Former prime minister Kevin Rudd warned the Morrison government to be vigilant against any collateral damage to Australian farmers in the US-China deal, particularly the more than $400 million in annual wheat shipments to China. He also raised the need to be mindful of any implications for Australia's long-term gas contracts with China.

Amid the elation over the trade deal, a major consequence of the breakthrough is that US Trade Representative Robert Lighthizer and other senior US officials will now begin shifting their attention to WTO reform, a senior source told The Australian Financial Review.

Donald Trump and Mr Lighthizer are fierce critics of the Geneva-based organisation, which they say has allowed some of America's biggest economic rivals to take unfair advantage of the US and its huge consumer markets.

The administration has pursued a strategy over the past two years of steadfastly vetoing judicial replacements to the WTO appellate body, which adjudicates trade disputes between countries. Normally, at least three judges are needed to hear cases and now there is only one left.

In effect, the US has been squeezing the WTO to a standstill.

Mr Trump's WTO assault has raised alarm bells among smaller pro-free trade nations, including Australia, that the President wants to replace the trade body with a "dog-eat-dog/ might is right" system that favours the biggest economies.

"They want to break it down and rebuild it," the source said at the weekend.


"In the administration's view, there's a structural flaw in the WTO that has favoured some nations, with built-in tariffs. The US has been a loser out of that."

Under last week's trade deal, Mr Trump agreed to cancel Sunday's scheduled 15 per cent tariff on $US160 billion ($233 billion) of goods from China and to halve to 7.5 per cent an existing charge on another $120 billion.

However, about $250 billion in Chinese shipments will continue to be taxed at 25 per cent, and any further reductions will be linked to progress in future phase deals, according to Mr Lighthizer.

The US administration says that in return, China has agreed to make changes to rules on intellectual property, forced technology transfers, financial services access and currency manipulation.

The Americans think naturally enough that they got a great deal and didn't give up much and the Chinese gave up a great deal. — Senior US source

Mr Lighthizer told reporters late on Friday (Saturday AEDT) that China would boost its purchases of US goods and services by at least $US200 billion over the next two years, including as much as $US50 billion a year in additional agricultural shipments.

Chinese officials in Beijing, in a midnight media briefing on Thursday, pointedly refrained from citing any figures but insisted that mandated purchases would need to be consistent with market conditions and WTO rules.

Officials in both countries are now busy conducting translations and legal reviews of an 86-page document.


Mr Rudd told the Financial Review it would be incumbent on the Australian government to look carefully at any violation of WTO rules through any prospective US-China agreement, in particular, whether any purchasing agreement undermined existing Australian agricultural exports to China.

"We would also need to be mindful of the implications for Australia's long-term gas contracts with China if Chinese purchases of American natural gas are wheeled into the overall purchase agreement, given the large numbers being talked about on the American side," he said.

Mr Rudd's warning came as the White House began selling the benefits of the trade deal to sceptical investors as well as some of Mr Trump's strongest anti-China allies. Many remain unhappy at the lack of progress in curbing what they see as Beijing's aggressive subsidies for technology and industry, as well as its growing military and cyber rivalry.

Tough enforcement

The administration is pushing back against such "China hawks" by pointing to the inclusion in the agreement of tough enforcement mechanisms, which it says will enable them to maintain pressure on Beijing.

Mr Lighthizer told reporters on Friday the agreement included a chapter on dispute resolution that enabled either party to raise concerns and "take appropriate responsive actions that it deems appropriate".

"The biggest thing is the enforceability – if the Chinese don't comply, they'll go down the enforcement route," said the senior source familiar with the administration's thinking.

"The Americans think naturally enough that they got a great deal and didn't give up much and the Chinese gave up a great deal."


While Mr Trump has vowed to begin negotiations immediately on a "phase two" deal – which may include US demands that China halt subsidies to state-owned farms, and digital trade rules and cyber warfare – others within the administration foresee a period of "trust-building".

In the meantime, the push to begin looking at the WTO will be widely welcomed by countries around the world.

For more than 18 months, Australia has been part of a group of like-minded advanced economies urging the US to engage mutually-beneficial reforms. Subsequent Australian trade ministers – alongside counterparts from countries such as Canada and the UK – have urged Mr Lighthizer to engage and explain how the US would like to reform the WTO.

But those efforts were largely ignored as the Trump administration's top trade official battled China with tariffs and sought to win over Democrats for a revised North American trade deal with Canada and Mexico, known as the USMCA, to replace Nafta.

While the obvious target to any WTO changes spearheaded by the US would probably be China and to some extent India, there could be wider repercussions across the Indo-Pacific region, including on economies such as Malaysia and Indonesia, the source said.

Meanwhile, Mr Rudd cautioned against assuming that the US-China conflict was over.

"It's yet to be seen whether the ceasefire translates into a durable armistice. Let alone a long-term peace agreement. Let alone a long-term return to the status quo ante."


He pointed to the difference in language between the two sides on when phase two would begin.

Mr Trump said on Friday talks would start "immediately", whereas the Chinese said they would begin only once the first phase was implemented.

"This is critical, not least because the fundamental economic and trade problem for the United States – and between China and the rest of the world in critical markets – is China's continuing practice of the state subsidy of Chinese firms (both private and public) selling goods into the international marketplace," Mr Rudd said.

"That has been unaddressed by the phase one deal. And it's unclear, therefore, when precisely it would be taken up into a phase-two deal."