In just a matter of weeks following the meeting in Mar a Lago, between Presidents Trump and Xi, Washington announced it had signed overnight a new “sweeping” trade agreement with Beijing. In light of the vehemence of the Trump Administration towards China, it was a shocker.
In fact, the deal is more a mark of the Trump team’s ability at salesmanship than at negotiating fundamental openings of trade flows between the US and China — long the most contentious economic issue between the world’s first and second largest economies. Trump’s Secretary of Commerce, Wilbur Ross, a billionaire businessman like his boss, hyped the accord as “a Herculean accomplishment”.
Ross went so far as to say that “this is more than has been done in the whole history of US-China relations on trade.”
With such a build-up, veteran trade negotiators — myself included — were astonished to see that the “fact sheet” summarising the agreement was contained in a simple two-page document. There’s absolutely nothing wrong with brevity. But the truth is that the substance of most of the so-called commitments covered topics that have been on the negotiating table for many years.
But most important, the contours of the agreement’s text have little teeth, whether with respect to the content of the actions that will be taken, procedures for enforcement, or penalties to be exacted if there is a failure to abide by the agreement’s terms.
Trump’s U-turn on China — not unlike an increasing number, though not all, of his economic policy stances — was startling to many: throughout his campaign, indeed even after he took up the reins in the White House, the new President continued vowing to punish China over trade, and called for an across-the-board 45 per cent tariff on all US imports from China. Such an action would be unprecedented.
Frankly, all this should not be a surprise: at Mar a Lago, Trump and Xi and Trump announced a well-scripted — and very vague — One Hundred-Day Action Plan.
Clearly, two things are finally dawning on Trump. First, he has realised he needs a working relationship with Beijing to try to contain North Korea. And, second, his proposed economic broadside against China actually would not only hurt US businesses, especially the many US firms with plants in China exporting products exported to the US, but it also would adversely affect US workers and consumers, who benefit from the availability of a wide array of imports from China produced far cheaper than would could be manufactured in the US.
While it was just a matter of time before Trump would come around to seeing things this way, this about-face conduct contains a warning: he is a Last-In, First Out (“LIFO”) decision-maker. The implication of this is clear: another U-turn may well be down the road.
Sadly, nothing rattles businesses more than policy uncertainty.
As is always the case with such accords the proverbial devil is in the details. From this vantage point how much stock should one put into the agreement’s key elements in making a real difference in US-China trade relations? A closer look of the text makes it difficult to believe that meaningful and lasting change is on the way.
The agreement points to four “wins” for the US side.
The most visible is in the food sector, with China promising to liberalise the importation of beef from the US. However, the policy change is neither immediate nor automatic. Indeed, the agreement stipulates that only after “another round of technical consultations”, China is to permit US beef imports.
In trade-negotiation-speak, hinging an agreement on further “technical consultations” is a warning sign that the ball has been kicked down the field. And not necessarily towards the goal-line. It usually signals an agreement will remain elusive.
Another area is in energy. The text states that Chinese companies will be “permitted to negotiate” all types of contractual arrangements with US liquefied natural gas (LNG) exporters, including long term contracts. Again, a warning sign.
Allowing negotiations to take place is one thing. But whether there will be US energy and national security requirements that will need to be satisfied by the Chinese before such negotiations can be consummated is a wholly different matter. In the end, there may well not be any cross-border LNG transactions taking place.
The agreement’s announcement also touts that there are to be several new openings in China’s financial services sector for US firms. Specifically, Beijing is to allow wholly foreign-owned financial services firms “to provide” credit ratings services and “to begin” licensing procedures for credit investigation in China.
The crux of the interpretation here, however, is to what extent will the government of China — and its state-owned enterprises, which remain the backbone of the Communist Party-controlled economy — actually utilise, let alone pay attention to, any credit ratings proffered by US entities. The US firms’ efforts may be all for naught.
Lastly for the US is biotechnology. Under the agreement, China’s National Biosafety Committee is to meet to conduct science-based evaluations of all eight pending US biotechnology product applications “to assess the safety of the products for their intended use.”
Those that “pass the tests” are to get certificates within 20 working days. But here’s the rub: the agreement does not spell out what are the specific “safety” criteria to be used in judging whether or not the tests are “passed”.
Once again, the agreement rests on subjective rather than objective judgements. This is far from best practice in trade negotiations.
For China, the agreement purports two “wins”.
In food, the US has agreed to “resolve outstanding issues” for the importation of Chinese processed poultry. Specifically, the US is to publish a “proposed rule” for such imports by July 16, 2017, with Chinese cooked poultry exports commencing afterwards “as soon as possible”.
Clearly, one does not need to be an expert in trade agreements to conclude that the text hardly constitutes an ironclad agreement that China will be able to export cooked poultry to the US.
In the financial sector, the agreement calls for the People’s Bank of China and the US Commodities Futures Trade Commission (CFTC) to work towards a Memorandum of Understanding concerning the cooperation and the exchange of information related to the oversight of cross-border clearing organisations. One would be hard-pressed to find a trade expert that puts a lot of stock into an agreement that simply calls for the signing of an MoU as a concrete move towards enhancing trade flows between the negotiating parties.
Overall, this is hardly a trade agreement that lives up to its grand billing. About the best one can say is that the Trump and Xi trade policy teams are at least talking.
The writer is CEO and Managing Partner of Proa Global Partners LLC and a faculty member at Johns Hopkins University.