Two Key Issues Left Out of US-China Trade Deal

Levin Opiyo

After two years, the trade war between China and America finally reached a truce by signing a deal that will help the two global powers to normalise their trade relations. The dispute between the two countries escalated after President Donald Trump who has always accused China of unfair trade practices and intellectual property theft, came to power.

Two express his resentment he tweeted last year, “Sadly, past administrations have allowed China to get so far ahead of fair and balanced trade that it has become a great burden to the American taxpayer. As President, I can no longer allow this to happen!”

….Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer. As President, I can no longer allow this to happen! In the spirit of achieving Fair Trade, we must Balance this very….

— Donald J. Trump (@realDonaldTrump) August 23, 2019

To encourage Americans to buy their own goods, he imposed $360bn tariffs on Chinese goods, forcing Beijing to retaliate by imposing tariffs on US products worth $110bn. After a series of meetings between US  and Chinese officials, the two countries managed to narrow their differences which culminated into the first phase of trade deal last week.

Under the deal, China will increase US imports by $200bn and also strengthen intellectual property regulations, while the US agreed to reduce the tariffs it had imposed on Chinese products by half. Although the deal could be seen as a base for future negotiations, it failed to address some of the key controversial issues that had led to the deterioration of US-China trade relations.

Huawei

Even though the Chinese tech giant Huawei has been at the centre of the US-China current trade wars, nothing was mentioned about it in the new deal. There seems to be no solution to the matter in the near future. Just before the deal was signed The Wall Street Journal  reported that while Beijing and Washington were about to reach an agreement, the Trump administration was planning to “tighten restrictions on Huawei Technologies Co., that the White House and Congress view as a national security threat.”

Hopes of having an agreement on Huawei were further diminished after the signing of the deal when Treasury Secretary Steven Mnuchin told CNBC:

“Just as in this deal there were certain rollbacks, in phase two there will be additional rollbacks. I think a significant amount of the technology issues are in phase one. There are certain areas of other services away from financial services that will be in phase two,” he said.

He continued, “There’s certain additional cybersecurity issues that will be in phase two. So, there are still more issues.”  He, however, added. “Huawei is not part of the national security dialogue, which is ongoing. These are going to be negotiated separately.”

Trump’s administration has always believed that Beijing could use Huawei to spy on other countries and has gone to the extent of warning its key ally Britain against contracting the tech company to provide communication infrastructure for the 5G network.

Trump’s warning was that any deal with Huawei would put intelligence sharing between the two countries at risks. But according to sources, Boris Johnson is getting ready to defy the warning by signing a deal with Huawei.

Although Trump used national security as an excuse to ban Huawei, to a large extent his action was mainly influenced by the stiff competition the Chinese company poses to American tech companies such as Apple. This was clear when he said, “We are not doing business with Huawei. We’re going  to do our own business.”

Made In China Policy

Another sticking issue missing from the deal was the ‘Made in China policy’. It was adopted by the Chinese government in 2015, to put China on the same level with top industrialised countries like Germany, South Korea, Japan, and the US by investing in sectors such as IT, vehicles, and robotics.

However the US has remained sceptical of the programme with Secretary of Commerce terming it an “attack on American genius,” while the White House trade advisor called it a brazen announcement that China plans to dominate every single emerging industry of the future”.

Washington’s fear is influenced by the feeling of a threat the programme poses to its own tech supremacy. This is because Chinese companies supported by loans from state-owned and other subsidies would have an upper hand over their US rivals. In May last year, Beijing increased its subsidies to local companies to a record $22bn, further confirming Washington’s fear.

According to Lorand Laskai of the Council on Foreign Relations in New York, “If Chinese national champions dominate the Chinese market, they’ll have a leg up abroad and in many cases will replace or outlast foreign competitors by virtue of their market size.”

Whether the US-China deal will hold remains to be seen. Some critics say there is nothing substantial in the deal except that it could give Trump leverage in the elections. Most likely he will use it as a campaign tool by boasting how he had won concessions from the Chinese.

Some analysts have also claimed the deal is likely to collapse within a year because of “limited success stories of government-mandated trade in the past”, and the provision that allows both parties to walk away from the pact