What’s Next for the China Trade Deal

What’s Next for the China Trade Deal

China has dominated U.S. headlines for nearly a year. Positive steps in the China trade deal were hard won, and then the coronavirus came along and complicated the situation…

To add fuel to the fire, there were barbs exchanged between the two nations over domestic protests and riots, crackdowns in Hong Kong, the situation of Muslim Uighurs and Chinese expansion in the South China Sea. The background noise of a global recession is not helping matters.

Have events spun out of control? Is the trade deal a loss? What is going on behind the scenes, and what can we expect now?

Where We Stand

In June, some were ready to pronounce the trade deal dead and rumors abounded that President Trump was ready to back out.

Trump economic adviser Stephen Moore recently spoke about China trade in an interview on the Dan Bongino podcast and was asked how do we deal with China given that they are one of the world’s biggest economies and still integral to the global supply chain?

Moore advises that we should always remember that China is a communist country and can never be considered a friend. He goes on to warn that we are in a new cold war with them.

“We have to treat them as an adversary. They cheat, they steal — we saw what happened with coronavirus… I think we need to get very tough with China,” he continues, referring specifically to the Chinese Communist Party (CCP).

He favors moving away from a focus on trade with China and working more closely instead with nations like India, Taiwan, Singapore and Vietnam.

Tough talk on China will surely play well with many potential Trump voters as the 2020 election draws near.

But politics and economics also conspire to make it in Trump’s — and Xi’s — interest to work something out.

Apparent cracks in the U.S.-China relationship were sufficient to bring about an impromptu face-to-face high-level meeting in Hawaii on June 17 between Secretary of State Mike Pompeo and top Chinese diplomat Yang Jiechi.

“Former U.S. officials and outside analysts expect few, if any, diplomatic breakthroughs,” reports Politico, “It’s possible, though, that the meeting could help dial down the heated rhetoric on both sides, at least for a while.”

The trade deal is on track, assures White House negotiator Robert Lighthizer, despite crackdowns and China falling behind in agreed-upon purchases of U.S. goods.

“Every indication is that in spite of this COVID-19, they are going to do what they say,” Mr. Lighthizer explained regarding China in a House Ways and Means Committee hearing. “We have an excellent agreement.” [1]

Lighthizer emphasizes that it is not within the purview of the negotiators to solve all of the problems between the two nations and that work on the agreement and follow-up on its provisions can and will go forward.

Phase one of the deal did not take effect until Feb. 15, and some implementation was slowed by coronavirus shutdowns. Additionally, there is often a time lag for large purchases to go through.

U.S. Secretary of State Mike Pompeo seems to be in agreement with Lighthizer’s optimism.

“During my meeting with CCP Politburo Member Yang Jiechi, he recommitted to completing and honoring all of the obligations of phase one of the trade deal between our two countries,” Pompeo tweeted on June 18.

Assistant Secretary of State for East Asia David Stilwell went on to qualify Pompeo’s remarks, saying, “The relationship needs to be more reciprocal and we raised quite a few of these issues, and I’ll leave it to you to determine whether they’re going to comply or not.”

Further details are not forthcoming at this point from either party. Whether or not substantive gains were made, perhaps the fact that both groups could get a better feel for the other’s intentions and priorities is a positive step forward.

So What Now?

Further, igniting another trade war would only harm the two superpowers as they struggle against recessionary economies.

One unnamed source who claims to have been briefed about the Hawaii meeting spoke to Reuters, saying, “[Trump is] stuck with a lemon. He gets an empty agreement if he sticks with it, and he gets more actions that create an economic drag and more volatility if he abandons it.”

However, officials on both sides of the trade deal came out of the Hawaii meeting vowing to forge ahead with the deal.

Early indicators are that China is going to ramp up purchases of U.S. agricultural products to make up for the shortfall in this area during the spring. Products on the table include corn, soybeans and ethanol. Corn and soybean markets reacted positively immediately following this news.

An unnamed source said the Chinese government has asked state-owned agricultural buyers to make all efforts to meet the phase one agreement, reports the South China Morning Post.

State Department spokeswoman Morgan Ortagus shared further news from the Hawaii meeting, saying that steps to increase transparency between the two nations were discussed, especially in terms of the COVID-19 pandemic or any future pandemics. [2]

It is tenuous to have any kind of high hopes for this trade deal amid all the other points of tension between the U.S. and China. However, these trade talks are presently one of the very few areas of ongoing cooperation between the two nations.

It’s not much to hang expectations on, but perhaps recession concerns will serve to continue to propel the fragile deal forward.

With purpose,

Dr. Patrick Gentempo

Patrick Gentempo

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