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A temporary truce

  • Published at 10:20 am December 14th, 2018
Just being civil? REUTERS

Will this lead to a more amicable relationship between China and the US?

Nineteen leaders of the world’s biggest economies and a representative of the European Union recently met in Buenos Aries, Argentina during the Group of 20 Summit. All eyes were on a range of issues, including a high-stakes meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. 

The world’s two largest economies -- the US and China -- have been locked in an escalating trade battle for the last two years. This emanated from the US president complaining about China’s trade practice even before he took office in 2016. Since then, he has been aggressively targeting Beijing -- in 2017, the US launched an investigation into Chinese trade policies, and has since then steadily imposed tariffs on Chinese products. 

So far, the US has imposed three rounds of tariffs on Chinese goods, totalling more than $250 billion, and they cover a wide range of consumer and industrial items. Mr Trump has also threatened to hit another $267 billion worth of goods -- meaning all Chinese imports could be subject to tariffs. 

Beijing has also struck back. It has accused the US of starting “the largest trade war in economic history” and imposed tariffs on $110 billion worth of American goods. In this context, China’s list of products subject to levies -- range from 5% to 25% -- includes chemicals, coal, and medical equipment. The Chinese have been strategic, targeting products made in Republican districts of the US. 

Analysts have pointed out that tariffs, in theory, make US-made products cheaper than imported ones, and encourage consumers to buy American. 

US President Donald Trump and his Chinese counterpart Xi Jinping have now agreed to halt new trade tariffs for 90 days to allow for talks. 

Global policy-makers and investors were hoping that Trump and Xi Jinping would reach a ceasefire in their turbulent trade war that has sparked global market turmoil. However, the outwardly positive agreement between the leaders of the world’s two economic superpowers to halt further escalation in tariffs and continue negotiating to reduce trade imbalances -- hailed by Trump as “an incredible deal” -- was seen by many US-China experts as another punt by the two countries in a year-long trade negotiation that leaves unresolved deep issues between the two countries. 

However, the critical difference was the omission of any agreed upon timetable for negotiations from China. Also absent was specific mention as to whether China would be inclined to open up critical markets. China’s statement also did not mention Xi’s willingness to consider approving a $44 billion deal for Qualcomm Inc to purchase NXP Semiconductors NV, if the deal was put before him again. 

The one area of shared agreement between the two countries was on fentanyl, a substance that has been tied to an epidemic of overdose deaths in the United States, which has been a priority issue for the Trump administration. It needs to be noted here that after years of negotiations dating back to President Barack Obama, China has finally agreed to designate the synthetic opioid fentanyl as a controlled substance -- meaning sellers would be subject to the maximum penalty under the law. 

Two powerful trade lobbies in Washington -- the US Chamber of Commerce and the Business Roundtable -- which represent companies like Walmart, Target, and Procter & Gamble, have welcomed the decision by the US administration to set aside applying further tariffs as the “right course of action.” Some companies like Walmart, the country’s biggest retailer, had also warned that prices on everyday goods would get more expensive for US consumers. 

However, analysts have cast doubts as to what might be achievable over the next three months. Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Centre for Strategic and International Studies, has said that to achieve successful negotiations, there would need to be “clear consensus” of the goals by the Trump administration and “a more genuine interagency process.”

It will also require China to set down a fresh starting point for negotiations in the weeks ahead as Beijing celebrates the 40th anniversary of reform. It is being speculated that this important anniversary could offer Xi an opportunity to lay out a clear vision for a new wave of liberalization on his own terms based on the country’s own needs and political schedule. 

The trade war has been a major risk factor for investors this year and analysts have pointed out that it has threatened economic forecasts for countries across the Asia Pacific region. Consequently, the world has watched President Trump and President Xi, and looked for connotations in their interaction. The personal chemistry between them appeared to have briefly become the source of discovery of common denominators within the matrix of diametrically opposing viewpoints. 

Both China Daily and Chinese international broadcaster CGTN have in the meantime reported that Trump and Xi have agreed not to impose new tariffs starting 2019. This is being seen as a form of reprieve for President Xi, who has been grappling with a slowing economy at home. Analysts have observed that Xi was under pressure to come home with some sort of a deal that would not only exert less pain on Chinese manufacturers, but also with language that was non-binding with regard to how much Beijing has to open up, or how much it will have to buy from the US. 

Others in North America and the EU have indicated that this postulate was applicable for both, as the economic and trade superpowers needed to appear strong within their domestic arena. 

Muhammad Zamir, a former ambassador, is an analyst specialized in foreign affairs, right to information, and good governance. He can be reached at [email protected]

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