The recent trade deal is a positive first step that has led to a noticeable improvement in US-China relations.

In May 2017, the US and China reached a landmark 10-point trade deal which will open up certain sectors of the Chinese economy, such as credit card provision, to US firms while allowing additional Chinese products, such as cooked poultry, to enter the US.[1] China will also lift its ban on liquefied natural gas (LNG) imports from the US. In return, Chinese banks will be permitted to enter the US market.[2] This new China-trade deal, set to go into action in July,[3] is part of a 100-day action plan of the US-China Comprehensive Economic Dialogue, a one-year initiative to increase US-China economic cooperation.[4]

US agricultural firms stand to gain through the new deal, as now US beef producers will be permitted to export both steaks and livestock to China. The Chinese cooked poultry exports will also benefit the US companies in China which produce cooked poultry, as they will also be able to export this product back to the US. A further outcome is that genetically modified seeds from the US may now also enter the Chinese market. US biotech companies such as Monsanto, DuPont and Dow Chemical have already been looking at the China market.[5]

The US financial sector is also going to benefit from the new arrangements. Under the deal, US credit rating agencies and credit card companies will be allowed to operate as wholly-owned foreign entities in China.[6] Until now, credit ratings companies such as Moody’s and Standard & Poor’s were only permitted to act as joint ventures. This new development will not only increase their business, but improve their risk management capabilities. Furthermore, China has promised to grant full market access to US electronic payment providers. Chinese banks will now be permitted to issue dual-branded cards, for example Industrial and Commercial Bank of China (ICBC) may choose to issue an ICBC Master Card. This is expected to give a tremendous boost to the American brands. Credit card provision was the subject of an Obama-led complaint to the WTO in 2012; however, under Trump, Beijing is going to allow US credit card providers such as Visa, MasterCard and American Express a larger share of the Chinese market. Another improvement in the financial sector is that both bond underwriting and settlement licensing will be granted to US firms. JPMorgan Chase and Citibank have both been granted licenses.[7]

US Secretary of Commerce Wilbur Ross spoke in praise of the deal, stating that it should help to reduce the US trade deficit with China by the end of the year.[8] The deal is significant as it represents a less confrontational approach in the Trump-China dynamic. It may also pave the way for more American firms to tap into China’s growing middle class. In return, China’s banks, which are the largest in the world, will gain access to the much coveted US market. With the signing of the deal, Beijing also wins a soft power victory by improving its image to the US and the world. Further proof of a shifting US attitude toward China was Donald Trump’s concession to send US representation to the Belt and Road Initiative forum held in Beijing on May 15 and 16, 2017. The US president had originally said the US would not participate, but with an agreement from Beijing regarding a shift in trade policy, the US appears more willing to at least engage with China’s massive, global connectivity project.[9]

Secretary Ross has called this deal “The first real breakthrough we have had with China in decades.”[10] He attributes this sudden progress to “the personal chemistry between President Xi Jinping and President Donald Trump.” As evidence, he pointed out the fact that the deal comes just a month after the meeting between the two heads of state at Trump’s Mar-a-Lago resort in April, 2017. Secretary Ross stated that the US had never had trade agreements with China before “with this precision to solve long standing trade problems.”[11] He also marveled at how quickly the deal was not only agreed upon, but how soon it will go into effect. These types of trade deals typically take months or years, rather than weeks.

Larry Kudlow, a former Ronald Reagan adviser, has heralded the trade agreement as great news, saying that both the president and Wilbur Ross have softened their China stance, averting a trade war. Mr. Kudlow went on to say that the deal will create jobs at home while helping both economies. In a video interview he also stated “I really like the China situation, both economically and strategically.”[12]

Belpoint Chief Strategist, David Nelson echoed Mr. Kudlow’s sentiments, saying that the deal was excellent news because beef, combined with the LNG, would amount to billions of dollars of trade. He also saw the deal as the first step in a long term strategy which will eventually open markets for US industries, and that by establishing these friendlier trade ties now, the stage will be set for better negotiations on serious issues later. In a video interview, he told Newsmax, “Trade can be a very effective foreign policy tool.”[13]

While many see the deal as a positive advancement, some Americans are criticizing the deal by saying that China stands to gain more than the US. Robert Atkinson of the Information Technology and Innovation Foundation said that China had outmaneuvered the US once again as the new deal opened Chinese markets to only a few US industries, while giving China the opportunity to buy up US businesses.[14] US Representative Brad Sherman agreed, saying “This is a complete capitulation to China. Trump has betrayed working families.”[15] Representative Sherman expressed his belief that US beef going to China will help make up the trade deficit, but he was very upset about accepting Chinese chicken as the US would not be able to regulate it and it may be unsafe to eat.[16]

Even those who support the deal do not see it as a panacea. Most experts agree that the China trade deal will help to make up some of the trade deficit; however, it is unlikely to result in US job creation.[17] Representative Keith Rofthus of Pennsylvania took a more balanced approach in his assessment of the deal, saying that it would probably help agriculture in his state; however, there are numerous issues which still need to be addressed in China trade, such as anti-dumping. He went on to express that much work would be necessary before trade with China could be called fair.[18] While a number of markets have been opened to US companies, a number of key issues have yet to be addressed, such as US firms being subjected to mandatory technology transfer.[19]

In an interview with Fox News, Brad Blakeman, former advisor to President George W. Bush, called the trade deal “a good first step”, but only a first step. He also said it was good that the US is going slowly with the deals as a deal is only as good as the ability to enforce it.[20] Pushing too hard or moving too fast could cause a backlash and shut the dialogue down completely. James Freeman, assistant editor for the Wall Street Journal, in the same interview said that the trade deal was a great success and if Trump can continue in this way, he could keep opening the Chinese market, and eventually get the Chinese to stop demanding joint ventures and stop stealing intellectual property. Brad Blakeman went on to say that he believed that as a result of the deal, the US would have more engagement with China which would hopefully improve the relations between the two countries.[21]

US-China trade, while extremely important to both countries, has been fraught with allegations and distrust. Until very recently, US-China relations have been at an all-time low. It would be extremely naïve to expect a single trade deal to heal decades of disputes. This trade deal is clearly a very positive first step which has led to a noticeable improvement in US-China relations. The relationship between Xi Jinping and Donald Trump promises to smooth over some of the rough patches of the past and hopefully, deal by deal, negotiation by negotiation, bring US-China trade into some type of balance that both sides can find acceptable.

References

[1] US and China sign trade agreement, BBC News, May 12, 2017, http://www.bbc.com/news/business-39894119

[2] BBC, US and China sign trade agreement, BBC News, May 12, 2017, http://www.bbc.com/news/business-39894119

[3] Eunice Yoon, Here’s who wins with the new US-China trade deals, CNBC, May 12, 2017, http://www.cnbc.com/2017/05/12/heres-who-wins-with-the-new-us-china-trade-deals.html

[4] Andrew Soergel, The Trump Team Announces China Trade Progress, US News and World Report May 12, 2017, https://www.usnews.com/news/slideshows/china-trade-deals-retail-rebounds-5-things-to-know-about-the-economy

[5] Eunice Yoon, Here’s who wins with the new US-China trade deals, CNBC, May 12, 2017, http://www.cnbc.com/2017/05/12/heres-who-wins-with-the-new-us-china-trade-deals.html

[6] BBC, US and China sign trade agreement, BBC News, May 12, 2017, http://www.bbc.com/news/business-39894119

[7] Eunice Yoon, Here’s who wins with the new US-China trade deals, CNBC, May 12, 2017, http://www.cnbc.com/2017/05/12/heres-who-wins-with-the-new-us-china-trade-deals.html

[8] US and China sign trade agreement, BBC News, May 12, 2017, http://www.bbc.com/news/business-39894119

[9] US and China sign trade agreement, BBC News, May 12, 2017, http://www.bbc.com/news/business-39894119

[10] Fox Business News, interview with Secretary of State Wilbur Ross, published on May 12, 2017, Viewed on May 14, 2017 at 16:43 Beijing time, https://www.youtube.com/watch?v=BxhQiAuPDaY

[11] Fox Business News, interview with Secretary of State Wilbur Ross, published on May 12, 2017, Viewed on May 14, 2017 at 16:43 Beijing time, https://www.youtube.com/watch?v=BxhQiAuPDaY

[12] F McGuire, Kudlow: China Deal Is ‘Huge’ Accomplishment for Trump, News Max, May 13, 2017, http://www.newsmax.com/Finance/StreetTalk/kudlow-trump-china-huge/2017/05/13/id/789930/

[13] Fox Business News, Is the China trade deal a good move with the America?, Viewed on May 14, 2017, at 22:35 PM Beijing time, https://www.youtube.com/watch?v=oGRBNIO6B4M

[14] Andrew Soergel, The Trump Team Announces China Trade Progress, US News and World Report May 12, 2017, https://www.usnews.com/news/slideshows/china-trade-deals-retail-rebounds-5-things-to-know-about-the-economy

[15] Fox Business News, Rep. Sherman on U.S.-China trade deal: Trump betrayed working families, Posted on May 12, 2017, viewed on May 14, 2017 at 22:05 PM, Beijing Time. https://www.youtube.com/watch?v=mWfdtkzAlXI

[16] Fox Business News, Rep. Sherman on U.S.-China trade deal: Trump betrayed working families, Posted on May 12, 2017, viewed on May 14, 2017 at 22:05 PM, Beijing Time, https://www.youtube.com/watch?v=mWfdtkzAlXI

[17] Fox Business News, Rep. Sherman on U.S.-China trade deal: Trump betrayed working families, Posted on May 12, 2017, viewed on May 14, 2017 at 22:05 PM, Beijing Time, https://www.youtube.com/watch?v=mWfdtkzAlXI

[18] Fox Business News, Rep. Sherman on U.S.-China trade deal: Trump betrayed working families, Posted on May 12, 2017, viewed on May 14, 2017 at 22:05 PM, Beijing Time. https://www.youtube.com/watch?v=mWfdtkzAlXI

[19] Eunice Yoon, Here’s who wins with the new US-China trade deals, CNBC May 12, 2017, http://www.cnbc.com/2017/05/12/heres-who-wins-with-the-new-us-china-trade-deals.html

[20] Fox News, Trade deal a good first step in US relations with China?, Fox News, May 12, 2017, viewed on May 14, 2017, at 22:00 PM Beijing Time, https://www.youtube.com/watch?v=r5czWygOhKA

[21] Fox News, Trade deal a good first step in US relations with China?, Fox News, May 12, 2017, viewed on May 14, 2017, at 22:00 PM Beijing Time, https://www.youtube.com/watch?v=r5czWygOhKA