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Home / World News / US, China ink deal seen as a ceasefire, not truce

US, China ink deal seen as a ceasefire, not truce

But the most difficult issues remain to be dealt with in “phase two” negotiations, including massive subsidies for state industry and forced technology transfer.

world Updated: Jan 16, 2020 10:36 IST
Yashwant Raj
Yashwant Raj
Hindustan Times, Washington
The United States and China signed a trade truce on Wednesday
The United States and China signed a trade truce on Wednesday(ANI/Twitter)

The world’s two dominant economic powers, the United States and China, signed Phase 1 of a trade deal on Wednesday, putting on pause a two-year-long trade war that has shaken up the global economy.

The agreement, signed by President Donald Trump and Chinese Vice-Premier Liu He, includes a “major commitment” by China to make “significant reforms” in a wide range of critical areas and to make substantial additional purchases of American goods and services in the coming years, the White House said in a note backgrounding the agreement.

The “phase one” agreement — which includes pledges from China to beef up purchases of American crops and other exports, according to news agency AFP — also comes just as Trump faces an impeachment trial in the US Senate, giving him a victory to trumpet at least in the short term.

 Watch | US, China sign Phase 1 of ‘momentous’ trade deal

But the most difficult issues remain to be dealt with in “phase two” negotiations, including massive subsidies for state industry and forced technology transfer.

“Today we take a momentous step one that has never been taken before with China as we sign phase one of the trade deal,” Trump said, announcing the conclusion of the agreement at a White House event attended by lawmakers, officials, and supporters and the former secretary of state Henry Kissinger, who had spearheaded President Richard Nixon’s outreach and the 1972 visit to China that led to the thaw in relations between the two countries.

Vice-Premier Liu read out a message from President Xi Jinping in which the latter stressed the need for equality and mutual respect in tackling issues and implement the deal in “real earnestness”. Xi also said he hoped that US treats Chinese companies fairly.

China will buy $200 billion worth of US farm produce and other goods and services over two years, over a baseline of $186 billion in purchases in 2017. The deal includes $50 billion in additional orders for US agricultural products, Trump said, adding he was confident that US farmers would be able to meet the greater demand. He also said China would buy $40 billion to $50 billion in additional US services, $75 billion more in manufacturing goods, and $50 billion more worth of energy supplies.

It will also liberalise its financial services sector to grant access to American companies, end forced transfer of technology through acquisitions, end currency manipulation, work towards balancing trade between the two countries and also punish companies found to have stolen proprietary intellectual property and patented technology.

In return, the United States will halve tariffs on $120 billion of goods from China, and shelve for now further levies. But import duties on $360 billion of Chinese goods will remain in force, to make sure, according to news reports citing unidentified US officials, China delivered on its commitments.

Treasury secretary Steven Mnuchin said Trump’s negotiating stance led to a “fully enforceable deal” that could bring additional tariffs. If China fails to abide by the agreement, “the president has the ability to put on additional tariffs,” Mnuchin said on CNBC on Wednesday as part of a media blitz promoting the new pact.

In his address, Trump said the deal included very strong protection of intellectual property, and that transfers and licensing of technology will be based on market terms. The President said work on the second phase will start “as soon as this kicks in”.

Mnuchin said the deal puts pressure on Beijing to stay at the negotiating table and make further commitments, including on cyber-security and other services to win relief from the tariffs that remain in place. “In phase two there will be additional roll backs,” Mnuchin said. “This gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved.”

Critics of the President, however, called the deal “weak” and accused the administration of giving up prematurely. “Based on the reports we’ve seen so far, the commitments China is making, including on forced technology transfer, currency manipulation, and intellectual property protection, are almost all vague, weak, or covered by previous announcements and existing agreements,” said former vice president Joe Biden, who is seeking the Democratic presidential nomination to take on Trump in November.

Some experts said that the elements of the deal the administration has touted as achievements effectively take the relationship between the two powers back to where it was before Trump took office.

“The US-China phase-one deal is essentially a trade truce, with large state-directed purchases attached,” economist Mary Lovely said in an analysis.

Even so, “The truce is good news for the US and the world economy.” The trade expert with the Peterson Institute for International Economics cautioned that “we will continue to see the impact of this in slower investment and higher business costs.”

After announcing the deal December 13, the US cancelled a damaging round of new tariffs that were due to kick in two days later and promised to slash in half the 15% tariffs on $120 billion imposed September 1 on consumer goods such as clothing.