Step 2? Two Years Later? The US-China Trade War Still Leaves Questions Unanswered

[Image source=AP Yonhap News]

[Asia Economy Beijing=Correspondent Sunmi Park, Reporter Hyunjin Jung] With the United States and China finally signing the Phase One trade agreement, the trade war between the two countries has entered a temporary ceasefire. The general consensus is that U.S. President Donald Trump, who relentlessly pressured China for two years, has ultimately emerged victorious, and that this development has also helped reduce global economic uncertainty. However, since the agreement is valid for only two years and the fundamental causes of conflict between the two countries remain unresolved, some analysts believe that there is still a long way to go before tensions are fully eased.

◆ Additional $77.7 Billion Purchase of Manufactured Goods = The 96-page Phase One trade agreement released by the U.S. Trade Representative (USTR) on the 15th (local time) includes provisions for China to import an additional $200 billion (approximately 231.7 trillion KRW) worth of U.S. goods and to ease restrictions to allow for increased imports in the future. China agreed to shorten the approval period for U.S. agricultural products using new bio-technologies from the existing 5-7 years to an average of 24 months. It also promised to remove the U.S. sanctions list that partially restricts imports of beef, pork, poultry, seafood, dairy products, rice, infant formula, and animal feed.

The agreement also includes provisions on intellectual property (IP) infringement and the prohibition of forced technology transfer, which the U.S. has consistently demanded. Notably, the first and second chapters of the agreement focus on IP and technology transfer to emphasize their importance. China committed to developing an action plan to protect IP within 30 business days after the agreement and to impose appropriate criminal penalties if IP infringement occurs. Regarding technology transfer, China agreed not to require U.S. companies to transfer technology as a condition for doing business or obtaining regulatory approval. However, the agreement does not include demands for China to amend related laws or regulations.

The agreement also stipulates opening China's financial services market and increasing transparency in exchange rate and monetary policies. Foreign ownership restrictions were lifted to allow financial companies, from payment services like Visa and MasterCard to insurance, to enter the Chinese market, and China promised not to engage in competitive currency devaluation.

The agreement between the two countries is expected to have a positive effect on the global economy in terms of trade. The International Monetary Fund (IMF), which projected global economic growth at 3.4% for 2020, plans to revise its forecast on the 20th of this month. It is expected that the figures will be adjusted upward to reflect the Phase One U.S.-China trade agreement. Previously, after the signing of the Phase One agreement, the IMF suggested that China's economic growth rate could rise from the forecasted 5.8% to 6% this year. The U.S. economy is also expected to benefit from the removal of trade-related uncertainties, improving the weakened manufacturing sector. U.S. Treasury Secretary Steven Mnuchin cited the Phase One agreement as an important factor contributing to the U.S. achieving its 2.5% economic growth target this year.

However, there are concerns that if China reduces trade with other partners during the implementation of the agreement, it could create new sources of global economic instability. Japan's Nihon Keizai Shimbun expressed worries that "if China prioritizes imports from the U.S., the market shares of other trading partners like Japan could decline."

◆ Merely a 'Temporary Ceasefire'... Difficulties Expected in Phase Two Negotiations= Although the Phase One trade agreement has been finalized, local media reactions remain cautious. The Washington Post (WP) in the U.S. evaluated, "Focusing on improving the trade deficit with one country is not much different from plugging a leaking dam with a finger." China's state-run media Global Times also commented on the same day, stating, "Both sides have some regrets about the Phase One agreement" and "They are not completely satisfied." It added, "Although the Phase One agreement has been finalized, significant uncertainties remain, and it may be more difficult for the U.S. and China to reach a more comprehensive trade agreement."

Economist Zhang Yansheng of the China Center for International Economic Exchanges (CCIEE) mentioned Huawei, saying, "The implementation of Phase One should not be one-sided. If the U.S. refuses to sell products to China and China fails to purchase the targeted amount of U.S. products, who should be held responsible for non-compliance?"

Many challenges remain to be addressed. It is currently unclear what will happen after the two-year validity period of the Phase One agreement ends, and when and on what agenda Phase Two negotiations will take place. The "Huawei sanctions," considered the biggest flashpoint in U.S.-China tensions, were not discussed in the Phase One trade talks. The Wall Street Journal predicted, "Numerous difficult issues, including subsidies to Chinese state-owned enterprises, which are at the core of the trade war, will be addressed."

The uncertain outlook is expected to further increase global economic uncertainty. The U.S. Federal Reserve (Fed), in its Beige Book economic report released on the same day, pointed out that while the U.S. economy is expanding moderately, uncertainties surrounding trade are impacting the weakening manufacturing sector.

This content was produced with the assistance of AI translation services.