The United States and China are reportedly close to a final trade deal, as leaders of both countries desire to avoid further face-to-face rivalry and expected slowdown in their economies.
The deal is likely to lift most or all U.S. tariffs on Chinese products on condition that Beijing follows through on pledges ranging from better protecting intellectual-property rights to buying a significant amount of American products.
Chinese officials made clear in several rounds of talks with the U.S. in recent weeks that removing duties imposed on $200 billion worth of Chinese goods quickly was essential to finalize any deal. That’s the amount the Trump administration levied after China fought back against the first U.S. imposition of tariffs involving $50 billion that triggered the trade war lasting for eight months.
The current question of note is whether the tariffs would be lifted immediately or gradually over a period of time, so that the U.S. have reasonable grounds to watch whether China is performing its obligations. The U.S. wants to continue to retain the threat of tariffs as leverage to make sure China won’t go back on the deal, and remove all of the tariffs only if China makes good on all promises in the agreement.
As part of a deal, China is pledging to step up the progress for removing foreign-ownership restrictions on automobile ventures, and to cut down tariffs on imported cars to below the current level of 15 percent.
China is reportedly offering to significantly increase its purchases of farm, chemical, auto and energy products from the U.S., while making more modest concessions on technology transfer, intellectual property protection, market entry and industry subsidies.
China is already the world’s biggest net importer of oil and is set to become the largest gas importer in the near future, so the purchases allow the country to source supplies it will need anyway.
China is not giving much way to the United States by agreeing to buy more American LNG and crude; rival suppliers such as Australia, Canada, Russia and around the Middle East Gulf, however, may lose their shares of Chinese imports.
Similar logic applies to agricultural products, where China is a major net importer; any bilateral trade deal will come mostly at the expense of other farm exporters such as Brazil, Russia and Argentina.
China’s substantially boosted purchases of farm and energy products would be a great benefit for the White House, shoring up support in farm and energy-producing states key to President Donald Trump’s re-election campaign in 2020.
In any future degradation in trade relations, rising farm and energy exports will give China more leverage, since it could threaten to reduce them or cut them off completely.
U.S. farmers and energy firms will not want to see the recent tariff disputes repeated in the next few years because the costs for them next time around will be even higher.
By focusing on farm and energy products, both countries could find a politically and economically common ground, while making limited progress on other more difficult issues.