Round 1 to the US in trade war with China

Who dares wins. The US gamble that sparked off a trade war with China and threatened to bring the global economy down may be heading for a peaceful resolution. The Trump administration appears to have won round one with Beijing agreeing to purchase $200 billion in American goods and services over the next two years. However, US tariffs on some $360 billion will not be lifted but Washington has taken Beijing off the list of currency manipulators. President Trump will claim victory but the devil is in the details which are unclear at the moment. US concerns about technology transfers may have been addressed in phase one of the deal but the issue is about enforcement. Who will ensure enforcement in state-controlled China where the government and the Communist Party have the last word? US Treasury Secretary Steven Mnuchin said a future phase two trade deal would ease tariffs on goods purchased from China which can be seen as conciliatory in tone.

“Just as in this deal there were certain rollbacks, in ‘Phase Two’ there will be additional rollbacks,” he told CNBC. No deal is a done deal if China chooses not to play by the rules. In the past China has done business its own way. Since 2001, when it joined the World Trade Organization, Beijing has leveraged its ability to mass produce cheaper goods to flood the market to the disadvantage of other countries. It gained access to countries that are now hooked on to cheaper Chinese products which has killed off local industry. Beijing’s ambitions of becoming a global economic and military superpower have been realised in just two decades that has seen rapid technological and digital changes that is now hinged on AI and robotics. President Trump may have made China blink in the first round which could boost his chances of re-election. His slogan of Keeping America Great Again is more potent now and his rivals in the Democratic party had better watch out. For the world economy, this development is indeed positive news. But it’s too early to celebrate like we said earlier. The two sides still have a lot of ground to cover for a comprehensive agreement that is acceptable to both sides. The next phase could be a battle of perceptions and both countries should strive for a facesaving pact in which both emerge winners.