Phase One of the United States-China trade agreement seems to be a win for the US at first glance, but is there more than meets the eye? What does this deal mean for the two economic giants?
February 12, 2020 | Bert Hofman
- China made the bulk of commitments in the trade agreement
- Tariffs and other US-imposed measures were largely left untouched
- Phase Two may address industrial policy, state-owned enterprises and subsidies
United States President Donald Trump remarked during his speech at the World Economic Forum Annual Meeting, in Davos, Switzerland that “America is winning like never before”, siting as example the trade agreement with the US, which China signed on 15 January 2020.
As trade agreements go, this one appeared remarkably one-sided with China making the bulk of the commitments. The agreement has 96 pages, 8 chapters, 67 articles and numerous annexes that provide more details. It contains a total of 105 commitments by China (“China shall”), compared to 88 joint commitments (“Parties shall”) and five commitments by the United States (“the United States shall”). In most clauses, the United States simply “affirms” that its existing policies already meet the requirements of the article in the agreement.
Why did China sign?
First, the agreement commits China to a number of steps that solidify its ongoing reforms in intellectual property (IP) protection, technology transfer and the financial sector. The reforms committed are already in place, but tying these to an agreement with the United States can reinforce the impact of reforms. This will further improve China’s business environment, make it a more attractive place to invest in new technologies, and over time, improve the efficiency of investments made by a more diverse financial sector.
Second, the agreement may lead to some calm and lower policy uncertainty, which could boost China’s growth at a time when the domestic reform agenda may slow it down. Indeed the International Monetary Fund, in its World Economic Outlook Update, upped its growth projection for China by 0.2 percentage point for 2020, largely be...
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