This article covers the phase one trade deal between China and the U.S.; the issues involved, the promises made (and not made), and why we shouldn’t get excited yet.

People are celebrating the Phase One completion of the U.S.-Sino Trade Deal. They really shouldn’t. Nothing is resolved. It isn’t even signed yet, and we’ve had deals already done and burned before signing in this trade conflict alone (Reuters, 2019).

I have outlined in a massive essay the many, MANY reasons that China and the U.S. won’t be able to agree on a trade deal (especially under the current leadership); read more to get all the gory details at length here. Throughout this article, I have covered most of these issues in greater depth before, but I’ll give the overview in this article and you can read whichever articles in more depth by yourself.

Trade Deal Currently

China and the U.S. have agreed to a temporary trade deal, or ‘Phase One of a Trade Deal’, or whatever language you’d like to use. It includes deferring further increases in the billions of tariffs on China, from 25% to 30% (AFP, 2019a).

Agriculture is the main area of discussion, currently (Reuters, 2019). Why? Because China needs food, and badly. We discuss this more later this article.

The good news is that both the U.S. trade representative and the Chinese Ministry of Commerce have confirmed the talks are going well (Reuters, 2019; Zhou et. al., 2019). Take this with a pinch of salt; Trump has an election coming up and a flagging economy; Xi has to maintain his own economy with mounting downward pressure. Both sides want their people to think this will be over soon. Neither sides actually want to give up, however.

The technology issues? Not mentioned. The IP issues? Not mentioned. The hacking issues? Not mentioned. Chinese dumping of goods? Not mentioned. Chinese domestic issues? Not mentioned (Baker, 2019). All of which the U.S. has brought up before, and now are the core of the anti-Chinese sentiment in the U.S.

Another difference is this; the White House states that China has promised to do the following: agriculture purchases, exchange-rate reform, IP and technology transfer issues, and enforcement mechanism (Huang, 2019).

What does China say it has agreed to? Nothing. Not a word has been written yet (Huang, 2019). Even the promise to buy agriculture goods at all are said to come with the price of the U.S. rolling back tariffs; something the U.S. side has ignored. Liu He has said nothing specific in his speech, just vague references to doing something. It wasn’t even an agreement to him; it was a foundation for a future agreement (Bloomberg, 2019).

China

China has been struggling with securing food; pork prices have risen to a degree that even everyday Chinese people are talking about it, and prices are rising across the board (in Beijing, there has been a 7% rise in the minimum price of taxis, as well as a 33% rise in the basic price of subways, food prices have rising steadily; all of which are costs that apply across all of society); we have discussed this in greater depth here.

China has striven to try and correct this issue via finding new trade partners (primarily South East Asia, Brazil, and Argentina) as it has banned buying agricultural products, but this has proven mostly unsuccessful.

Not only that, but under the trade war, we have found that China’s economy may be stable, but it is shaking and there are multiple issues regarding GDP growth and yuan depreciation covered in this article. Recently, China’s GDP growth has officially hit 6% (we explore the likelihood of that here), which threatens the promise of eternal economic growth that the Chinese people were promised under the CCP (AFP, 2019a).

So what has China promised? To buy agriculture products (chicken) from the U.S (Zhou et. al., 2019). I predicted that this would be as far as China would likely be willing to go in a trade deal in June. This is to try and alleviate the problems caused by the food supply issues China is facing; if food is cheaper, people have relatively greater purchasing power, and thus enjoy better lives. The Chinese have a focus on food culturally, and so it is something that the CCP are watching carefully. Xi has himself specifically made Chinese growth one of his core promises to the Chinese people, and so his ‘Mandate of Heaven’ depends on keeping that (Chotiner, 2019).

There is discussion about China facing ‘audience cost’; that Xi placing so much emphasis on national greatness and then caving to the U.S. would cost him; however, China has a great amount of control over the media, and it can spun as a Chinese victory very easily (Chotiner, 2019).

Huawei

So much has happened with Huawei since I last talked about them and the ban on them.

My prediction that Huawei would pull back from the world proved to be correct (AFP, 2019b). Huawei had to cancel new product launches, as they were unable to produce the new chips, as I said (BBC, 2019a). I also predicted that a Huawei OS would not do well abroad; this has been agreed upon by other experts (Yu, 2019). Finally, I predicted that China would shovel cheap capital into it’s own SEO’s, including Huawei to support it. In fact, China has given it $30 million from the China Development Bank to try and help it internationally to solve these issues (Lake, 2019). China has, however, begun new work on mines to produce the rare metals to produce these chips (Tabeta, 2019).

Huawei has found itself under immense pressure from the U.S. trade war and specific targeting by the U.S.. China has specifically asked multiple times for this pressure to be removed from Huawei by the U.S., with no response from the U.S. (Huang, 2019).

United States

China has promised to buy U.S. chicken, and the U.S. has promised to buy some cooked chicken products (Zhou et. al, 2019). Read the list of demands and issues that China and the U.S. have, and tell me you think this issue is solved. Trump at least was willing to stop the 10th October trade tariff increase he planned; he does still plan to increase tariffs in December, to maintain pressure (Baker, 2019; Huang, 2019).

Why is agriculture so important? Trump has an election soon, and he needs farmers (a core supporter of his) to support him; China has completely stopped buying U.S. goods, hurting their support for him as well as their own life styles.

China has specifically said it won’t buy more products (specifically soy) unless the U.S. cancels tariffs (Reuters, 2019). If Trump does this, Trump looks weak. His trade representative is still Robert Lighthizer, and Lighthizer is still a hawk on China. However, this could be a mistake; agriculture is an area that both Democrats and Republicans support, and Chinese attacks on agriculture has led to bipartisan support for anti-Chinese measures as a response (Chotiner, 2019). Chuck Schemer (Democrat), Marco Rubio (Republican), Chris Van Hollen (Democrat), AOC (Democrat), Trump (Republican); high-profile members of both parties are now gunning for China across the board (Lake, 2019). Anyone who is marginally pro-China is being attacked; Kevin McCarthy was attacked for removing anti-Chinese language from a bill (Lake, 2019); Presidential hopeful Joe Biden is attacked for his son’s investment by China (BBC, 2019b). The NBA caving to China on political issues has led to across the aisle political condemnations, including Vice President Mike Pence and Trump, as well as attacks on Nike and Apple (BBC, 2019c).

However, some good news for the end of the war; recently, John Bolton was removed from Trump’s staff, reducing the anti-Chinese party in the White House (Baker, 2019).

Trump also faces the risk of audience cost; should he cave to China, he will look weak at election time, with his aggressiveness being one of his key selling points. There is also another point; Trump may flit between topics, but he has always focused on China. He doesn’t focus on anyone else (Russia, Turkey, Iran), but China has his full attention. Not only does he face audience cost if he backs down to China after getting elected on fighting China, but he personally has had opinions on China twenty years before he was elected (Chotiner, 2019).

Conclusion

Enforcement remains an issue; no one has said yet what enforcement would look like, and it has been the death of previous trade deals attempts.

Secondly, nothing has been written down. The specifics matter when both countries are jostling for position and ideologically opposed, with two leaders known for being strong and placing their own nation above others.

However, both China and the U.S. want their parts of the trade deal; Trump needs to appease his voting base with a strong economy, and China is facing deflationary pressure from multiple factors, from the trade war, increasing food prices, increasing green policies, and inflationary deficit spending.

We shall know more in November when they meet and pen meets paper; until then, calm down. Nothing has happened, and it is not certain it will happen.