A tentative truce between the United States and China has raised hopes — yet again — that the two economic superpowers are inching toward a resolution to the trade war.
But they still appear to be far from striking any sort of comprehensive trade deal. Nor does the latest reprieve address some of the biggest rifts dividing the two countries, like technology and China’s economic policy.
Trump suggested on Friday that there is more to come, appearing to confirm a meeting with Chinese President Xi Jinping at a summit in Chile next month.
But the fact that negotiators still need up to five weeks to work out the actual text of the agreement indicates they still have to iron out a lot of details.
“And in any trade agreement, the devil (and the hardest work) is always in the details,” Stephen Olson, a fellow with the Hinrich Foundation wrote in a note on Monday. “There is no US-China trade deal.”
Each side has used very different language to describe the pact. Trump called it “a very substantial phase one deal,” adding that the agreement amounts to a “love fest” after months of friction. Chinese state media took a more cautious approach, avoiding the word “deal” and saying only that “substantial progress” had been made.
“Based on its past records, Washington may at any time decide to cancel the agreement if it thinks the cancellation served its interest best,” the state-run newspaper China Daily said in an editorial Sunday.
These are some of the concessions outlined in the preliminary agreement, along with larger issues that have yet to be resolved.
China conceded some ground on purchases of agricultural products, including soybeans and pork, according to Oxford Economics.
The Trump administration announced that Friday’s agreement will include US agricultural sales to China of $40 billion to $50 billion. That compares with the $24 billion in such products the United States sold to China in 2017, before the trade war began. Last year, the United States sold just $9.3 billion worth of agricultural goods to China.
Trump tweeted Sunday that China will “IMMEDIATELY” start buying “very large quantities” of agricultural products. But other details about the purchases remain scant.
China is one of the biggest markets for US agricultural exports, and American farmers have been hit hard by China’s retaliation for US tariffs.
For China, agreeing to buy US agricultural products might be driven in part by its need to satisfy domestic demand for pork, according to Jeffrey Halley, Oanda’s senior market analyst for Asia Pacific.
The commitments “suit their situation in the here and now, particularly as swine fever has ravaged the country’s pork industry,” he wrote in a research note Monday.
Beijing signaled in September that it would be open to repairing this part of the relationship with the United States. China has lost more than 100 million pigs to African swine fever, prompting authorities to release emergency pork reserves to stabilize the world’s largest pork market.
Some tariff hikes are off, others are still on
As part of the agreement, the United States is pulling a tariff hike that would have gone into effect this week. Tariffs on $250 billion worth of Chinese goods were scheduled to increase from 25% to 30% on Tuesday.
But tariffs scheduled for later this year still appear to be on the table. The United States plans to impose new 15% tariffs on an estimated $160 billion worth of Chinese goods on December 15, according to the Peterson Institute for International Economics. The tariffs could really hurt American consumers, since they affect popular consumer goods such as laptops and smartphones.
The taxes were originally supposed to take effect on September 1, but Trump delayed them to mid December to avoid the holiday shopping season.
The head of the American Apparel & Footwear Association said in a statement Friday that it welcomes the pause on additional tariffs, but noted that “everything currently being hit with punitive tariffs is still being charged.”
If the December tariffs are implemented, the United States will have taxed pretty much all imports from China. By that time, China will be taxing nearly 70% of US goods coming into the country, if all of its tariffs are enforced, according to the Peterson Institute.
The tech war rages on
The fight between the United States and China is about much more than tariffs. The two economic superpowers are currently locked in a battle over who will dominate the technologies of the future.
US restrictions on Chinese tech champion Huawei and several high-profile AI companies have aggravated that clash, and there’s little sign that the two countries are close to resolving those issues. The United States added companies such as SenseTime and Hikvision to its trade blacklist last week.
Huawei is “not part of this agreement,” US Trade Representative Robert Lighthizer told reporters on Friday.
The Shenzhen-based tech giant is the world’s biggest telecommunications equipment maker and a leading smartphone brand.
Beijing has for years been trying to shed its reputation as the world’s factory, pivoting instead to become a place where high-tech talent and innovation can thrive. Huawei is a prime example of that pivot.
Washington hobbled Huawei’s global business by placing the company on a trade blacklist in May, citing national security concerns. Huawei denies that any of its products pose a national security risk.
Earlier this year, Trump suggested he would ease restrictions on Huawei after Chinese officials reportedly insisted on concessions for Huawei as part of a US-China trade deal.
“That’s a separate process,” Lighthizer said.
Asked if Huawei would be taken off the blacklist, Trump said on Friday: “We’ll talk about that later.”
Washington also indicated that it could walk back its decision to label Beijing a “currency manipulator.” The United States slapped that designation on China in August after the country’s central bank allowed its currency, the yuan, to weaken amid the ongoing trade dispute.
US officials say China is deliberately weakening the yuan, which makes Chinese goods cheaper for foreign buyers. But most experts and analysts say that China’s central bank has actually been taking measures to prop up its currency for years as a way to prevent companies and investors from pulling money out of the country.
Treasury Secretary Steven Mnuchin said Friday that the United States will be “evaluating” rescinding China’s currency manipulation designation, without providing details.
If Beijing pledges not to manipulate its currency and be more transparent about foreign exchange reserves, that could be enough to spur Washington to remove the designation, according to Mark Sobel, a former Treasury and International Monetary Fund official who is now with the Official Monetary and Financial Institutions Forum.
Noting that currency “has been a very big concern” for Trump, Mnuchin also said Friday that China and the United States now “have an agreement around transparency into the foreign exchange markets and free markets.”
Currency experts doubt an agreement would spark any marked change in how China handles the yuan, though.
“Transparency is GOOD!” Sobel wrote in a tweet. “But we basically know China hasn’t been intervening much at all for years. If anything, it has intervened to limit depreciation.”
Structural issues kicked down the road
The United States has long been concerned about China’s lax approach to intellectual property rights and forced technology transfers imposed on US companies operating in China.
Resolutions to those deeper, structural issues are notably absent in Trump’s “phase one” deal.
The US president told reporters on Friday that intellectual property and forced technology transfer concerns may be included in a “phase two, phase three” deal.
Oxford Economics economist Tommy Wu is less optimistic. He wrote in a note on Monday that “we expect China to largely resist the pressure to change its … technology policies, as China sees them as fundamental to its future growth and development strategy.”