A Temporary Fix? The US And China Agree On A Trade Deal

The trade war lasted for almost two years. Now, the world’s two largest economies have found common ground with the first part of a major trade agreement between the United States and China, which is expected to be signed on January 15. No further punitive tariffs will be introduced for now. However, lasting economic peace between the two nations is unlikely, due to their respective diametrically opposed interests. 


Rumors about a breakthrough had been circulating through Washington since October. The signing of the agreement will take place in the White House with a delegation from China. Xi Jinping will not be present, however. Nevertheless, President Trump was satisfied and wrote on Twitter that a “very large and comprehensive” trade deal had been concluded. The second phase of the agreement would be signed in Beijing at a “later date.”

The trade war between China and the US has taken its toll on the global economy and, for the first time, has had China’s economy stagnating. Phase one of the trade deal is supposed to mark a paradigm shift towards de-escalation. Nonetheless, President Trump has, expectedly, made concessions towards China. During the trade war, he had continuously insisted that he would only agree to a complete trade agreement with China. Beijing called his bluff and offered step by step process with the newly agreed-upon first phase, while Trump recanted his original stance.  


However, eleven months before the election, the primary concern for Trump and his team is to sell success – and like most other leaders, Trump will present himself as the winner of the dispute. The likely results will confirm his claim. With the agreement in place, the economy will continue to grow while the stock market should see a positive impact also – for Trump, who has put most of his jetton on the economy card, a fantastic result. 


The exact content of the first phase has not yet been communicated. However, what the public knows so far is that China is committed to increasing its US imports by $200 billion over two years. Of this, at least $40 billion a year is expected to benefit US farmers, an essential group for Trump and his reelection campaign. Moreover, the agreement will set parameters on technology transfer, exchange rates, and intellectual property.


In return, the United States waived new punitive tariffs on consumer goods such as laptops and smartphones worth around $150 billion in December and the lucrative Christmas period. However, the 25 percent import fees imposed on goods worth $250 billion, which have been imposed since 2018, are supposed to remain unchanged. Additional tariffs of 15 percent on Chinese goods worth around $ 120 billion are to be halved. 


It is still unclear whether the first phase agreement provides for monitoring and enforcement mechanisms. Should China fail to fulfil its promises, both sides would likely have to begin from scratch. However, the latter will be an issue for the man sitting in the Oval Office in January 2021. It is also the timeframe by which the second phase of the agreement could be finalized, as several complex issues remain that have not been addressed in the current agreement. 


Trump originally started the trade war out of frustration that China was exporting significantly more to the US than vice versa. Inter alia, Washington called on Beijing to open its highly restrictive financial market, fight against copyright theft, and reduce government subsidies. In light of his base, Trump was also particularly concerned about boosting the sale of agricultural products such as corn and soybeans to China.


The agreement now is far from being a surprise but an inevitable result. With the election looming, and the fact that the trade war had begun to impact the American economy negatively, Trump had to make a deal. Otherwise, with a slumping economy, his reelection would have been in real jeopardy. After all, it is “the economy, stupid!” which has historically had the power to make or break a presidency. 


Naturally, President Xi Jinping is cognizant of the pressure Trump is facing, and even though he himself witnessed a stagnant economy, in China for the first time and detrimental to the country’s big plans, Xi Jinping has significantly more leverage than Trump since the former does not have to be democratically legitimized, but simply dictates.


Even if Trump can and will sell the deal as a great success, it is nothing more than a temporary fix. In the long run, the two countries will not be able to avoid conflict, as the US attempts to maintain its hegemony, and China seeks to rise to it.