The newly signed U.S.-China trade deal that includes a significant boost in Chinese purchases of American products has calmed global trade tensions for now, but leaves a number of crucial questions unanswered for Canadian exporters.
At a signing ceremony in Washington Wednesday, President Donald Trump touted the deal between the world’s two biggest economic powers as a “landmark” agreement that most people “thought could never happen,” — though analysts said it leaves a number of core structural issues unresolved.
“Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families,” Trump said at a White House press conference that included top Chinese officials.
Chinese vice-premier Liu He, who read a letter from Chinese president Xi Jinping, cited the deal as an example of how the two countries could resolve issues through dialogue and “mutual respect.”
The pact “is good for China, for the U.S. and for the whole world,” Liu said through an interpreter.
The world is now at a critical crossroads in which it must make a strategic choice about its way forward, Liu said, adding he hoped the initial deal would help build trust between the two countries. “Cooperation is the only right choice.”
In a deal that Washington has described as the first phase of a more comprehensive pact, Beijing committed to buying an additional US$200 billion in American goods over the next two years, including US$40 billion to US$50 billion in agricultural products.
China also pledged to tighten its rules on intellectual property protection, pirated goods and theft of commercial property and to take steps to allow companies to operate within its vast market without any pressure to transfer their technology. The pact also calls on Beijing to avoid currency manipulation and to open its $40 trillion financial services sector to U.S. companies.
This probably falls into the category of managed trade rather than free trade
However, it does little to address subsidies or China’s system of state-owned enterprises, which have been blamed for creating an unfair global playing field. Officials have said those issues will be taken up in “Phase 2” of the talks though it is unclear when those will begin.
Crucially, though the deal includes a long list of U.S. products that will benefit from China’s US$200 billion purchase commitment, it does not include quantities. Soybeans, fresh and frozen pork, beef, wheat, corn, barley and a range of machinery are among the goods listed.
That’s a concern for Canadian exporters, particularly agricultural exporters who have found themselves caught in the dramatic upheaval of trade patterns caused by the U.S.-China trade dispute. Canadian exports of wheat to China, for instance, rose to 2 million tonnes in 2019, a threefold increase over normal levels posted in the years prior to the trade dispute, said Cam Dahl, president of Cereals Canada.
A cooling off of the trade disagreement between the US and China, combined with the Chinese pledge to buy an undisclosed quantity of U.S. wheat, could see much of that demand lost, Dahl said. What’s more, it remains unclear how the deal will comply with World Trade Organization rules that preclude discrimination against some markets in favour of others, unless a full free trade agreement is forged. The U.S.-China deal covers only a limited range of goods.
U.S. President Donald Trump and Chinese Vice Premier Liu He hold up signed agreements of Phase 1 of a trade deal between the U.S. and China in the White House, on Jan. 15, 2020.
“This probably falls into the category of managed trade rather than free trade,” Dahl said. “And I think the questions about WTO compliance are still very much out there.”
Both Liu and U.S. Trade Representative Robert Lighthizer have said the pact meets the standards of the world’s trade referee and the deal itself includes a number of pledges to abide by China’s WTO commitments.
“They must have something in mind that will increase the purchase of U.S. products without affecting everybody else,” said Simon Lester, a trade policy analyst at Washington’s Cato Institute. “But we just don’t understand exactly how China will implement this. We’ll have to watch and see over the next year for what China increases purchases of and how it affects competitors like Canada.”
Other Chinese buying commitments include $54 billion in additional energy purchases, $78 billion in additional manufacturing purchases, $32 billion more in farm products, and $38 billion in services.
The deal falls short of a return to normal tariff rates predating the trade war – which has seen the U.S. apply tariffs to nearly two-thirds of Chinese imports while Beijing imposed levies on more than half of all U.S. goods.
U.S. tariffs on US$120 billion of Chinese goods will fall to 7.5 per cent from 15 per cent. However, levies of 25 per cent remain on another US$250 billion in Chinese imports. The cost of those tariffs is being borne entirely by U.S. consumers and companies – and has forced firms to cope with disrupted supply chains and operations. The impact on Chinese tariffs is unclear.
I think the questions about WTO compliance are still very much out there
And though any de-escalation of trade tensions is welcome, just how long the peace will last is uncertain, Lester said. Disputes between two countries are to be settled through consultation rather than being resolved by a neutral panel. That could lead to more tariffs being imposed, if one country is dissatisfied, said Patrick Leblond, an associate professor in international affairs at the University of Ottawa.
“We’re just back to square one,” Leblond said.
Meanwhile, the relative calm in the dispute has raised hopes that Canada’s concerns with China might receive more attention from Beijing. But Leblond believes that is unlikely. Two Canadians, Michael Kovrig and Michael Spavor, have been detained for more than a year in apparent retaliation for Canada’s arrest of Huawei executive Meng Wanzhou, on a U.S. extradition request. China has also cut off all purchases of Canadian canola.
In an interview with the French-language TV network TVA in December, Prime Minister Justin Trudeau said he had asked the Trump administration to use the trade talks with Beijing as leverage to win the release of the two Canadians.
“The only thing that would have helped with that is if Trump had linked the two things together,” said Leblond. “So I would think it doesn’t matter.”
