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Yu Miaojie: New US-China trade agreement won't reset strained ties


Partial agreement not seen to go the distance as experts worry over implementation and discrepancies in narratives

The long-awaited trade pact may have been touted by both sides as proof that even the biggest rivals can strike a deal, but this partial agreement will not go the distance in resetting already strained ties.

Tech decoupling will continue as the United States thwarts China's technological rise and the Chinese race to find self-reliance.

The US sanctions targeting Chinese tech companies nearly crippled telecommunications giant ZTE and is hurting Huawei's mobile phone business. More punishing US actions are expected.

"That's one thing the agreement isn't going to derail," said Shanghai-based former diplomat Kenneth Jarrett, who is now senior adviser at business strategy firm Albright Stonebridge Group.

"Tech tensions are still very much at the forefront."

Chief negotiator Liu He struck a conciliatory note at the pact's signing on Wednesday, urging the US to be friendlier: "President Xi Jinping points out that there are a thousand reasons to make China-US relations succeed and not a single one to let it fail."

Yet analysts do not see the trade deal helping to reboot bilateral relations that have been blighted by the Trump administration's choice of a more confrontational policy towards China, and Beijing's resistance to being contained.

"The trade deal has not changed the fundamental relationship between China and the United States. My definition of Sino-US relations in the coming period is: long-term competition, interdependence and limited cooperation," said Professor Yu Miaojie of the National School of Development at Peking University.

"The long-term competition is because the US has established China as a strategic competitor," he said.

"Limited cooperation is because complete decoupling is not possible, as the American business community needs China."

A tit-for-tat tariff war has raged since the beginning of 2018, hitting exporters of a large swathe of goods from both countries.

Just when the world thought a deal was finally near last May, talks fell apart after the US accused China of pulling back its commitments, while Beijing said Washington kept changing its demands and refused to lift punitive tariffs.

The US also insisted that China withdraw state subsidies in key industries, accept monitoring to track its progress on these reforms and rewrite its laws to protect intellectual property, all of which Beijing found hard to stomach.

The Chinese toughened their rhetoric and prepared their citizens for a "people's war".

Yet, in this new deal, Beijing has accepted an enforcement process and a token rollback of US tariffs.

On the surface, it looked like China blinked. It committed to buying US$200 billion (S$270 billion) of US goods and services for the next two years, pledged to refrain from competitive currency devaluation and promised to improve access to its financial services market, among others.

These, in exchange for the US holding back planned 15 per cent duties on nearly US$160 billion worth of Chinese products and cutting by half the September tariff rate on US$120 billion of Chinese goods to 7.5 per cent.

"Given the past history, China's objection to an enforcement mechanism would likely have been a deal-breaker. China understood this, so its earlier objection was probably tactical, rather than something it realistically hoped to achieve," said Hong Kong-based Stephen Olson, a research fellow at Hinrich Foundation and a former US trade negotiator.

Beijing and its state media have been careful to portray the pact as one based on "equality and mutual respect", where the US is subjected to an enforcement mechanism laid out in the deal as much as China is.

"The agreement emphasises that both parties must assume the same obligations," said Prof Yu.

But even before the ink has dried on the deal, experts are already expressing worry over its implementation and some obvious discrepancies in narratives from both sides.

While Mr Trump has hailed the pact as a win for American farmers who will benefit from China's purchase commitment of US$40 billion, the Chinese have been quick to stress that the buying is dependent on "market conditions".

"This is a glaring ambiguity in the agreement and could set the stage for a serious dispute down the road," said Mr Olson.

"The US has emphasised the large dollar value of China's commitment, while China has emphasised the need for the purchases to be in line with market conditions and World Trade Organisation obligations. These two views are not entirely aligned."

While it may look like China has had to make more concessions for this deal, it could well be a strategic move that will bear fruit in future.

Bumping up American imports was something Beijing was prepared to do in 2018, and intellectual property protection as well as opening up its financial services market are "low-hanging fruits", said economist Tommy Xie, head of Greater China research at OCBC Bank.

"Even without the trade war, China would have continued to reform in those areas. Nevertheless, the trade war may have expedited the process of reforms," he said.

Chinese consumers would also benefit from the wider range of US-imported goods, from baby formula to poultry and dietary supplements.

More than that, the trade deal provides a breather and takes the pressure off Beijing to address more nagging problems such as hefty state subsidies and cyber security.

The fact that the Chinese managed to stave off having to deal with these structural issues - possibly without even getting to a phase two deal - is seen as a win for Beijing.

Mr Jarrett said: "The best way to look at it is against everything the US wanted and how much China actually gave, and compare that with two years ago. I think China should feel it also negotiated a pretty good agreement."