Trade deal: China and US need to start talking Phase Two
Phase Two will be a major hurdle that requires the focus of both sides
Last week’s signing of Phase One of the US-China trade deal was a significant step in stabilising the trade war that has hampered global economy since 2018. It was a sign of hope that possibly these two nations — the two largest economies on the planet — could work out a deal that would eventually see an end to the tit-for-tat imposition of tariffs. Success would also offer hope that other trade concerns, such as between the US and the EU, could also be resolved.
But unless the US and China immediately return to the negotiating table to start Phase Two, a step that China has indicated is not imminent, Phase One will go down as one of the biggest political and economic failures in a generation.
The weaknesses of Phase One have been well-documented: It lacks teeth. Tariffs, which have been partially reduced, will remain in place until Phase Two. Promises of intellectual property protection are too little, too late. China is already an established technology giant.
Even the seemingly positive takeaways from the deal, such as $250 billion (Dh917.5 billion) in increased trade, has a darker side, especially for oil producing countries. China is one of the last great competitive markets for oil and with this deal the US is securing itself a hold in that market.
It seems clear that Phase One was signed because both the Chinese government, which is fighting a slowing economy, and US President Trump, who has an endless list of troubles in the US, including an impeachment trial, need to appear to be making progress.
Progress can still come, but it will not be based on small issues such as agriculture or technology. At the core of Phase Two discussion will be major differences in philosophy, namely the often contrary beliefs of a communist government that believes in the support of state entities and the combative nature of the US’ capitalist system.
Neither side seems to agree on the urgency needed for Phase Two. China, which has a tradition of patience, will not rush something so decisive to their economy, while Trump, who is facing a very contentious election year, seems all too likely to go back to inflammatory tweets.
For the good of the global economy, both sides need to come back to the table quickly and resolve the very contentious issues. The upside to a deal that places both the US and China in a win-win position would be a global economy primed for growth. Failure to do so will only mean years more of trade issues and angry tweets.