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US-China interim trade deal hamstrung by fundamental differences, experts say

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South China Morning Post | 16 November 2019

US-China interim trade deal hamstrung by fundamental differences, experts say

by Amanda Lee

A shared refusal to budge on key issues means China and the United States still have work to do to reach an interim trade agreement, even as the deadline for the next round of US tariffs draws ever closer, observers say.

While Beijing is sticking firm to its demand that a deal must start with the removal of America’s punitive tariffs on its products, US Commerce Secretary Wilbur Ross said in an interview with Fox Business Network on Friday that US President Donald Trump
had not yet agreed to such a move.

“This shows that China and the US are still deeply divided,” said Luo Zhiheng, chief macro researcher at Evergrande Research Institute, a think tank affiliated to the Chinese property developer that shares its name.

The two countries did not appear to be on the “same page” over the withdrawal of tariffs, he said.

The cautionary note came despite Beijing and Washington sending positive signals that consensus on a phase one deal focused on less controversial elements of the dispute was close.

But analysts say there are still difficulties in reaching a deal before December 15, the date on which the US is set to impose additional 15 per cent tariffs on US$156 billion worth of Chinese products, including video game consoles and computer monitors.

One of the major stumbling blocks is the amount of US agricultural goods that China will agree to buy as part of the interim deal.

Last month, Trump said it had agreed to purchases of between US$40 billion and US$50 billion, despite spending only US$24 billion on such goods in 2017.

Ross said in the Fox interview that China “can certainly afford to buy” such an amount but questioned if it was willing to commit to doing so.

“And if they are willing to commit, are there any escape hatches to the commitment?”

China has never confirmed the figure touted by Trump and has resisted any commitment to a specific number, stating repeatedly that it will buy only in accordance with market conditions.

“China won’t agree to buy agricultural goods that it may not need … and definitely will not agree to it being written into the deal,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

“So far, this so-called interim, or phase one, deal is experiencing great difficulties. China will only make small concessions,” he said.

Iris Pang, Greater China economist at ING, said the two sides might have been too optimistic about the possibility of reaching a deal before the end of the year.

“It could be wishful thinking,” she said of the US’s belief that China would buy such a high value of farm products.

“China can choose to purchase from other suppliers, it’s a free market,” she said. “And people might have forgotten that both countries have turned their backs on their promises to each other in the past.”

Meanwhile, Pang said that Beijing might have a motive for delaying a trade deal until 2020, which is an election year for the US.

“Increasingly, we are seeing China looking for opportunities next year, when they could have the upper hand because of the election.”

Ross, however, told Fox that there was “plenty of time to continue negotiations before the December deadline” and that there was a “very high probability” of a deal being struck.

“The devil is always in the details,” he said. “And we’re down to the last details now.

But if a deal were not reached, Trump was happy to proceed with the new tariffs on Chinese goods, he said.

Luo agreed with Pang, saying Trump might adjust his attitude towards a trade deal based on “the strength of the US economy or his election strategy”.

On Friday, White House economic adviser Larry Kudlow said there was no specific date for a deal to be reached but said it was possible it could be signed by ministers rather than state leaders.

Additional reporting by Reuters

 source: South China Morning Post