As President Trump reeled from House impeachment hearings and a possibly politically damaging Turkish invasion of northern Syria, he did have some good news. China agreed to a “phase one” trade deal he hopes both parties will sign.
Sitting across from Chinese Vice Premier Liu He in the Oval Office, Trump said China agreed to purchase $50 billion in agricultural products and enact financial services reform allowing U.S. banks to expand in China. The two countries also reached “an agreement” on protections over intellectual property.
The announcement was a boost to Trump, who called himself “the chosen one” to obliterate policies that harm American businesses. And by easing a trade war he launched, Trump blunts the effect on consumers in an election year.
But there remains uncertainty about what the finsihed deal will look like. Trump touted a possible signing of the “phase one” package when he meets with Chinese President Xi Jinping during a mid-November economic summit in Chile.
“Oh, they’ll keep their word. China is going to keep their word,” Trump told a skeptical group of reporters after meeting with Liu.
Experts believe agricultural purchases and a delay of new tariffs scheduled to take effect Dec. 15 are likely elements of an initial pact, though much is uncertain. They caution that efforts to include more provisions could doom the entire endeavor.
“It seemed clever to me to come up with this idea of a phase one. In some sense, it is a truce,” said Brookings Institution expert on U.S.-China relations David Dollar. “But it could all still fall apart in the next couple weeks.”
Both sides could benefit from a face-saving phase one deal. In China, pork costs have increased as Beijing has avoided U.S. purchases, Dollar said. The December tariffs, meanwhile, could increase the costs for U.S. consumers looking to buy smartphones, tablets, and laptops, undermining Trump’s standing.
The timing of the reprieve is not coincidental, said Nicholas Lardy, a China expert at the Peterson Institute for International Economics. He believes the December tariffs forced Trump’s hand.
“I think Trump is looking for any excuse he can come up with not to impose the additional tariffs on Dec. 15,” Lardy said. “It would be a negative for his reelection because it is going to affect products people buy rather than intermediate products, which were the initial target of the tariffs.”
Lardy said Trump’s salesmanship is likely to be on full display if a deal is signed. “He can claim even a minor accomplishment is the greatest in human history,” he said.
Lardy said it remains unclear if China agreed to $50 billion in agricultural purchases, or if U.S. officials will allow companies to work with Huawei, after a suspension in sales last year that amounted to $11 billion.
Recent liberalization of Chinese business policies may allow Trump to claim victory on financial services and IP protection. A law about to take effect expands the ability of foreign companies to operate autonomously without local partners. Meanwhile, China this year liberalized the ability of banks to expand into the country, though U.S. banks have missed out due to the trade war, Lardy said.
“It seems the administration is going to accept the Chinese view that progress has been made,” Lardy said. “Intellectual property as a problem has been grossly exaggerated by the U.S.,” he said. “It was a very big problem 20 years ago. Now, 80% of all the investment going into China is in the form of wholly foreign-owned companies. … Those companies can take whatever steps they want to protect their intellectual property.”
Dollar agreed that “China is gradually addressing the complaints we have, not through these bilateral negotiations but through changing their own laws and their own practices. It is in their interest to strengthen IP protection. They are now a major producer of innovation.”
Still, China hawks bristle at a phase one deal that doesn’t set up robust enforcement for IP protection.
“Instead of 25% tariffs, we have 250% tariffs or 2,500% tariffs — that to me would be an improvement over the status quo,” said author and China expert Gordon Chang.
Chang said internal Chinese politics poses a challenge. The heads of state-owned companies are natural opponents, he said, and Xi risks losing political standing if he makes concessions.
“We’ve seen this before, and it’s important to remember there are political considerations in Beijing that push against a deal,” he said.
