ANALYSIS: US-China Deal's Positive Effect Temporary, Situation May Deteriorate

WASHINGTON (UrduPoint News / Sputnik - 14th December, 2019) The United States and China have delivered a temporary relief to the global economy and financial markets with their preliminary trade deal, but the situation could rapidly deteriorate, if Beijing refuses to concede on sticky issues, analysts told Sputnik on Friday.

US President Donald Trump said on Twitter�he would withhold new US tariffs of 15 percent that had been slated on $160 billion of Chinese imports from Sunday, which economists feared would cause global growth to sputter. The Office of US Trade Representative, however, said earlier duties of 25 percent on $250 billion of Chinese imports would be maintained, along with a 7.5 percent tax on $120 billion of other goods, while the White House negotiates to sell tens of billions of Dollars of US farm products per year to China.

"At this stage, assuming that this preliminary agreement goes forward, it should have a positive, although temporary effect on the global economy, which to some extent is reflected in the behavior of stock markets around the world," Richard Anderson Falk, the Albert G. Milbank Professor Emeritus of International Law at Princeton University, told Sputnik.

But there was a cautionary outlook as well as, "as the situation could deteriorate rapidly, especially if China erects some last-minute roadblocks," he said.

US stocks steadied after a sell-off while oil prices rallied strongly and gold rose modestly in mixed reaction to the announcements by the US and Chinese officials, who did not give any date for the actual signing of the deal. Beijing also made only brief remarks, with Foreign Ministry's spokesperson Hua Chunying emphasizing that the negotiations should be based on principles of equality and mutual respect, and any deals should be mutually beneficial and win-win.

"Negotiations for Phase Two deal will depend on the implementation of Phase One deal ... This could be another long, back and forth, type of a situation, keeping investors on their toes," Fawad Razaqzada, a London-based Currency markets analyst at forex.com, said in an email to Sputnik.

Adam Sarhan, founder and chief executive at 50 Park Investments, a global markets investment advisory service in Orlando, Florida, has a similar viewpoint.

"With so much that has transpired in the past 17 months, markets expect precise details on what the two sides have agreed to in order to gauge the success of future negotiations ... The devil is really in the details and there's very little of that here," Sarhan told Sputnik.

Falk said the second phase of the trade negotiations between the two countries would be more formidable, intruding on policy spheres normally within the domain of national sovereignty and involving issues regulating export subsidies, technology transfer and currency control.

"Trump seems to be enthusiastic about moving ahead and appears motivated mostly by the deal helping him keep his support among voters with agricultural interests ... It would be premature to suppose that this preliminary set of arrangements can offset the disruptive effects of Trump's economic diplomacy on the global trading system," he noted.

While it could be argued that the impulse to restructure the US-China relationship was overdue, especially with regard to the large trade gap in Beijing's favor, "it could and should have done in a steadier manner that did not contain risks of provoking a real downward spiral in world economic conditions," Falk said.

The prospects for a mutual victory, he said, would be very much conditioned by the degree, to which the leadership in both China and the United States regard success as a win-win proposition, and share perceptions as to what it is reasonable with respect to negotiating demands and satisfactory compromises.

"A real breakthrough with regard to Phase Two would have a much more robust impact on the world economy than this Phase One arrangement, assuming it is implemented, as it would both signal a motivations to restore smooth relations and give evidence that common ground could be reached on the difficult structural issues," the expert stressed.

However, with Trump seeking re-election in November, Falk indicated that China may not want to give in too much and leave itself at a disadvantage when it could have a relatively easier process with a new president from the Democratic Party, which is opposing the incumbent's Republican party.

"There are risks, both because of the general unpredictability associated with Trump's diplomatic style, as well as the uncertainties that could arise from an altered approach in the event that Trump loses the 2020 presidential election ... A Democrat in the White House would be sure to approach trade policy with China in a different manner, and somewhat more likely, in a manner that would make further progress in a rebalancing process more likely to be successful," Falk added.

Trump said on Friday that negotiations on the Phase Two of the deal would commence immediately, instead of after the 2020 US presidential elections. The Chinese did not commit to a date.