Trade Deal With US Could Help Stabilize China's Economy By Restoring Investors' Confidence


Trade Deal With US Could Help Stabilize China's Economy by Restoring Investors' Confidence

Despite limited concessions from the United States on tariffs reduction, China is likely to benefit from the new bilateral trade deal through improved investors' confidence in the domestic market, experts told Sputnik

MOSCOW (UrduPoint News / Sputnik - 16th January, 2020) Despite limited concessions from the United States on tariffs reduction, China is likely to benefit from the new bilateral trade deal through improved investors' confidence in the domestic market, experts told Sputnik.

US President Donald Trump signed the Phase One Trade Agreement with Chinese Vice Premier Liu He in the White House on Wednesday, marking the temporary truce between the world's two largest economies after over 18 months of bilateral trade tensions.

Under the new trade deal, China agreed to purchase about $200 billion worth of additional US goods and services over the next two years and made commitments on issues such as intellectual property protection and preventing forced technology transfers.

As part of the deal, the United States agreed to halt planned tariffs hike by December 15 last year and lowered tariffs on $120 billion worth of Chinese goods from 10 percent to 7.5 percent. But the 25 percent tariffs on $250 billion worth of Chinese goods would remain in place.

"We're leaving tariffs on, which people are shocked, but it's great. But I will agree to take those tariffs off, if we are able to do phase two. In other words, we're negotiating with the tariffs," Trump said during the agreement signing ceremony on Wednesday.

During an interview with Chinese reporters after the agreement signing ceremony, Liu said the United States promised to "remove some of the existing tariffs on Chinese goods and achieve the switch from hiking to cutting the tariffs."

Without further tariffs reduction from the United States, China appears to have secured limited concessions in the Phase One Trade Agreement. But Chinese economists argued that the positive impact of the new trade deal was more about restoring investors' confidence in the domestic market than getting rid of excessive US tariffs on Chinese goods.

"Tariffs reduction is definitely one of the most important demands from China. But when you talk about the US-China trade war, its negative impact was more about hurting [investors'] confidence. When it comes to tariffs, the companies could all handle it even if they had to take some losses. But for the investors, they were not sure whether bilateral trade tensions would escalate further. That's why they could not make business decisions, such as whether to take certain orders or make more investments to boost production. Now, their expectations have stabilized because no new tariffs would be added. They can finally begin to make business decisions again," Tu Xinquan, Dean of China Institute for WTO Studies, the University of International Business and Economics in Beijing, told Sputnik.

Under the pressure of bilateral trade frictions with the United States, China's economy expanded 6.0 percent year-on-year in the third quarter of 2019, the slowest pace of quarterly growth since 1992, according to the latest figures from the National Bureau of Statistics.

Nevertheless, Tu admitted that the new trade deal looked to be a bit one-sided with China making a lot of pledges.

"I think everyone admits that this can never be a so -called 'balanced' agreement. Based on the bilateral situation between China and the United States, it was impossible for this deal to be a truly equal agreement.

From a trade policy perspective, there could never be an equal agreement between China and the United States, because the US market is much more open than the Chinese market. That's why I think it's unfair for some people to criticize the Chinese government for making too many concessions. That's because it's normal and reasonable for China to make more concessions. Or you can say: what concessions you need from the United States? That's why it's impossible to make the text of the agreement appear balanced," he said.

Under the eight chapters of the Phase One Trade Agreement, many of the paragraphs started with the phrase "China shall" and followed by details of Beijing's commitments. Meanwhile, the new trade deal did not include reciprocal commitments from the United States, as China did not have similar complains about the US market conditions.

The expert stressed that the concessions China made in the agreement were acceptable because they did not challenge the nation's fundamental economic structure.

During Wednesday's agreement signing ceremony, Trump reiterated that both sides were ready to start negotiations on the Phase Two trade agreement right away.

However, Trump probably would not be interested in seriously pursuing the Phase Two agreement, after securing what he viewed as a "victory" in the Phase One deal, Professor Tu argued.

"For Trump, what he got [from the Phase One deal] was enough for his reelection campaign. It's enough for him to brag about his 'achievements.' Do you think US voters would care about what Chinese state-owned enterprises do? From a political perspective, what Trump has secured from China is definitely more important to him," Tu said.

Issues such as government subsidies to Chinese state-owned enterprises and China's allegedly unfair industry policy are expected to be the focal points of bilateral trade negotiations on a possible Phase Two agreement.

Other Chinese scholars expressed concerns that negotiations on the Phase Two deal could lead to increased tensions again.

"If both sides start negotiations on the Phase Two agreement at once, they could again have a lot of disputes and lead to escalation of tensions again because of the disagreements. That's why we need to keep a close eye on when both sides decide to start trade talks on the Phase Two deal," Zhang Baohui, the director of the Center for Asian Pacific Studies at Hong Kong's Lingnan University, told Sputnik.

Professor Zhang suggested that the bilateral competition between China and the United States was expected to continue, even after both sides reached the Phase One Trade Agreement.

"The overall situation of the bilateral relations between China and the United States has very little connection with the trade talks. That's because both countries have entered a stage of full-scale strategic competition. Whether they can reach a trade deal or not is not related to their strategic competition on geopolitics or security. That's why the trade deal won't change bilateral relations in other fields," he said.

The expert argued that either side was unlikely to offer concessions on other bilateral issues in order to reach a Phase Two trade agreement.

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