Monthly Article

May 2017 Monthly Article – US China Trade Deal

On May 11, U.S. Commerce Secretary Wilbur Ross announced a new U.S.- China trade agreement. However, the new deal is not a sweeping general trade agreement – it only targets select sectors. Many of the points in the agreement have been discussed in ongoing negotiations that precede the Trump administration. Much detail still must be revealed, but the major provisions were highlighted by Secretary Ross and his team.

Under the agreement, the agricultural sector figures prominently. China will open its market to U.S. beef shipments, which were canceled after the Mad Cow Disease scare 14 years ago. This has to be good news for U.S. beef producers, which can now access the expansive Chinese market. China also agrees to make decisions on currently outstanding petitions by U.S. companies to export GMO seeds to China. 

By allowing the concessions above, China will receive permission to export cooked poultry products to the U.S. Many industry experts believe that China had been using these two issues as leverage to ultimately have the U.S. open its market to these particular products.

In the financial services sector, China will develop policies to allow greater access to the Chinese market for U.S. credit card companies and electronic payment services firms. China also agrees to provide underwriting and settlement services to U.S. financial institutions. In return, the U.S. commits to treating Chinese banks the same as other foreign banks. To facilitate trade, both countries will work towards an accord pertaining to cross-border clearing agencies. Both countries also will send representatives to business/trade summits that will be held in each country.

A final major area of the agreement involves the ability of China to sign long-term contracts to import liquified natural gas from the U.S. This will help to quench China’s thirst for fuel to power its massive production base, and to serve the expanding population base in the world’s most populous country.

As is the case with most Trump announcements and actions in the first four months of his presidency, the move is generating reactions across the board. On one hand, many representatives of the business community are surprised, because during the presidential election campaign, Trump promised to hold China’s feet to the fire on trade issues by slapping tariffs on Chinese imports, and declaring China a currency manipulator. This would have put into process certain retaliatory measures. By announcing a limited trade agreement with China, Trump seems to have abandoned his campaign stance on China in favor of more trade integration with that country.

Other businesspeople may have a feeling of relief that Trump the campaigner has now been forced to become Trump the realist, who cannot implement his rhetoric without damaging U.S. businesses. To utter a campaign promise is one thing, to have to work within the constraints of national and international systems/agreements is another.

Many of his more fervent supporters may be disappointed that rather than implementing the tough talk, the U.S. has instead broadened its trade policy with China. There are going to be other people who are disappointed or even angered that Trump has negotiated a small trade deal  with China, a historical adversary of the U.S., while clouding the trade issue with our North American partners and allies, Mexico and Canada. I imagine that these two countries would have feelings of bewilderment and secondary importance because of the agreement.

With the announcement of the trade agreement, no hard figures have yet been released whether for better or worse the terms will affect the U.S. trade deficit with China, which in 2016 topped $347 billion. Experts are saying that natural gas and exports to China will help put a small dent in this deficit, but to what extent? Nobody is offering a forecast on these sectors, or how much cooked poultry the U.S. is predicted to begin importing from China.

Under Trump’s “America First” mantra of diplomacy, with the emphasis on reestablishing jobs that the administration claims have been lost to trade, it is unclear how many jobs could be created under this limited agreement – no concrete figures on potential jobs that would be created in the U.S. have been released.

It also is unclear how Trump’s tough-on-trade with China rhetoric during his campaign was strategic in the sense that it facilitated the new agreement. Trump supporters might be quick to make this connection, but others will be quick to discount any concerted strategy, given Trump’s lack of clear trade policy. In the larger sense, this agreement doesn’t include any “get tough on China” provisions, rather it seems like cautious baby steps to test the waters.