ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Trade war

'Phase 1' of US-China deal was easy, now comes the hard part

Structural issues such as Beijing's subsidies will be difficult to resolve to end trade war

China's Vice Premier Liu He, left, and U.S. President Donald Trump during a meeting in the Oval Office.   © Reuters

WASHINGTON/BEIJING -- Even as the "phase one" trade deal between the U.S. and China averted an escalation of the trade war, the agreement is widely seen as a small-bore pact that focused on relatively easy issues, such as agricultural and currency.

The deal was a product of compromise by two countries eager for a respite amid growing concerns about economic slowdowns. The two nations must tackle structural issues, such as China's government subsidies, in the next phase of talks, and a real end to the trade war that would eliminate punitive tariffs imposed on each other still remains elusive. 

U.S. President Donald Trump was exuberant in announcing the agreement that would ease the pain of the Midwestern farmers that make up the core of his support base.

"The deal I just made with China is, by far, the greatest and biggest ever made for our Great Patriot Farmers in the history of our Country," Trump tweeted Saturday morning. "In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!" 

In contrast, the Chinese side remained subdued. Beijing issued a statement reporting progress in agriculture but did not mention an "agreement." State television reported the deal, although it downplayed the story. Trump's about-face in May last year after an agreement to avoid tariffs was not lost on top Chinese officials. 

The U.S. said China would purchase American agricultural products worth $40 billion to $50 billion, up 50%-90% from the previous record marked in 2012. 

As a result of Beijing's punitive tariffs, American agricultural exports to China declined to $9 billion in 2018. If China in fact buys the amount the U.S. claims they have agreed to, embattled farmers would benefit greatly.

For its part, the purchases of cheap American farm products would help Beijing ease the frustration of consumers contending with high pork prices. 

The interests of both countries also matched in currency policy. China proposed to raise the transparency of its currency policy in exchange for the U.S. to consider removing Beijing from its list of currency manipulators. 

Concerns about economic slowdowns pushed both countries toward a deal. The September ISM Manufacturing Report on Business in the U.S. declined to the lowest level in 10 years, with capital spending and exports also treading lower than a year earlier. 

China is facing the prospect of a growth rate below 6% for July through September. Both countries were eager to avoid further damage to their economies.

In the phase one, they punted on the core issue of reforming China’s industrial structure, including Beijing’s subsidies to the high-tech industry. Washington’s primary goal is to crush the Made In China 2025 initiative designed to nurture high-tech businesses that can surpass U.S. peers.

Trump has not given up on this goal. Trump laid out a schedule for finishing up a first phase of a deal with China in the coming weeks. Under that plan, there would be one or two subsequent phases of negotiations taking place over some unspecified period of time.

China hardliners are also unhappy with the partial deal. China, for its part, remains adamant that it would not cede ground on issues concerning national principles. The export ban on Huawai also remains unresolved. 

While Trump claims an end to the trade war is imminent, the Washington-Beijing standoff remains the biggest threat to the global economy.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media