TWN Info Service on WTO and Trade Issues (May18/16)
23 May 2018
Third World Network

US settles for low-ambition agreement with China
Published in SUNS #8685 dated 23 May 2018

Geneva, 22 May (D. Ravi Kanth) - After months of sustained threats and warnings of dire consequences, the United States on Friday settled for a low-ambition agreement with China.

The US has agreed to freeze the additional duties on steel and aluminum and other proposed retaliatory measures of US$150 billion on account of China's alleged violation of intellectual property rights, in return for increased exports of soybean, pork, and other products to China.

China, which consistently maintained that it is not interested in a trade war, has secured a US commitment to "lift the ban on the sales of US components to Chinese telecoms group ZTE."

Beijing also ensured that the Chinese companies and their investments abroad in high-tech companies would not be subjected to severe restrictions.

The two sides will negotiate a "framework' for finalizing the targets that each side has to fulfill in goods and services.

Issues related to imbalances in their bilateral trade, which is one of the most contentious issues given the sustained trade surplus that China enjoyed over the years up till now, will also be addressed in the framework agreement.

China currently enjoys a surplus of more than US$337 billion in trade in goods with the US, while maintaining a deficit in services trade with Washington.

Clearly, an arrangement involving all these issues cannot be a one-way street. It is bound to involve give-and- take on both sides. Therefore, it is doubtful whether Washington secured relief for its maximalist demands. If anything, the US threats to launch a trade war fell flat.

Several media reports in the US and elsewhere point towards the loss of face suffered by Washington in the weekend deal with China.

"The abrupt move towards detente has angered some hardliners, including several within the administration, who have assailed moderates [the US Treasury Secretary Steven Mnuchin and others] for seeking a quick deal at the expense of pressing Beijing on longstanding grievances, including an escalating rivalry over strategic technology, a sector where ZTE plays an important part," according to a news report in Financial Times on Monday (21 May).

"Last year, the Chinese telecoms group agreed to pay $1.2 billion to settle US charges related to its business operations in Iran and North Korea, a case brought by the Obama administration. It [ZTE] was later accused of violating the terms of the deal by the Trump administration, which imposed sanctions which crippled the company," according to the FT report.

[A New York Times report Tuesday said the chances of a US win in its trade spat with China was undercut by infighting in the Trump team. The report specifically mentioned US Treasury Secretary Steven Mnuchin being contradicted and undercut by the USTR Robert Lighthizer, while Trump's chief economic advisor, Larry Kudlow, first telling US media that China had agreed to reduce its trade surplus by $200 billion, but 48 hours later saying it was just a ball-park figure (and there was no agreement on figures). The report also cited Chinese officials as saying that they were not sure that any agreement they may reach with Mnuchin will even be implemented. - SUNS]

China signalled its intention to increase imports of US farm products (soybeans, pork and other agricultural items) and energy and also reduce Beijing's $33 7 billion trade surplus with Washington.

But, in return, the US will need to lift the sanctions on the Chinese telecommunications company ZTE and remove other restrictions on Chinese companies.

If the initial responses to the deal from the "America First" trade hawks are any indication, Washington seems to have blinked first.

President Trump was forced to defend the deal in the face of intense critic ism from lawmakers on both sides of the aisle.

Trump said the deal with China would bring down Chinese barriers to US goods "for the first time and be a boon to US farmers".

"Under our potential deal with China, they will purchase from our Great American [subsidized] Farmers practically as much as our Farmers can produce," Trump boasted in a tweet on 21 May.

The Senate minority leader Chuck Schumer tweeted that President Trump and his "team have to be strong & not sell out for a temporary purchase of goods without fixing the real issue: stealing our [intellectual property], which costs us millions of jobs long-term."

Clearly, divisions within the US negotiating team led by the Treasury Secretary Steven Mnchin on the one side, and the US Trade Representative Ambassador Robert Lighthizer, who is a pronounced China hawk and a champion of managed trade, on the other, came into the open.

The USTR said "getting China to open its market to more US exports is significant, but the far more important issues revolve around forced technology transfers, cyber theft and the protection of our innovation."

In short, China seems to have an upper hand in the trade war launched by the Trump administration against Beijing.

China is ready to provide some carrots to please Trump and allow him to claim a pyrrhic victory ahead of the mid-term elections.

But Beijing is not going to budge from its core trade interests at any cost, a China analyst told Mint ahead of last week's meeting.

The climb-down by the Trump administration to keep the new tariffs and trade war with China on hold could face a backlash from the US Congress which seems determined "to keep vital technology out of Beijing's grasp," according to another news report in FT.

Apparently, "a key Senate committee on Tuesday is beginning the process of negotiating the final details of a bill that its authors said would give the Committee on Foreign Investment in the US more powers and increase scrutiny of Chinese investments, particularly in tech companies," the FT report said.

Is there a lesson for other developing and poorest countries from the US trade war against China?

Although many developing and the poorest countries are not as powerful as China, it is clear that they can still force a push-back on the US over its unilateral trade measures if they remain united on trade issues.