US-China Trade Deal: Has China been Trumped?

While the US-China Trade Deal is not ideal for Australia, J.W. Nevile fellow at UNSW Business School, Tim Harcourt, explains that anything is a better outcome than an all-out trade war.

Tim Harcourt: This deal is a victory; it does end the trade war, which was dragging about 0.8 per cent of the world economy last year, according to the IMF.

There's some good news for President Trump. When you look at the text of the phase one agreement, there are about 105 times where China says "China shall make this commitment", 88 times where both parties will make this commitment, and just five times when the United States shall make this commitment.

So it looks pretty much like President Trump's done very well negotiating with China. He's got significant concessions from China on intellectual property, on technology transfer and on reform of the Chinese financial system.

In addition, China's had a bit of a win too. China has convinced the United States to drop its registration of China as a currency manipulator that they did last year. This is a bit of a surprise because in recent years China has actually let its currency appreciate, not depreciate, and undercut American products. 

The interesting thing too is that most of the tariffs have remained in place except the 15% ones that went to 7.5%. But China has agreed to manage trade - that is, China has agreed to take $US200 billion of imports from the United States.

The World Trade Organization (particularly some of its members like the European Union) think the US-China phase one agreement is inconsistent with WTO rules, and they may challenge it. It just shows that President Trump prefers bilateral deals dealing with China directly, rather than using multilateral institutions like the WTO or the UN. It's really about America dealing directly with its trade competitors.

So I think in some ways as far as President Trump is concerned, the WTO, like all multilateral institutions, is as dead as the Doha Round. And that will be very important going into the 2020 election.

Now managed trade can mean bad news. In a sense for Australia, if China has to buy lots of imports from the US in farm products, that could shut out Australian exporters, Canadian and Brazilian exporters as well. In manufacturing, China has agreed to do the same thing - buying a lot of American manufactured imports. That's bad news for Germany and Korea and Japan.

But the good news is, of course, for Australia - that we have free trade agreements with China, with South Korea and Japan. They're countries that really rely on Australia for food security and energy security. And that's going to remain so, no matter what the US does. And I think Australia is regarded as a good, reliable trading partner in the Asia Pacific.

In any case, managed trade is better than a trade war, where everyone loses - particularly a small open economy like Australia.


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