Geneva: As the US and China battle it out on the trade front, a new normal is being established for resolving bilateral disputes that could throw the global trading system into uncharted waters. Ahead of the proposed summit of Presidents Donald Trump of the US and Xi Jinping of China later this month, the two sides are squabbling over what ought to be the enforcement provisions for implementing the core elements in the bilateral trade agreement.
The US wants trade frictions or any complaints arising from the implementation of the bilateral agreement to be resolved through a series of meetings between high-level officials, failing which the US wants to have the right to slap “proportional" but “unilateral" measures, implying additional tariffs.
US trade representative Robert Lighthizer has suggested such action against China in case Beijing fails to implement any part of the bargain.
But Washington does not want China to do the same by imposing any counter-tariffs against unilateral US action. China feels that such a provision would be a throwback to the unequal treaties that the Western countries had imposed on China in the 19th century. Consequently, any enforcement provisions in the bilateral trade agreement ought to be “two-way, fair and equal," said Wang Shouwen, China’s vice minister of commerce, on Saturday.
“China doesn’t like the US proposal to include snapback tariffs that the US can impose on China, but the Chinese cannot retaliate against," said Bonnie Glasser, director of the China Power Project at the Center for Strategic and International Studies in Washington D.C., according to a report in The Financial Times on 10 March.
“The Chinese also seem uneasy about agreeing to a summit at Mar-a-Lago (in Florida, US) until all details are settled lest they set up Xi Jinping for an embarrassing outcome," said Glasser.
Preliminary details of the proposed US-China trade deal suggest that the China hawks led by Lighthizer and White House trade policy adviser Peter Navarro have suffered a setback in their internal battle, with Wall Street and US treasury secretary Steven Mnuchin insisting on a rapprochement.
There is a lurking fear among Wall Street financial firms and asset managers over what China would do in its purchase of US Treasury bonds if its trade surplus is reduced. “What worries me about the conversation between the US and China is: China has a $1.3 trillion pool of US Treasuries, they’ve have been accumulating because of the trade deficit," Larry Fink, the head of the world’s largest asset management fund BlackRock Inc. told CNBC on 24 February. “And if China reduces the purchase of US treasuries because of the proposed reduction in trade gap as demanded by the US, who is going to be the substitute buyer to buy this."
The fear that China could cause disruption by reducing its purchase of the US treasuries in the financial markets and even the stock market weighed heavily in ramping up pressure on Lighthizer to reach a deal, according to commentators in the US media.