It’s the 5th Trade Deal Announcement: What if This One Falls Apart, Too?

The latest breakthrough is laden with ‘ambiguity’ and ‘fragile,’ says the Center for Strategic and International Studies’ China expert.

When news broke late last week that Washington and Beijing had forged a “phase one” deal to defuse the trade war, Wall Street’s response was underwhelming: The S&P 500 rose 0.23%. OK, you can argue that maybe the joyful tidings already were priced in.

But this is the fifth time that “a deal has been prematurely declared” and the “ambiguity” around this one makes it “fragile,” declared the Center for Strategic and International Studies’ top analyst for Chinese business and economics.

“It is not hard at all to see how it could collapse as a result of untoward actions by either side,” wrote Scott Kennedy, in a CSIS commentary. Should that happen, the stock market, as it has shown in the past, likely would swoon. US corporate capital spending, held down amid the uncertainty about international trade, is bound to stay low. And even bigger tariffs could come into effect.

With many specifics yet to be clarified, Kennedy stated, “it is unclear if the struggles of the past two and a half years have been worth it. The costs have been substantial and far reaching, the benefits narrow and ephemeral.”

Kennedy ticked off the previous four seeming breakthroughs that broke down:

July 2017: Commerce Secretary Wilbur Ross said he had a promise from Chinese Vice Premier Wang Yang that China would lower overcapacity in its steel industry. President Donald Trump canceled the deal.

May 2018: Treasury Secretary Steven Mnuchin reached a “framework agreement” with Vice Premier Liu He. Trump scrapped the arrangement a few days later.

April 2019: With market surging on word that a major US-China pact was imminent, China suddenly scrubbed much of their offer.  That resulted in Trump’s boosting tariffs and imposing sanctions on Chinese telecom company Huawei.

Early October 2019: Trump announced a phase one deal, although what he really meant was that the negotiations were only just getting under way.

This time, the Office of the U.S. Trade Representative released a statement touting, in general terms, a Chinese commitment to ease up on intellectual property theft, forcing American business partners with Chinese firms to divulge trade secrets, and boosting purchases of US goods and services. In return, new US tariffs slated for Sunday wouldn’t happen and some previous levies would be scaled back. The Chinese regime confirmed a deal existed but added scant detail.

As the think tank’s Kennedy noted, “aside from a cessation of continued escalation, there is not much worth cheering.”

In the days and weeks ahead, we’ll see how this plays out. The agreement, if it actually goes through, is merely the start to a long process involving the Chinese government’s subsidizing its industry and other hot topics. Not to mention whether it really will comply with the dictates of phase one.


Related stories: 

Is China Unstoppable?

OK, the China Trade Talks Are Tough, But What Would a Pact Look Like?

Senators Rebuke Federal Pension’s Criticisms of China Investment Ban




Tags: , , , ,