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Opinion | What happens if the US-China phase one trade deal fails?
- Based on available data, it is almost certain that China is not going to meet its import commitments
- What comes next is going to be acrimonious and difficult to manage. But both countries should not destroy the benefits of the trade flows that still exist
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US-China trade relations are about to hit a brick wall, and no amount of spin-doctoring can change that. By December 31, China needs to complete its commitment to increase imports of US goods, an agreement made between former US president Donald Trump and President Xi Jinping in the phase one trade deal signed two years ago.
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Based on available data, it is almost certain that China is not going to meet those commitments. What comes next, as both countries enter a politically sensitive year, is going to be acrimonious and difficult to manage.
The virtual meeting between Xi and US President Joe Biden earlier this month did nothing to assuage concerns that tougher days lie ahead.
Despite these difficulties, both countries need to keep in mind the beneficial aspects of their trading relationship and not ruin decades of cooperation. The work of 2022 will be a salvage operation to keep these two economic engines from going off the rails.
The facts of the disagreement are not controversial. While many diplomatic agreements can be parsed for shades of meaning, this one was rather precise. The United States suspended new planned China tariffs and halved the rate of several existing ones in exchange for Chinese purchases of US$200 billion more of goods than in 2017.
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Unpacking the ‘phase one’ deal for the US-China trade war
Unpacking the ‘phase one’ deal for the US-China trade war
The deal helped temporarily improve ties between the world’s two largest economies after many months of tit-for-tat tariff exchanges. According to recent trade statistics, China’s purchases amounted to 56 per cent of its target through to October 21.
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