Trade talks between the United States and China have reached an agreement for the time being. However, vigilance must be maintained against a reoccurrence of the confrontation.
The U.S. government has suspended the planned imposition on Sunday of new tariffs against China. It had planned to newly impose a 15% tariff on $160 billion (about ¥17 trillion) worth of Chinese products, but decided not to go through with it.
In return, the Chinese government will significantly increase its purchases of U.S. agricultural products, including soybeans. Beijing did not invoke any of the retaliatory tariffs it had planned for Sunday against the United States.
The fact that further confrontation between the United States and China has been avoided is a welcome development. However, a cause of possible conflict still remains, as the amount of agricultural products to be purchased by China remains unclear.
The “exchange of sanctions and retaliation” in which the two economic powerhouses have imposed tariffs on each other has had a negative impact on the global economy. To prevent the situation from worsening further, both sides should observe the terms of the agreement.
The U.S. currently imposes an additional 25% tariff on Chinese products worth $250 billion and an additional 15% on $120 billion worth of products. Many are corporate-use products.
Products that were to be covered by Sunday’s planned new tariffs were mainly consumer products such as smartphones, personal computers and game consoles. Introducing new tariffs on such products would have increased prices on imported items, dealing a blow to U.S. consumer spending, which accounts for about 70% of the nation’s gross domestic product.
U.S. President Donald Trump may have thought this would be a negative factor for next year’s presidential election, in which he is seeking another term.
China demanded that all punitive tariffs imposed against China be abolished. But the two sides compromised to halve the punitive tariff on $120 billion worth of products from 15% to 7.5%. The decision was apparently a realistic one, putting priority on avoiding a breakdown of negotiations.
According to the U.S. explanation, China agreed to strengthen protection of intellectual property rights and to stop forcing foreign companies to transfer technologies.
It remains unclear how far the two sides have agreed. It is vital that tangible results be achieved.
The latest move was only a “Phase One” agreement, covering matters on which it is relatively easy to come to terms.
“Phase Two” will focus on structural problems, such as excessive subsidies by the Chinese government to domestic companies. There is also a gap between the United States and China, as Washington wants to start talks on Phase Two with China as soon as possible and China is taking a cautious stance. The future cannot be viewed with optimism.
The United States is concerned about China’s government subsidies because they would distort the competitive environment of the market if companies expand their businesses with massive government support.
Japan and the European Union have also pointed this out, but China has not listened. As long as China enjoys the benefits of free trade, it is time for the Chinese government to move forward with reforms.
— This article appeared in the print version of The Yomiuri Shimbun on Dec. 15, 2019.