US-China trade war deal reaches 1st anniversary as bilateral mistrust hits ‘all-time high’

Cissy Zhou, South China Morning Post

Posted at Jan 15 2021 01:12 PM

One year after signing the phase one trade deal with the US, China remains far behind in its commitment to buy more American goods, though the agreement has been a vital sticking plaster in a fast deteriorating bilateral relationship, experts said.

The world’s two largest economies signed the deal on January 15 last year, effectively calling a ceasefire in a trade war that saw tariffs slapped on billions of dollars worth of products and reorganised global supply chains after it was launched by the US in July 2018.
Under the deal, Washington agreed to cut some tariffs in exchange for China committing to buy at least US$200 billion more worth of US goods and services over two years compared to 2017 levels.

The agreement also included provisions halting China’s intellectual property theft and forced technology transfers, as well as boosting access for US financial service firms to China’s domestic market.

But a year on, views are split on its success, with China failing to live up to its buying targets and the US trade deficit with the world’s second largest economy only growing.

“An optimistic reading would be that the deal lays the groundwork for future engagement on economic and commercial issues, which in the grand scheme of things, is positive,” said Nick Marro, global trade lead at the Economist Intelligence Unit (EIU) in Hong Kong.

“Getting both sides to resume talking to each other, especially now when bilateral mistrust is at an all-time high, would be an important step in reorienting the entire relationship.”

However, on many concrete measures the deal has fallen short. US President Donald Trump’s claim that there would be “total and full enforceability” on pledges in the pact has also turned out to be hollow.

In the first 11 months of last year, China’s purchases of products included in the deal reached only 58 per cent of its targets using US Census Bureau statistics, or 56 per cent using Chinese customs data, according to a report by Peterson Institute for International Economics (PIIE) released last Friday.

China did better with imports of covered agricultural products, but still fell short of commitments, buying 76 per cent or 62 per cent of the year-to-date targets, using US or Chinese statistics, respectively.

Imports of energy products were particularly low, reaching only 35 per cent of the year-to-date target, according to the report.
“To be honest, I’m a little upset with the Chinese government’s enforcement,” said Shi Yinhong, an adviser to the State Council and a professor at Renmin University.

“China simply does not need so many US soybeans, grains and corn, but China is trying very hard to enforce its commitment for the sake of the overall US-China relationship.”

Xiaoping Zhang, Greater China regional director at the US Soybean Export Council, said the phase one deal was “definitely a success” to both countries, as the soybean trade was normalised under the deal.

But Jake Parker, senior vice-president of the US-China Business Council, said while the deal had made important progress on long-standing trade barriers, it came at a steep cost.

“Tariff escalation on both sides has cost American jobs, increased prices for consumers, hurt businesses, and required taxpayers to bail out farmers, all while doing little to correct the trade imbalances they were meant to address,” he said.

Trump railed against the US trade deficit with China before and after taking office, but it has remained stubbornly hard to narrow, even as Beijing sped up purchases of politically important American commodities such as soybeans, pork and corn.

Chinese customs data showed the surplus climbed 7.1 per cent to US$316.9 billion in 2020, the second largest gap on record and a 14.9 per cent jump from the surplus of US$275.8 billion in 2017, when Trump took office.

China’s exports surge further in December, recording the seventh consecutive month of growth, with China’s factories continuing to capitalise on coronavirus lockdowns in the West. Exports grew by 18.1 per cent in the last month of 2020 from a year earlier, easing modestly from the 21.1 per cent gain in November.

Nasim Fussell, a former Republican trade counsel at the US Senate Finance Committee, said although the trade balance was something Trump and his cabinet were focused on, both sides of Congress were more concerned with issues of forced tech transfers, intellectual property protection and subsidies for state-owned enterprises.

“When I left the Senate in August last year, they were satisfied with China’s commitment aside from the purchases … Despite everything with the pandemic, there was a very good effort on the part of the Chinese to meet those obligations and some were well under way,” said Fussell, who is now a trade lawyer in Holland & Knight in Washington.

In September, the Chinese State Administration for Market Regulation released draft rules that may increase protection for trade secret holders, which extended to foreigners.

China also further opened up its US$45 trillion financial market to foreign investors in June, with the central bank issuing a license to American Express to clear transactions in the country, which had never been issued to any foreign institutions.

But for companies operating in China that hoped for significant structural change in the domestic business environment, such as improved market access for tech products, or reduced government support to the state sector, the deal did not substantially change the landscape, said Marro, from the EIU.

In a recent interview with The Wall Street Journal, US Trade Representative Robert Lighthizer said the trade war has “changed the way people think about China” and “the way people think about trade”.

But Fussell did not completely agree, saying she expects a change in tack under the Biden administration.

“In many corners there seems to be an acknowledgement that the tariffs brought China to the table in a way that had not been done in the past, but I would not say that this is an approach that the majority of people want to maintain going forward,” she said.

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