President 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 Mr. 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, and it is unclear whether China will interpret it differently than the United States.
China’s $200 billion shopping list includes agricultural products and energy exports
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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.
Mr. Trump said his deal is a boon for farmers, who have been among the hardest hit by the 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 American 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 American 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 after. The agreement says the countries “project that the trajectory” of increased purchases would continue through 2025. The shopping list also leaves several open questions: What happens to China’s existing contracts with other countries for products like soybeans? Will the purchases distort commodities markets?
China’s vice premier, Liu He, who signed the deal with Mr. Trump at the White House on Wednesday, said Chinese businesses will buy American goods and services “based on the market demand in China,” suggesting Beijing may not view the targets as so ironclad.
While many farmers would welcome more Chinese purchases of their products, some experts warned that Mr. Trump’s deal could make them more vulnerable in the longer run.
“Of most concern, the deal turns Chinese purchases of U.S. agriculture from a constant to an uncertain variable that is now subject to the instability of U.S.-China relations,” Evan S. Medeiros, a Georgetown University professor who was senior Asia director in the Obama White House, said in an email. “That’s a devastating shift for U.S. farmers.”
Changes could help dairy farmers, beef producers and other agricultural groups
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Recognizing the importance of their agriculture sectors, of ensuring safe and reliable supplies of food and agricultural products, and of helping to meet the demand of the two countries’ peoples for food and agricultural products, [the Parties] intend to intensify cooperation in agriculture, to expand each Party’s market for food and agricultural products, and to promote the growth of trade in food and agricultural products.
In what is arguably the most robust part of the accord, China is committing to some big changes to its agricultural policy. The country will get rid of certain health standards that Chinese officials have used to block a variety of American agricultural goods.
Beijing is also relaxing licensing, inspection and registration rules that the United States has viewed as barriers to trade. The changes will affect products including meat, poultry, pet food, seafood, animal feed, baby formula, dairy and biotech.
Darci Vetter, a former agriculture negotiator for the Obama administration, said the section on agriculture “addressed a number of longstanding irritants” that have stopped shipments of milk, chicken, beef and pork.
Ms. Vetter said that the agreement in this area was surprisingly reciprocal, granting concessions that China was seeking to ensure its exports are treated more fairly in the United States.
The deal aims to stamp out theft of intellectual property
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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.
Mr. Trump’s agreement seeks to make it easier to identify and punish intellectual property theft and counterfeiting. For instance, it adds several provisions to protect confidential information considered to be trade secrets, which American businesses say are not well protected under Chinese law. Those protections also include “electronic intrusions,” a reference to hacking of computer systems.
The pharmaceutical industry appears to have secured significant gains, including commitments by the Chinese government to do more to protect patent owners from copycats.
The deal also contains commitments, at least on paper, to halt the
forced transfer of American technology to Chinese competitors. Companies have long complained that in order to do business in China, they had to hand over valuable technology and trade secrets. China has pledged not to require such transfers, including when companies apply for certain licenses or government approvals.
China also pledged not to “support or direct” acquisitions and investment by Chinese companies of foreign technology in “industries targeted by its industrial plans that create distortion.” The provision is vaguely worded, but American officials say it is targeted at addressing the issues created by
industrial plans like Made in China 2025.
Getting China to comply with the deal could be hard
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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.
Unlike other trade deals, which typically refer disputes to a neutral third party, the United States and China have decided to work out any issues on their own. The 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 United States trade representative and the vice premier of China.
If those talks can’t resolve the dispute, more tariffs will go into effect. Under such a scenario, the other party promises not to retaliate with tariffs of its own. If they do, either country can give written notice and withdraw from the deal — quickly returning the two countries to a trade war scenario.
Wall Street’s gains appear incremental and it is unclear if the deal will be a boon for all financial firms
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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.
The agreement gives the United States some gains in financial services, including in electronic payments, securities, fund management and insurance, but many of these changes were already in the works. 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 American 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 does 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
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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.
Mr. 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, said 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,” Mr. 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 American 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 American firms to spend less in China and vice versa.
The agreement does not address China’s subsidies for favored industries, cybersecurity and other issues
The United States has long had concerns about China’s use of industrial subsidies and state-owned enterprises to build up and dominate crucial industries, like steel and solar panels. But China rebuffed talks on these subjects, and the deal does not address such policies. Other areas that were left out include cybersecurity and Chinese control over how companies manage data storage and cloud computing.
American officials say they will press China to curtail its use of subsidies in the next round of negotiations. The United States is also
now working with the European Union and Japan to tackle Chinese subsidies at the World Trade Organization.
The agreement includes some wins for President Trump, but implementing and enforcing the deal could be difficult.
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