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U.S.-China Trade Deal: What It Is, Is Not, and May Become

U.S.-China Trade Deal: What It Is, Is Not, and May Become

Patrick M. Cronin

The U.S.-China trade agreement outlined on Friday is an act of cooperative rivalry. It brings immediate value to both sides while deferring strategic questions about future relations between the world’s two superpowers.

Because the deal remains incomplete and verbal, there can be no definitive judgment about its merits. Instead, the transaction can be evaluated for what it is thus far, what it could become, and what it is not.

What we know is that China agrees in principle to buy up to $50 billion worth of American agricultural products and that the United States is dropping plans to increase tariffs on $250 billion in Chinese goods. Because President Donald Trump was set to raise tariffs from 25 percent to 30 percent next week, the cursory announcement makes it unnecessary for the U.S. and China to climb another rung up the trade-war escalation ladder.

Both Trump and China’s President Xi Jinping benefit by delivering welcome economic news at a time when each faces mounting political challenges at home. Furthermore, the international community gives a collective sigh of relief that the U.S. and China are finding some common ground in a time of heightened uncertainty.

For Trump, the trade deal injects good news into his reelection campaign, and into the Washington debate as Congress returns to full-time business. Midwestern farmers receive a long-awaited reprieve, while Republicans can try to shift the conversation from Ukraine and impeachment to economic growth and peace through strength.

Xi can point to short-term stability, reinforcing the nationalistic themes rehearsed at the Oct. 1 festivities marking the 70th anniversary of the People’s Republic of China (PRC). China’s economy is slowing down and likely remains well below the official 6.6 percent annual rate of growth. Even a limited trade agreement with the United States helps to contain some of the damage to the legitimacy of the Chinese Communist Party (CCP), damage resulting not just from economic challenges but also caused by oppression in Hong Kong and Xinjiang severe pressure on Taiwan.

The announced deal makes no mention of impending new U.S. tariffs on imported consumer goods set for mid-December. But the initial agreement intimates that China will abide by new — if unspecified — provisions for currency and intellectual property (including the forced transfer of technology). Moreover, U.S. companies will gain greater access to China’s financial services market.

As outlined, however, the “skinny” trade deal largely omits what White House trade adviser Peter Navarro calls the “ seven deadly sins “ structurally built into China’s unfair trade practices. There is no airtight commitment to protecting intellectual property, ending currency manipulation and granting market access. The PRC will neither curb subsidies and state support for national champions of industry nor pursue market liberalization. Not in phase one, and not anytime soon.

But these sins of omission are, for now, less to fear than one potential sin of future commission. That is, national security professionals fret about Trump acceding to China’s demands to allow Huawei and other Chinese high-technology firms to gain access to the U.S. market. The Trump administration has hived off the question of high-technology export controls at the heart of the debate over what terms, if any, the United States would demand to grant licenses to the likes of Huawei and ZTE.

China sees 5G telecommunications, along with artificial intelligence (AI), quantum computing, and other advances towards achieving information dominance, as pivotal to its economic and military security. The first phase of this trade deal is no doubt meant to create a more favorable set of conditions for the next round of negotiations. In particular, Beijing would like to deflect the Trump administration from concepts of decoupling and establishing new global supply chains that lockout Beijing’s high-tech enterprises.

That is why forces on both sides of the political aisle in Washington will continue to flyspeck future phases of trade with China. They will want to ensure the United States is not trading short-term economic and political benefits at the risk of long-term national security damage. Vigilance and business both endure.

The world will be less on edge when Xi and Trump ink a deal at the Asia-Pacific Economic Cooperation summit in Chile next month. But the trade agreement between the world’s two largest economies will provide only a brief respite from a long-term struggle for power. The very indefiniteness of future phases of bilateral trade ensures that trade will remain the principal arena of major-power competition.

“War is the trade of kings,” the 17th-century English poet John Dryden wrote. But amid a long-term, high-tech arms race, trade is now the war of the kings.

Read in The Hill

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