China and US can build on phase one trade deal to resolve their broader differences, analysts say

Catherine Wong

After 18 months of trade war, the signing of a phase one deal between China and the United States will help to stabilise relations, ease tensions and provide a pathway for them to manage their differences in other areas, diplomatic observers say.

The agreement – signed on Wednesday by China’s top trade negotiator, Vice-Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steve Mnuchin – includes a commitment by China to buy more American agricultural goods, energy and services and to make some reforms to its economic system.

Managing ties with the US is the top priority for Chinese leaders, amid rising calls for the two nations to decouple and Washington naming Beijing as a rival. US President Donald Trump is now in his election year and also fighting an impeachment battle.

Wu Xinbo, director of the Centre for American Studies at Fudan University, said the phase one deal would help to prevent the nations’ relationship from further deterioration, and that subsequent meetings could help them to iron out their other differences.

“This phase one deal is mainly to build some level of trust and to provide a basis for reconciliation,” he said.

“But the trade talks alone are not enough to solve the many structural issues that both sides have, as they only involve a limited number of ministries or departments.”

Even after the deal had been signed, the US would still be concerned about China’s state-led economic model, while China wanted to address issues such as US export controls and its ban on Chinese tech giant Huawei, Wu said.

The US Trade Representative’s Office said over the weekend that China and the US would hold “at least biannual” meetings – an arrangement that was in place under Barack Obama and George W. Bush but scrapped by Trump.

Huang Jing, a specialist in US affairs at Beijing Language and Culture University’s Institute of International and Regional Studies, said the resumption of the six-monthly talks was the highlight of the trade truce.

The meetings would provide a platform for the two countries to maintain regular high-level dialogue and resolve their disputes, he said.

“But it remains to be seen if and how long these kind of talks can last.”

Between 2006 and 2008, China and the US held five strategic economic dialogues. In 2009, they were renamed the Strategic and Economic Dialogue and given an additional focus on security issues. Trump scrapped the talks after they failed to produce the results he wanted.

The interim deal comes after lengthy negotiations to end the trade war. Photo: AFP

As well as their differences on trade, China and the US continue to trade barbs on other issues – from the South China Sea and human rights to technological rivalry, including Washington’s restrictions on Chinese telecoms giant Huawei.

While the phase one deal may help lower trade tensions, observers say it is unlikely to solve the structural problems between the two countries or bring about any substantive changes to their unfolding geopolitical competition and rivalry.

“As the elections approach, Trump might be under pressure to get tough on China again and restart the trade conflict,” Huang said.

“We should not expect too much from the phase one deal, which can hardly ease growing tensions between the two powers.”

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China should be realistic and manage its expectations, but also make good use of the window of opportunity the phase one deal had created, Huang said.

“While it is true that trade is no longer the ballast for US-China relations, we should never underestimate the importance of intertwining economic relations,” he said.

“That is why China should do everything it can to discourage discussions about the decoupling of the Chinese and American economies or starting a new cold war. While we are set to compete a lot more both in terms of scope and intensity, we are still living and competing within the same world.”

Other observers say it is unlikely that structural issues, such as China’s state-led economic model, will be tackled until the two sides begin their discussions on a phase two deal, which are unlikely to begin until after the US election later this year.

Gal Luft, co-director of the Institute for the Analysis of Global Security, a think tank in Washington, said a phase two agreement before the US elections was improbable.

“If reaching an agreement on the relatively easy phase one issues was excruciating one can only imagine how difficult it will be to reach consensus on hard-core structural issues,” he said.

“Trump will prefer to indulge on the success of phase one rather than risk a return to economically destabilising trade skirmishes in an election year.”

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