A New Day for China-U.S.Trade Relations

by Liao Zhengrong

The signing of a phase-one trade deal between China and the United States has finally added some certainty to this important bilateral economic relationship and the world economy. It has at least partially buffered the downturn pressure and decoupling tendency of the economic and trade relations between the two countries， which should be applauded. However， it is only the initial phase of a broad agreement. Its implementation will directly affect the next stage of negotiations， which will involve more complex issues and acute contradictions. Meanwhile， future negotiations will in turn affect the implementation of the phase-one agreement. Although some uncertainty has been eliminated， new worries are emerging. The possibility of a setback concerning bilateral trade negotiations and overall relations remains. China and the United States still need to work together to maintain the hard-won momentum to ease their trade friction.

According to the phase-one trade deal， China has agreed to import an additional US$200 billion worth of U.S. goods and services over the next two years， a year-onyear increase of 50 to 60 percent. The deal presents an opportunity for the two sides to improve trade imbalance and expand cooperation， but at the same time， it poses some new challenges. The current scale of bilateral trade between China and the United States is the result of long-term market choices and reflects the basic capacity and demand of both sides. To reach the goals of the agreement within a limited period， the two countries need to further unleash market potential and avoid excessive government intervention.

The two governments need to work more actively and properly in terms of stimulating the market. China needs measures to boost consumer demand and expand import channels. Facilitation of import measures should target all trading partners， not just the United States， and should not hurt the interests of other parties to achieve the goal of increasing imports from the United States. Similarly， the United States should not meet its objective of expanding exports to China by reducing exports to other countries. If reciprocity between China and the United States affects the interests of a third party， the arrangement could violate the principle of fairness in international trade.

Expanding exports would clearly benefit the United States， but it wont happen automatically. The United States needs to improve its export capacity， which is no easy task. Agricultural products are highly seasonal， and farmers are reluctant to sow without a foreseeable short-term outcome. The U.S. government has been known to waver， and American farmers might not be ready to take the necessary risks to ensure enough output for increased exports. The U.S. energy exports to China will increase by nearly US$53 billion in the next two years. For this reason， the United States needs to accelerate the construction of natural gas infrastructure to facilitate exports to the Chinese market， which is easier suggested than done.

In addition， American investors need to be more active in the Chinese market. U.S. investment in China has been stagnant for some time， lagging far behind that from the European Union （EU）. China has further opened its financial services industry， a realm in which the United States maintains a solid advantage. Capital from the United States needs to increase confidence in the Chinese market. Facing fierce competition from other countries， some American brands have lost enthusiasm for exploring the Chinese market. Many hope that the signing of China-U.S. trade agreement will improve the outlook.

The United States issued a joint statement with the EU and Japan at the Seventh Trilateral Meeting of the Trade Ministers that focused on the issuance of industrial subsidies. The attitude of the statement contrasted the tone of the phaseone agreement between China and the United States by raising standards for “domestic support，”“forced technology transfer” and“enforcement of WTO rules.” It is predicted that the U.S. side will use its consensus with the EU and Japan to increase pressure on China during the second phase of negotiations. The EU has voiced opinion that the phase-one agreement was not enough to press China to carry out structural reform. Analysts expect industrial policy， positioning of state-owned enterprises， and other issues to remain at the core of the second-phase agreement. Negotiations will likely be more difficult and risk will increase.

From a broader context， Chinas sincerity and efforts to maintain the positive momentum created by the phase-one agreement have not relaxed pressure from the U.S. side， especially China hawks. Before and after the agreement was reached， the United States passed the Reciprocal Access to Tibet Act， which “requires” China“to allow American journalists， diplomats and tourists to enter Tibet without restrictions.” The day the phase-one agreement was signed， a U.S. naval warship sailed again through the Taiwan Straits. Furthermore， the EU and some countries have expressed great skepticism about the effectiveness of the phase-one agreement， fearing it could ultimately cause negative consequences. The sun is on the rise， but high noon will not arrive without further efforts. China and the United States still need to work together to achieve further progress.