“Jaw, jaw is better than war, war.” These words of former British prime minister Harold Macmillan (wrongly attributed to Winston Churchill) are the right response to the “phase one” trade agreement between the US and China. The agreement has huge defects of omission and commission. The conflict is far from resolution. US objectives also remain confused and confusing. But the two superpowers have at least reached an agreement. The preamble to the agreement even states that “it is in the interests of both countries that trade grow”. This is a truce, not peace. It leaves a high level of protection in place. Yet a truce is welcome.
The deal itself covers intellectual property, “forced” transfer of technology, agriculture, access for financial services and currency manipulation. It also includes a commitment by Beijing?to “import various US goods and services over the next two years in a total amount that exceeds China’s annual level of imports for those goods and services in 2017 by no less than $200bn”. That implies a rough doubling. The agreement, equally notably, includes a tough bilateral dispute resolution system. Finally, the agreement leaves the vast bulk of US tariffs in place, while forgoing — or maybe merely postponing — additional ones.
Note that many of the new Chinese policies announced by the agreement are already in place. As Weijian Shan, a well-informed outside investor, notes in Foreign Affairs, China had begun lifting restrictions on foreign ownership, including in financial services. It has strengthened laws protecting intellectual property. And China has also long since ceased to manipulate its currency. In these areas, the US is pushing on an open door — or at least one that its Chinese counterparts in these negotiations want to open, in China’s own interests. The results will be good for China’s economy.