Photo: Reuters
Photo: Reuters

Opinion | Domestic politics of US, China behind trade truce?

The deal that was struck between US and China at G20 is a welcome development

The transactional trade war between the world’s two largest economies seems more like the continuation of domestic politics being played out by other means. The speed with which a working dinner on 1 December at Park Hyatt hotel in Buenos Aires produced a truce between a transactional US president and a strategic visionary Chinese leader has all the trappings of mounting domestic political challenges.

For the past several weeks, US President Donald Trump has been battered on several fronts back home. Having lost the majority in the House to the opposition, who want to impeach him because of his controversial Russia connection, including deals that he struck in the Moscow’s real estate space, and haunted by the Mueller investigations into his Russia links, Trump needed an external ruse for diverting attention from the worsening domestic political climate.

Thus a promise from China to buy undisclosed amounts of agricultural and energy products could not have come a day sooner. Trump boasted in a tweet on Monday that US farmers “will be a very BIG and FAST beneficiary of our deal with China". US automobile producers, according to Trump, will also benefit a great deal from a Chinese commitment to lower import tariffs on cars from 40% to a single-digit figure.

Besides, the threat of imposing 25% tariffs on imports of $200 billion Chinese goods from 1 April 2019, in case Beijing refused to yield ground on complex trade and technology issues, can be showcased as Trump’s business deal-making acumen with his most powerful adversary.

In a tweet on 4 December, Trump claimed himself to be a “Tariff Man", threatening that he will impose more tariffs on China if he doesn’t get a fair deal.

As regards Chinese President Xi Jinping’s acceptance of Trump’s invitation for the dinner meeting, it is difficult to rule out the worsening domestic economic compulsions in China. The sagging Chinese economy and the enveloping security-related restrictions on cutting-edge Chinese semiconductor companies in the US and other countries in the West, among others, needed a quick fix.

The Trump administration has intensified the chip battle with Beijing by imposing export sanctions and other restrictions on Chinese companies such as ZTE, Huawei and Fujian Jinhua. With the arrest of Huawei’s chief financial officer in Canada on 1 December, who is expected to be extradited to the US, the chip war has taken ominous proportions.

Therefore, the deal that was struck by the two presidents on 1 December to defer the imposition of tariff increases on Chinese goods and instead continue talking for the next 90 days is a welcome development. The White House summary of the dinner says Trump “will leave the tariffs on $200 billion worth of product at 10% rate, and not raise it to 25% at this time". In return, China will purchase undisclosed amount of agricultural energy, industrial and other products from the US to reduce the trade imbalance between the two countries.

According to the White House summary, the two countries “have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture." If the two sides fail to conclude a deal on these make-or-break issues within the next 90 days, the current 10% additional duties on Chinese goods worth $200 billion will be raised to 25%, the US said.

The veracity of US claims has already come under a cloud. China says it has only agreed to discuss removing all US tariffs and Chinese retaliatory tariffs. Beijing’s official summary of the Buenos Aires meeting did not suggest the 90-day deadline or other Chinese concessions.

“They reached consensus not to impose new additional tariffs and agreed to instruct the economic teams of the two sides to step up negotiations toward the removal of additional tariffs." More crucially, Beijing has also emphasized that it will “work to open its market, expand imports and resolve economy-and trade-related issues in China-US relations in the process of a new round of reform and opening-up and in line with the needs of its domestic market and people."

In short, even before the ink on the much-trumpeted agreement has dried, the two sides are already locked in a war of nerves, particularly after the arrest of the Huawei executive. Given that similar separate deals with China and the European Union have been stuck in the sand, and with the US negotiating team led by China hawk Robert Lighthizer, the prospects for a resolution of the entrenched and complex issues seems like chasing a mirage.

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