropriation,” including “electronic intrusions,” a reference to hacking of computer systems.
The agreement also aims to make it easier for companies to seek redress in China if they believe their trade secrets have been stolen. The pharmaceutical industry appears to have secured significant gains, including commitments by the Chinese government to do more to protect patent owners from copycats.
— Getting China to comply with the deal could be hard
PAGE 7-1: To ensure prompt and effective implementation of this Agreement, the Parties establish the following Bilateral Evaluation and Dispute Resolution Arrangement (the “Arrangement”).
Among the biggest questions going in to the negotiations with China was how any agreement would be enforced. Having watched previous agreements with China fail to live up to their promise, many American experts and business executives were skeptical that the Trump administration could get China to keep the commitments it makes.
The new deal creates something called the Bilateral Evaluation and Dispute Resolution Offices to receive and evaluate complaints. The deal also includes an appeals process where issues can be elevated from midlevel officials all the way up to the offices of the U.S. Trade Representative and the vice premier of China.
If the United States or China believes that the other is acting in bad faith, either country can give written notice and withdraw from the deal. Of course, Trump has already made clear that under such a scenario, he would impose more tariffs on Chinese imports, thus returning the countries to a trade war footing.
— Wall Street’s gains appear incremental and it is unclear if the deal will be a boon for all financial firms
PAGE 4-1: The Parties shall work constructively to provide fair, effective, and nondiscriminatory market access for each other’s services and services suppliers. To that end, the Parties shall take specific actions beginning with the actions set forth in this Chapter with respect to the financial services sector.
It’s not clear that the agreement gives the United States big new gains in financial services. In an attempt to defuse tension with the Trump administration, China had already moved in 2017 to give foreign firms more sway in its financial sector, and U.S. banks and other firms have been taking majority stakes in Chinese ventures.
For years, credit card companies Visa, Mastercard and American Express sought entry into China. In the deal, China agreed to accept license applications by these companies, but it did not automatically grant them access to its market. Even if China did approve their applications, it is not clear that those businesses would make many inroads in the country’s advanced electronic payment system, which is dominated by domestic companies.
— China made pledges to be more transparent in currency markets, but many of its promises are in line with earlier commitments
PAGE 5-1: The Parties shall refrain from competitive devaluations and not target exchange rates for competitive purposes, including through large-scale, persistent, one-sided intervention in exchange markets.
Trump has long been a critic of China’s currency policy, arguing that it weakens the renminbi to achieve a competitive advantage for its exports. Last year, the Trump administration labeled China a currency manipulator, before removing the tag this week as a result of China’s new currency commitments.
The country has pledged not to competitively devalue its currency and has promised to be more transparent about its interventions in foreign exchange markets.
To accomplish this, China has agreed to make public disclosures about its foreign exchange reserves and its quarterly imports of goods and services, among other things. However, much of what China is agreeing to do is in line with commitments it has already made through the Group of 20 and its obligations to the International Monetary Fund.
Brad Setser, an economist at the Council on Foreign Relations, was unimpressed by the new currency provisions, pointing out that China is primarily promising things that it already does and that it will continue to be circumspect about its actual interventions. “Certainly it doesn’t provide the market with any new information about China’s actual currency practices,” Setser said.
— Both the American and Chinese economies have been hurt by the trade war, and this deal could provide some needed relief
PREAMBLE: REALIZING that it is in the interests of both countries that trade grow and that there is adherence to international norms so as to promote market-based outcomes;
The trade war between China and the United States has weighed on the economies of both countries. The tensions appear to have sent a chill through the United States manufacturing sector. China’s exports to the United States have plunged.
The partial truce struck Wednesday could restore some confidence, and the Chinese purchases will help some sectors of the U.S. economy, but the pact preserves the bulk of the tariffs on $360 billion of goods from China. Administration officials have said that they will not lift those tariffs until the countries manage to agree to a phase 2 agreement. Prolonged strains in the relationship could prompt U.S. firms to spend less in China and vice versa.