|14 October, 2019

U.S.-China trade deal augurs modest peace dividend

The terms are vague and one-sided. Chinese officials have only acknowledged progress in the talks. Trump, on the other hand, said “Phase One” was the “greatest and biggest deal ever” for American farmers

U.S. President Donald Trump meets with China's Vice Premier Liu He in the Oval Office of the White House in Washington, U.S., April 4, 2019.

U.S. President Donald Trump meets with China's Vice Premier Liu He in the Oval Office of the White House in Washington, U.S., April 4, 2019.

Reuters/Jonathan Ernst

SAN FRANCISCO  - It’s premature to pop any champagne for a U.S.-China trade deal. President Donald Trump says a partial pact with Beijing includes up to $50 billion in agricultural purchases. Important issues such as intellectual property theft are up in the air, though. And many companies have already started the pricey process of upending their supply chains.

The terms are vague and one-sided. Chinese officials have only acknowledged progress in the talks. Trump, on the other hand, said “Phase One” was the “greatest and biggest deal ever” for American farmers, who were expected to see exports to China fall by about 70% this year from more than $20 billion in annual sales during Barack Obama’s administration. He also said he would put on hold higher tariffs on $250 billion in Chinese goods due to go into effect on Tuesday.

In the meantime, the original rationale has been all but lost. The so-called Section 301 investigation, which allowed the U.S. president to retaliate for unfair trade practices, was based on alleged intellectual property theft and forced technology transfers by China. The Justice Department has pursued related cases involving Boeing, General Electric and DuPont.

Those issues may receive only cursory treatment. Trump said IP matters were part of the first phase but didn’t provide details. Technology transfers will supposedly be resolved later. All the while, the uncertainty has forced companies to alter where they source materials and build things. GoPro, Steve Madden and Hasbro are among the companies moving some production out of China. Apple is considering doing the same.

That’s on top of costly import taxes, which have been imposed on more than $500 billion of Chinese goods. Ford Chief Executive Jim Hackett said last year that they would cost the automaker $1 billion in profit. Others, like Caterpillar , have had to raise prices because of the additional expenses.

For now, there’s nothing firm on paper. A final deal may not wind up looking much different from Beijing’s offer last year to buy $70 billion worth of U.S. goods. The fate of many tariffs is unclear, but U.S. trade policy is bound to remain harsh. Any spoils of this war are destined to fall short of the costs.

CONTEXT NEWS

- President Donald Trump said on Oct. 11 that he had a reached the first phase of a trade deal with China, which includes suspending a threatened increase in U.S. tariffs and up to $50 billion in U.S. agricultural purchases by the People’s Republic. His comments came after a meeting with Liu He, China’s top trade envoy.

- Chinese officials said progress had been made in many areas, but they had not confirmed the agricultural figure as of the morning of Oct. 14 in Beijing.

- Trump also said the pact included financial services and intellectual property, without providing any additional details. The U.S. government delayed an increase in tariffs from 25% to 30% on about $250 billion in Chinese goods, which was supposed to go into effect on Oct. 15.

(Editing by Jeffrey Goldfarb and Sharon Lam)

© Reuters News 2019

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