Examining First-phase Agreement
Jan 27-2020
The first-phase deal clinched between China and the US on January 15th serves to remove the uncertainties of trade wars, which had been expected to trim 1% off global growth rate. Yet the inking of the agreement might have made the most important contribution by exploring the ways to manage new-type trade relations between great powers, writes Prof. Huang Yiping, Deputy Dean of the NSD, in his commentary for the Economic Daily.
Whatever reasons behind the trade frictions between the two countries – imbalance of bilateral trade, disparity in political and economic systems, clash between a reigning power and a rising one, among others – the only feasible solution is to seek common ground and shelf differences and work to maximize interests of each side. Negotiations, rather than decoupling, should be the predominant mode for managing the US-China trade relations in the future.
Some complain that China has made too much concession in the deal. Yet Prof. Huang argues that a careful reading of the agreement shows equal footing of the two parties. For instance, the wording on exchange rate policies is highly congruent with the PBOC’s expressions on RMB exchange rate policy reform, not to mention that the US has dropped naming China a currency manipulator.
Besides, given the different starting points of economic openness, it’s normal for the two parties to adjust policies by a different degree. As a developing country, China lags the US in IPR protection, exchange rate interventions, and financial openness. Hence, it’s fully understandable that China has made more promises for concrete reforms in the agreement.
More importantly, the promises are by and large in line with China’s established policies and plans. The trade talks might have sped up the implementation of reform policies in China, which could be a blessing in disguise.
The most controversial part of the deal might be China’s promise to import more American goods. The US has used its trade deficit with China as an excuse to start the trade wars, despite its irrationality. The frictions wouldn’t have been smoothed over had China not agreed to address trade imbalance. Paradoxically, the US offers agricultural and energy products that China needs, and the purchases will be market-based.
