Interpreting phase one of the China-United States trade deal

Yesterday, Xinhua News carried an announcement that phase one of a trade deal between China and the United States has been agreed, subject to lrgal review, checking and translation.

If you read the report, the initial impression might be that China has ceded more ground than the United States. While the latter agrees to stop raising tariffs and to begin the process of winding them down, the Chinese side agreed to the following:

‘Implementation of the agreement will help enhance intellectual property rights protection, improve the business environment, expand market access, better safeguard the legitimate rights and interests of all companies including foreign firms in China’.

Various ideologues have been banging upon about the mythical ‘forced technology transfer’ to China, as well as breaches in intellectual property rights. I have commented earlier on how a thief always thinks someone else is a thief, as well as asking how a country that is now ahead in so many areas can ‘steal’ backward technology from someone else.

But as Sunzi said in ‘The Art of War’ quite some time ago, know your enemy better than he knows himself. The Chinese are happy to let the United States continue with its delusions, so that what seem like like concessions are not concessions at all. China has already taken the lead in intellectual propert rights (Alibaba, for instance, has won international awards for its stunningly high  levels of security), and when you use a Chinese-made phone – for instance – your privacy is protected far more than anywhere else in the world. If you see a paradox here, then you are right at one level: a communist state can protect your privacy far better than a bourgeois state. Indeed, all of the items mentioned above are part of the standard process in China, so no surprises.

But there are some items worth noting. To begin with, any discussion of state owned enterprises has been dropped from the agreement. China will simply not budge on its socialist model, so the US side has clearly backed down. Further, the agreement explicitly states that there will be ‘bilateral assessment and dispute settlement’. Earlier, the United States had insisted that it would adjudicate on whether China had honoured its side of the agreement. No-one would accept this in an agreement, so this has clearly been dropped in favour of a bilateral process. Finally, a crucial sentence points out that the agreement will ‘protect the legitimate rights and interests of Chinese firms in their economic and trade activities with the United States’. This is a major move, since – if implemented and followed – arbitrary targetting of Chinese enterprises on bogus ‘national security’ issues will be far more difficult.

Worth noting also is the point that China has agreed to import more US goods, not merely agricultural goods but also high-quality goods. The United States does have a few high-quality goods left to sell, but for some time now China has been leaping ahead, and the trade war of the last two years has enhanced that process. The direction will increasingly be the other way.

There is one last point that the agreement makes clear: China no longer needs the United States for prosperity, while the United States clearly needs China. How so? The United States has suffered double the economic damage compared to China, which has withstood the stress test remarkably well. So the United States has increasingly been keen to settle a deal. For example, Chinese trade with the United States is now about 10 percent of China’s total. Yes, 10 percent. Before the trade war began, it was 20 percent, but China has adeptly diversified, with countries involved in the Belt and Road Initiative, Africa and Europe. Of course, China would like smooth trade relations with all countries, but the time of reliance on the United States is over. No wonder the United States wanted a deal.

 

A frightful hobgoblin …

You may or may not know that the first English translation of the Communist Manifesto (in 1850) translated the famous opening first line as:

A frightful hobgoblin stalks throughout Europe.

Unfortunately, the hobgoblin turns up only once, for it is soon replaced with the ‘ghost’.