Is US-China deal more than ‘truce’ for troubled times?

United States President Donald Trump and Chinese Vice-Premier Liu He are making final preparations to sign this week the ‘Stage 1’ bilateral trade deal. While the agreement is being warmly welcomed, it may prove to be no more than a relatively brief respite in the US-China tensions of Trump’s presidency.

The reason the deal was finalised late last year, despite recent bilateral differences on a range of issues including Iran and Hong Kong, is that both sides decided even a truce, however temporary, is in their domestic interests. As Trump enters his re-election year, he is will claim — however far-fetched in reality — to have brought Beijing to heel. Meanwhile, the agreement provides a degree of stability in China’s most important economic bilateral relationship after some recent sub-par national economic data, and continued political unrest in Hong Kong. A further incentive for both sides to move late last year was that the next tariff deadline was due to fall on December 15 after which additional US levies on Chinese exports were scheduled.

Yet, while the deal could have a broader, positive effect for international relations, possibly even underpinning a renewed basis for bilateral relations into the 2020s, it is just as likely that it will presage further bilateral tensions in 2020, or beyond. The “great” agreement Trump is now hailing is less substantive than he claimed he would achieve when negotiations began, and this contains the seeds of potential future problems.

It is quite possible that, for the rest of 2020 at least, that Trump may want to bring US-China relations onto a more stable footing, especially if tensions escalate with North Korea or Iran, both allies of Beijing, in coming weeks.

- Andrew Hammond

Disagreements will probably arise over key elements of the deal, including amounts of Chinese purchases of US farm goods. This could mean enforcement protocols are needed to be negotiated and, should these be perceived to ‘fail’, the Trump team has asserted that Washington will put tariffs back on Beijing.

Moreover, both sides are acutely aware how hard it was even to agree to the elements of the Stage 1 deal, and that a ‘Stage 2’ agreement will be much harder still. The twists and turns of the last 18 months underline how tricky a process could now be in play.

Part of the reason why a breakdown of talks in the next phase cannot be ruled out is simply day-to-day events. Take the example of bilateral differences between the two sides over Hong Kong where unrest continues into the New Year.

Last month, Trump signed the Hong Kong Human Rights and Democracy Act which had been approved by Congress. This legislation, which has infuriated Beijing as an “intervention” in its affairs, will require an annual check on whether Hong Kong has sufficient political autonomy from Beijing to qualify for continued special US trading consideration that enhances its status as a world financial centre, creating a yearly mechanism around which future tension could coalesce.

Political interests

Another factor adding uncertainty is the ever-mercurial Trump himself, and his potentially fast-moving perceptions of his political interests in 2020 and beyond (should he get re-elected) in the context of seeking to fulfil his ‘Keep America Great’ agenda. It is quite possible that, for the rest of 2020 at least, that Trump may want to bring US-China relations onto a more stable footing, especially if tensions escalate with North Korea or Iran, both allies of Beijing, in coming weeks. However, ‘steady as she goes’ in 2020 may not necessarily prove to be Beijing’s modus operandi and as, US Trade Representative Robert Lighthizer, has asserted “whether the whole [stage 1] agreement works is going to be determined by who is making decisions in China, not the United States”.

This underlines that, even now a Stage 1 deal is (apparently) in the bag, bilateral tensions will by no means disappear and still have potential to severely disrupt what is probably the world’s most important economic and political bilateral relationship. For instance, should Stage 2 negotiations not yield fruit in the first year or two of a Trump second term, Beijing will know there remains the possibility that his rhetoric could get very hostile again.

He has previously slated China for alleged misdemeanours from currency manipulation to intellectual property theft, none of which is addressed by the stage one deal. Moreover, outside of the economic realm, Trump genuinely appears to believe China represents the primary threat to US interests globally.

Trump had previously asserted that “everything is under negotiation”, and what he ideally favours — building on diplomacy in 2018 and 2019 with Xi Jinping over North Korea — is a wider grand bargain with Beijing extending beyond the economics arena, where one of his key asks is to see the Chinese currency floated, to other security issues too.

Yet, while such any such ‘grand bargain’ may never happen, even a stage 1 deal will potentially provide for greater overall stability in the world economy and limit damage to the currently creaking international trade system which risks being undermined further by a US-China trade war. It would also show that the direction of bilateral relations with Beijing need not inevitably be a force for greater global tension, but still have capacity to evolve into a deeper strategic partnership which can help drive a new era of 2020s global growth and stability.

— Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.