Later this month, senior US and Chinese trade officials will meet – probably virtually – to consider China’s compliance with the trade truce signed in January that ended the escalation of the Trump’s trade war on China.
It could be an awkward discussion.
The talks, led by US Trade Representative Robert Lighthizer and China’s Vice Premier Liu He, will occur against the backdrop of a series of new and wide-ranging points of tension in the relationship between the world’s two largest economies as the US and China edge ever closer towards a new cold war.
While the trade tussle that dominated much of last year has taken a back seat to some of the more recent issues — most recently the US decision to force a sale of China’s biggest and most internationally successful start-up, social media app TikTok – the potential for it to flare up again is increasing as the US election nears and Donald Trump focuses more intensely on the constituencies the trade conflict was supposed to appeal to.
And Trump has ammunition, even though he has been downplaying the importance of the trade deal he once touted, saying it is much less important to him now because of China’s role in the spread of what he calls the “China virus”.
Under the trade truce – the so-called “Phase One” deal – China committed to buying $US200 billion ($279 billion) more US products, compared to a 2017 baseline, over the next two years. It is way behind on the required schedule, although the coronavirus pandemic does provide something of an excuse.
According to the Peterson Institute for International Economics, a US non-profit think tank which has been tracking China’s compliance with the agreement, China’s purchases of US products covered by the agreement have so far amounted to just over $US40 billion. That’s less than half – about 47 per cent – of their year-to-date target of more than $US86 billion.
Under the deal, China has to buy about $US64 billion more US products this year than it did in 2017, which means it should buy about $US173 billion worth of US products this year. If the agreement were viewed through the lens of US exports to China, the numbers would be lower, but the gulf between China’s commitments and their delivery would be about the same.
The agreement covers agricultural products, energy and manufactured goods. It is only in manufactured goods that China has met – slightly — more than 50 per cent of its targets so far.
Since the deal was signed in January, neither side has said much publicly about China’s compliance, or non-compliance. Trump, having been able to portray the deal as a vindication of his trade war as it forced China to accept the US terms, appears to have lost interest in its actual substance.
China’s reasons for saying as little as possible are obvious. The last thing it wants to do is to provoke Trump into slapping even more tariffs on its exports just as its economy is recovering from the impact of the pandemic.
Rhetoric over retaliation
China has been quite restrained in the face of the increasing hostility of the Trump administration, generally confining itself to rhetoric rather than retaliation.
The threat to ban TikTok in the US unless it is sold to a US company is part of a wider assault on China’s technology sector and its global leadership ambitions in the sector.
China has threatened a response, but not taken meaningful action, to US sanctions and actions in relation to its imposition of its security laws on Hong Kong, its treatment of the Uighurs Muslims in the Xinjiang region and its expelling of Chinese journalists and researchers from the US.
It’s largely ignored Trump’s continuing description of COVID-19 as the “China virus”, along with more pejorative and borderline racist descriptions.
Its relative passivity might relate to the imminent US election and the big lead that Joe Biden and the Democrats have in the polls.
A Biden administration wouldn’t necessarily be less aggressive in relation to China, or less protectionist, but it would likely be more sophisticated, rational and predictable and motivated to restore a sense of normality to the way America relates to the rest of the world.
It might also recognise that tariffs that are actually paid by US companies and consumers – not China, as Trump has claimed – aren’t a productive way to boost America’s domestic activity. They produce mutual damage, benefit third parties as supply chains are reconfigured, but produce little if any benefit to the primary protagonists.
When it comes to the Trump administration, nothing can be taken for granted – particularly amid the pressure it is feeling from its mismanagement of the pandemic and the electoral implications of its failings. It is conceivable that China’s lagging compliance with the targets of the Phase One deal could be seized on by the China hawks, who seem to have grabbed the ascendancy in the White House.
‘Smash and grab’
There is also pressure within China itself to respond to America’s recent actions.
The Trump administration’s action against TikTok’s parent, Bytedance, and Trump’s demand that the US Treasury be given a “key money” from any deal, has been described by China’s government as “officially sanctioned theft” of a Chinese technology company that China will respond to if the administration carries out its “smash and grab” raid.
Trump’s secretary of state, Mike Pompeo, who has been using increasingly harsh and threatening language towards China, has already foreshadowed actions against other Chinese software companies, specifically naming WeChat. Would that force China to respond?
China’s leadership has gathered in the seaside resort of Beidaihe in northern China for its annual two-week leadership retreat.
Among other issues like the state of the Chinese economy, the pandemic, the crackdown on Hong Kong and the pushback from the rest of the world to the country’s ambitions in the South China Sea, the relationship with the US and how to respond to US aggression will no doubt be a major item on the agenda.
At some point, China will inevitably feel it has no option but to respond.
Yet that’s more easily said than done, given America’s continuing, albeit somewhat tarnished, dominance of the global financial system, its economic and military clout and the Trump administration’s willingness to use it.
By Stephen Bartholomeusz