News has broken that the Chinese government have made an internal decision to allow and encourage more US goods and services to enter the country. This comes after repeated US trade delegations were sent to China in attempts to avert a tarde war that Donald Trump had declared in the forms of tariffs on a wide variety of Chinese goods. China then passed reciprocal tariffs, particularly on US agricultural products in a move where China maintained the upper hand economically and the upper fist in terms of a negotiating position. Nevertheless the aforementioned reality was a zero-sum ‘lose-lose’ situation that China had always sought to avoid.
Now, China and the US have released the following statement regarding the agreement,
At the direction of President Donald J. Trump and President Xi
Jinping, on May 17 and 18, 2018, the United States and China engaged
in constructive consultations regarding trade in Washington, D.C. The
United States delegation included Secretary of the Treasury Steven T.
Mnuchin, Secretary of Commerce Wilbur L. Ross, and United States Trade
Representative Robert E. Lighthizer. The Chinese delegation was led by
State Council Vice Premier Liu He, Special Envoy of President Xi.
There was a consensus on taking effective measures to substantially
reduce the United States trade deficit in goods with China. To meet
the growing consumption needs of the Chinese people and the need for
high-quality economic development, China will significantly increase
purchases of United States goods and services. This will help support
growth and employment in the United States.
Both sides agreed on meaningful increases in United States agriculture
and energy exports. The United States will send a team to China to
work out the details.
The delegations also discussed expanding trade in manufactured goods
and services. There was consensus on the need to create favorable
conditions to increase trade in these areas.
Both sides attach paramount importance to intellectual property
protections, and agreed to strengthen cooperation. China will advance
relevant amendments to its laws and regulations in this area,
including the Patent Law.
Both sides agreed to encourage two-way investment and to strive to
create a fair, level playing field for competition.
Both sides agreed to continue to engage at high levels on these issues
and to seek to resolve their economic and trade concerns in a
The best kinds of wars are those where neither side fires a shot but after which both sides claim victory. Such a win-win situation has now manifested itself in respect of trade relations between China and the US – certainly in the immediate term. While there will be many further details to iron out and while the possibility for further disagreement is very much in the ether, the worst of the ‘Trump trade war’ seems to be averted. In making this agreement China will have likely paved the way for the following ‘win-win’ accomplishments:
1. In allowing for more US imports, China has given the US the only thing it realistically could give and as such, the US has little more to demand other than proffering nit-picking arguments asking for ‘more of the same’.
2. China has exposed US vulnerability in a trade war as while American businesses and consumers are heavily reliant on Chinese goods, commodities and services, for China, opening the market to American goods is not something that was required. It was something done from a position of strength.
3. For China, the agreement is not a surrender but part of an over all process which began prior to Trump taking office where an economically strong China is now seeking new investment from abroad not because China’s infrastructure needs foreign assistance, but because as the Yuan prepares for its gradual journey to becoming a freely floating currency, fresh investments of capital into China will be able to help launch a floating Yuan from a strong position.
Winners, losers or winner-winners?
In terms of objective economics, the situation is a win-win and in terms of how each country will portray the deal for domestic purposes, the optics are positive for the unique info-war purposes of each country. China will correctly claim that because it has the largest single domestic market in the world, the country is prepared to take in new goods from a plethora of nations without there being any threat to local development. Likewise, Donald Trump will be able to say that uniquely among recent US leaders, he was able to get China to do something the US wants.
But in terms of the bigger picture, it demonstrates that China understands the “art of the deal” more than the infamous book’s author, Donald Trump. China approached the would-be trade war with confidence, knowing full well that China has many areas in which it can leverage the US economy. Far from being a ‘Chinese nationalist conspiracy’, the US Chamber of Commerce warned the US President of this fact using fairly strong language.
By contrast, the US can only make one demand of China which is to let more US goods in with the augmented demand of cooperating further on intellectual property issues, even though China has largely worked to stem the tide of such disputes anyway and had every intention to continue to do so in the future, not least because China’s must establish such a precedent for its own patents which will continue to rise as part of the “Created in China” drive of President Xi. Since the US is now a weaker industrial producer than China and because China’s wealthy consumer base is viewing the world as its shopping centre, muct as US consumers did in the middle of the 20th century, China has little to lose by opening up to US goods while also enticing US investment to help ‘make a future floating Yuan great’.
Thus, China’s announcement has help clench a win-win that belies the fact that the US was negotiating on shaky ground as every major US business association admitted prior to Trump’s issuing of punitive tariffs. This in and of itself sets a positive example to any would-be antagonistic negotiating partners with China, whether such a partner is India, Vietnam, the EU or parts of Latin America or Africa that are particularly susceptible to western authored Sinophobic propaganda.
Europe left behind?
While China is a major trading partner of just about every country or economic bloc in the world, including the European Union, the EU has traditionally been much less friendly to Chinese imports than the United States and yet at present, the US economy is in better shape than the collective EU economy.
The EU remains insistent that it will preserve the JCPOA (Iran nuclear deal) in spite of US threats to sanctions European companies if they continue to do business with the Islamic Republic. In order to achieve this, the EU will need to cooperate with China and Russia. This would mean that in addition to dropping sanctions against Russia, the EU would also have to drop its own Sinophobic trading policies.
Now that the US whose markets have already been widely open to Chinese goods have achieved something of a reciprocal deal with China in terms of US imports, Europe is once again left with no option but to implore China to develop a similar relationship for the sake of the JCPOA if not for the sake of Europe’s long term viability as a major economic bloc.
A Korean subtext
In the United States, the popular conspiracy theory that the DPRK (North Korea) is merely a Chinese puppet state that Beijing uses to antagonise the US in north east Asia has remained consistently popular from the age of the John Birch Society to the age of Rush Limbaugh. While the DPRK has always been ferociously independent and historically had better ties with Moscow than rival Beijing for much of the Cold War era, in 2018 the US will need to rely on China to foster a positive Korean peace process.
Now that China has given the US want it has asked for just weeks before the scheduled Singapore summit between Kim Jong-un and Donald Trump, the US will not be in a position to undermine China’s behind the scenes efforts to ensure that Korea is de-nuclearised in a reasonable (key word) manner and that the DPRK’s sincere security concerns are met as an effective precondition for full de-nuclearisation.
Now that China has given a green light for US businesses to trade more actively in the vast and wealthy Chinese market, if Trump or more likely John Bolton or Nikki Haley say or do anything to undermine the peace process from China’s perspective, China could easy turn this green light into a red light. This would be met with protests from American businesses who Trump does not want to alienate before this autumn’s mid-term elections in the US and put Trump in a mega lose-lose situation if he both fails to reach a much hyped agreement with Pyongyang, all the while infuriating China that now has a potent ace up its sleeve.
China has managed to avoid a trade war it never wanted while giving the US and Chinese monetary watchers and consumers what they want, all while proving that it is China which can leverage the US more than the inverse is the case. Based on the timing of the statement, not only has China been able to win a trade war through avoiding it before it began in earnest, but now, if the Bolton wing of the White House tries to sabotage the Asian authored, owned and executed Korean peace process, China can always withdraw the carrot and reveal the stick.
This is classic Chinese strategy and perhaps the most effective part is that China’s self-identified opponents will not have even noticed what China actually did. That is the point after all!