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The Nikkei View

The US-China trade deal is a welcome, but small, step toward peace

True test lies in reforming China's state-owned companies and industrial aid

 China has agreed to increase agricultural imports from the U.S.   © AP

The "phase one" trade deal reached by the U.S. and China brings a welcome respite from the cycle of escalating tariffs and retaliation on both sides.

But the agreement marks only one small step toward settling the dispute between the two countries. Washington and Beijing should continue to negotiate in good faith with the aim of removing all punitive tariffs and resolving structural issues, including some of China's industrial policies.

Under the deal, which staved off a round of U.S. tariffs that had been set to take effect on Dec. 15, China promises to protect intellectual property rights and ban forced technology transfers. Beijing is also supposed to buy more U.S. farm goods, increase the transparency of its currency management and take other steps, subject to U.S. monitoring.

The U.S., for its part, is to halve tariffs on $120 billion worth of Chinese goods to 7.5% and hold off on a 15% tariff that was set to hit $160 billion of imports from China.

Both U.S. President Donald Trump and his Chinese counterpart Xi Jinping have faced criticism over the economic damage left by the long-running trade war. In their haste, they settled only for a partial deal. Yet it still has significance as the first ratcheting down of the Trump administration's punitive tariffs against China, which began in July 2018.

Now, both sides must first live up to the agreement they have. This means no reneging by Beijing on its technology-related promises, and no flip-flopping by the Trump administration on tariffs.

At the same time, the U.S. and China must stay focused on a final deal. The threat of a global economic downturn may have eased somewhat, but the outlook remains precarious. Removing all punitive tariffs would go a long way toward eliminating the uncertainty for businesses and consumers.

A phase two deal will not be easy to reach. The U.S. is right to push China to reform areas of its economic policy, including state-owned enterprises and industrial subsidies. But such pressure will be strongly resisted because it touches the core of Communist Party rule.

Moreover, both sides' contest for hegemony will not end with a trade compromise, as their rivalry spans economic, technological and security aspects. With the U.S. growing vocal in its response to China's treatment of Hong Kong and the Uighur ethnic group, there is a risk that a breakdown in bilateral relations will set even the trade negotiations back to square one.

How the two countries manage their struggle for supremacy, often dubbed the "new Cold War," is the paramount challenge and will determine the shape of global governance to come. The U.S. and China should strive to maintain the trust they have begun building with the latest deal and seek ways to better coexist through dialogue.

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