Mains Daily Question
March 9, 2020
Q. US has recently signed up the first phase of a trade deal with China in a push to stop economic conflict. Critically analyse the deal in the light of the fact that a trade war has been going on for the past 18 months between these two countries thereby affecting the entire global trade.
A protracted trade war between US and China has been going on since America slapped heavy tariffs on imported steel and aluminium items from China in March 2018, and China responded by imposing tariffs on billions of dollars worth of American imports. The dispute escalated after Washington demanded that China reduce its $375 billion trade deficit with the US, and introduce verifiable measures for protection of Intellectual Property Rights, technology transfer, and more access to American goods in Chinese markets.
As per the IMF, the US-China trade tension was one factor that contributed to a significantly weakened global expansion late last year, as it cut its global growth forecast for 2019. It has exacerbated the uncertainty in the global trading environment, weakens the rules-based system, affects global sentiment negatively and adds to risk aversion globally. The tariffs can also hamper the rebound in the US economy, with consumption and jobs likely to take a hit, as these tariffs would be paid by American consumers and businesses. For China, the higher tariffs will have a significant negative effect on exports, against the backdrop of a slowing economy. South Korea, Malaysia, Taiwan and Singapore are the economies most at risk in Asia based on trade openness and exposure to supply chains involving China.
Key Highlights Of The Deal
In the backdrop of negative impact of trade tension, as mentioned above, US and China has signed the first phase of the trade deal to diffuse the tension. This includes:
- Intellection Property (IP) Protection and Enforcement,
- ending forced technology transfer, dramatic expansion of American agriculture,
- removing barriers to American financial services, ending currency manipulation,
- rebalancing the US-China trade relationship and effective dispute resolution.
- The centrepiece of the deal is a pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017.
- The deal, however, leaves in place tariffs on about $360 billion in Chinese imports till the time the second phase of the trade deal is agreed.
- The US has dropped plans to impose tariffs on an additional $160 billion in Chinese imports.
Analysis Of The Deal
- The deal shows how the two countries can resolve their differences and find solutions based on dialogue. This historic agreement includes a major commitment by China to make significant reforms in a wide range of critical areas and to make substantial additional purchases of American goods and services in the coming years. It aims to resolve some longstanding American concerns about Chinese trade abuses.
- However, the accord appears to leave questions about how Washington and Beijing will enforce its terms and prevent further tensions.
- The deal fails to address structural economic issues that led to the trade conflict, does not fully eliminate the tariffs that have slowed the global economy, and sets hard-to-achieve purchase targets, analysts and industry leaders said.
- Although the deal could be a boost to U.S. farmers, automakers and heavy equipment manufacturers, some analysts question China's ability to divert imports from other trading partners to the United States.