The limits of the Us-china deal

There has been no fundamental shift. The trade war will resume

The long-awaited United States (Us)-china trade deal has arrived. But has it? A relatively shallow “phase one” agreement was reached by the two countries. The most substantive issues, notably technology and subsidies, were barely touched. The sense is that US President Donald Trump and his Chinese counterpart, Xi Jinping, would like a temporary truce to their economic confrontation. With US presidential elections formally kicking off next month, Mr Trump would like China to resume buying agricultural products. US farmers, who lost their largest export market, have been vociferous critics of the tariff war. Mr Xi has his own concerns, notably an economy whose slowdown is exacerbated by tensions with the US.

The strength of the agreement can be best judged by the fact that neither side will change a single law or regulation. Instead, there is a series of ad hoc decisions to lower some tariffs, buy a few things and water down punitive rules on both sides. For example, the US removed China from its “currency manipulator” list, Beijing made another unenforceable promise to not steal technology and US financial companies received some access concessions. All of these measures are reversible. The main accomplishment has been that President Trump will be able to claim to US workers that he scored over China on the trade front.

All of this means the Us-china trade war will resume at some point down the road. Much of what the US is demanding goes right to the heart of China’s State-dominated economy. Beijing’s domestic economic structure is fundamentally not about free markets and the private sector; it is shot through with State subsidies and controls. India, itself a victim of subsidised Chinese exports, has been quietly supportive of the US’S efforts to constrain China’s predatory economic practices. It will probably hope a similar symbolic victory will be enough to bury its own, much less acute, trade difficulties with the US. But the Us-china struggle’s negative impact on the World Trade Organisation’s future is a source of long-term concern.