President Trump last Friday announced tentative agreement on the first installment of a possible multi-stage deal to end the year and a half trade war between the United States and China. “The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country,” boasted Trump, saying China had pledged to buy $40-50 billion in U.S. agricultural products while also claiming agreement on financial services, currency, intellectual property, and technology transfer.  He said the U.S. would further postpone a planned tariff hike while the details are worked out.  Our detailed analysis on this tentative deal can be found here.

While this tentative deal signals a de-escalation in trade tensions that serves both sides, it is not likely, by itself, to stabilize the U.S.-China economic relationship in a durable way that lifts the uncertainty facing global businesses. The Federal Reserve has estimated that trade policy uncertainty could sap $850 billion — 1 percent — from the global economy in 2020, and the IMF assesses that the ongoing U.S.-China trade tensions alone may shave $700 billion, or 0.8 percent, off global output in 2020.

China’s official statements on the tentative “Phase One” deal have been remarkably cautious, noting that “both sides agreed to make efforts toward ultimately reaching agreement,” although the Foreign Ministry today affirmed that China was on the same page as the United States. A “Phase One” deal may well come together in time for Presidents Trump and Xi to announce it on the margins of the APEC summit in mid-November and may lead to postponement of new tariffs scheduled to take effect in December.  But even so, it would only scratch the surface of the differences between the U.S. and Chinese economic systems that underlie the trade tensions and will continue to fuel them into the future. Those tougher issues would be left to negotiations on a Phase 2 deal, and it is questionable whether a comprehensive deal strong enough to warrant lifting all of the additional tariffs levied by both sides since March 2018 can be reached. Nor can a return to tariff escalation be ruled out if these talks bog down.

Moreover, even with an accommodation on trade, national security concerns on both sides and the growing geopolitical rivalry between the U.S. and China will likely continue to create new compliance risks for companies and disruptions to supply chains and business plans as each country seeks to reduce its dependencies on the other, particularly in the technology sector.  Businesses will need to evaluate the specific risks and opportunities for their companies in different potential future scenarios as this the resetting of the U.S.-China relationship continues to unfold in the years to come.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Christopher Adams Christopher Adams

Christopher Adams advises clients on matters involving China and the region. A non-lawyer, Chris served as the Senior Coordinator for China Affairs at the Treasury Department. He coordinated China policy issues across the U.S. government, led negotiations with China on a broad range…

Christopher Adams advises clients on matters involving China and the region. A non-lawyer, Chris served as the Senior Coordinator for China Affairs at the Treasury Department. He coordinated China policy issues across the U.S. government, led negotiations with China on a broad range of trade and investment issues, managed the highest level U.S.-China economic policy dialogues for the Obama and Trump administrations, and advised the Treasury Secretary and other cabinet officials.

Chris helped develop and implement U.S. trade policy toward China with the Office of the United States Trade Representative (USTR) from 2007 to 2015 as Deputy Assistant U.S. Trade Representative for China Affairs, Senior Policy Advisor to the Deputy USTR, and Minister Counselor for Trade Affairs at the U.S. Embassy in Beijing, USTR’s first representative in China.

Chris directed government affairs, public relations, and corporate marketing in China for the Eastman Kodak Company from 2001 to 2006 as Chief Representative for China; Vice President, North Asia Region; and Director, Olympic Programs. During this time, Chris was elected to four consecutive terms as a Governor of the American Chamber of Commerce in China and served on the Chamber’s Public Policy Development Committee.

Chris assisted companies with market access issues as a commercial officer in the U.S. Foreign Commercial Service in Beijing and Taipei, from 1993 to 2001. Before joining the Commerce Department, Chris managed media relations and information programs with the American Institute in Taiwan and directed business advisory services at a private trade association in Washington, DC.