Analysis: US-China trade deal

Reading time: 6-8 minutes.

On October 11, the United States and the People’s Republic of China reached a tentative deal towards ending the trade war that has roiled global markets and hammered world growth.

U.S. President Donald Trump, sounded optimistic as high-level trade talks with China seemed to be sailing smoothly. According to him, a trade deal between the United States and China will be signed by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on November 16th and 17th.

The deal announced by the US President offered a temporary reprieve from tariffs planned for mid-October. It did not, however, roll back any of the stinging import duties already imposed up till now on hundreds of billions of dollars in trade between the economic powers. Neither did it address another round of import taxes planned for December.

Chinese Vice Premier Liu, in a rare public speech about the trade war said, “Stopping the escalation of the trade war benefits China, the U.S and the whole world. It’s what producers and consumers alike are hoping for and that they will work to address each other’s core concerns on the basis of equality and mutual respect striving to create a good environment and achieving both sides common goals”. 

The International Monetary Fund estimated that a tentative trade deal reached by Washington and Beijing could reduce the harm done by tit-for-tat tariffs imposed by both countries over the past 15 months.

US-China relations and its implications for India:

The US-China relationship has been described by world leaders and academics as the world’s most important bilateral relationship of the 21st century, as it has the potential to shape global politics.

The relations between the two countries have been, until the last years, quite strong, complex and even somewhat positive in various aspects. Both countries have an extensive economic partnership, and the sheer magnitude of trade between the two countries necessitates constructive political relations.

Yet, significant issues persist. Therefore, each nation has adopted a wary attitude regarding the other as a potential adversary; whilst maintaining a robust economic partnership at the same time. 

Currently China and the United States have mutual political, economic, and security interests, including but not limited to the proliferation of nuclear weapons, although there are unresolved concerns relating to the role of democracy in government in China and human rights in both respective countries.

The relations deteriorated sharply under President Donald Trump, whose administration launched a trade war against China, banned US companies from selling equipment to Huawei increased visa restrictions on Chinese nationality students and scholars and designated China as a “currency manipulator”. 

The disruptions between China and U.S. open up an opportunity for India to expand trade with the US and China by filling in the supply gaps. They also create the strategic possibility that India might attract firms exiting China to use India as an exporting base, thereby improving India’s manufacturing base, creating jobs and further expanding its trade, especially with the US.

Background of the US-China trade war:

The trade war has caused a significant deterioration in China – U.S. relations, with no resolution in sight, as the countries have exchanged tit-for-tat tariffs for over a year, with Trump threatening that more was to come.

President Donald Trump in 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are “unfair trade practices”.Among those trade practices and their effects are the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China.

Trump had advocated tariffs to reduce U.S. trade deficit and promote domestic manufacturing since the 1980s, saying that the country was being “ripped off” by its trading partners; imposing tariffs became a major plank of his presidential campaign. Last July, U.S. President Donald Trump followed through on months of threats to impose sweeping tariffs on China for its alleged unfair trade practices.

So far, the US has slapped tariffs on US$550 billion worth of Chinese products. China, in turn, has set tariffs on US$185 billion worth of US goods. Both sides have also threatened qualitative measures that affect US businesses operating in China.

With neither Trump nor China’s President Xi Jinping willing to back down, US-China trade tensions have erupted into a full-blown trade war. 

Significance of the new deal:

President Donald Trump’s mini-deal with China to keep the trade war from spiralling further has bucked up stock markets and will likely defer another tariff escalation. The Trump administration said that as part of the deal, China would scale its purchases of U.S. farm goods over two years to an annual total of $40 billion to $50 billion. Trump encouraged U.S. farmers to buy more land and Deere & Co. tractors in response.

China in recent weeks had already discussed buying more U.S. products such as soybeans, pork and wheat. China has also agreed to open its market to international financial services allowing U.S. banks and insurance companies to expand in China.

On the other side, U.S. won’t move forward with the planned increase tariff rates to 30% from 25% on about $250 billion of Chinese goods.

Binding nature of International Treaties (International Law):

A treaty is a written, express written agreement that states used to legally bind themselves. The object of a treaty is to impose binding obligations on the states who are parties to it. The binding force of the treaties is due to the Latin maxim pacta sunt servanda, or in other words that states are bound to carry out in good faith the obligations they have assumed by treaty. Once a state has bound itself by agreement in a treaty, it is not entitled to withdraw from its obligations without the consent of the other state parties. 

Treaties vary significantly in substance and complexity, and may govern a wide variety of issues, such as affirming political boundaries, facilitating trade and commerce, or ending a military conflict. 

International law on treaties has largely been codified by the Vienna Convention on the Law of Treaties, which sets forth the rules and procedures for making, enforcing, and interpreting treaties.

Conclusion: Way forward

U.S. and China have taken an initial step to cement a trade agreement. Putting an end to the trade war between these two nations would be beneficial to the whole world. Growth in China – U.S. economic and trade cooperation is connected to peace, stability and prosperity of the whole world.

A trade deal between the two nations would send a positive signal for the global economy. The common interests of both the nations should override the disputes and the need for cooperation is much larger than confrontation.

Therefore, cooperation is the best way forward. The negotiations approach to settle trade disputes between the two countries has worked up well up to now and will likely prevail in the future.

This article is brought to you in collaboration with Vibhu Aggarwal from Panjab University.

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