China: Beijing Breaks the Silence

Published on December 19, 2019

While applauding the de-escalation of trade tensions with the United States, it should be noted that Chinese officials have maintained, beyond general platitudes, a stony silence on any of the actual details of the “Phase One” trade agreement struck on December 12 between the two countries. What few details there have been about the deal, curiously, have only come from Washington.

The reason is increasingly clear, as senior sources in Beijing now share, on background, some of their observations on the process and on the deal itself:

** The Phase One trade agreement is welcomed in Beijing as a comprehensive and thorough deal between the two negotiating sides, and there is certainly no desire or interest from either side to rain on that parade. But senior Chinese sources think it will be impossible for China to import the $40 billion of agricultural products in 2020 that is being bandied around in Washington as the new target.

** Our contacts believe that for 2020, those imports can hit $30 billion – at most. They also maintain that China will in no way reduce agricultural imports from Brazil, Argentina, or Russia in order to meet the higher US targets (which they say would be a violation, incidentally, of WTO competition rules – see SGH 12/13/19, “China: The Money Line”).

** Indeed, the US decision on December 12, as part of the agreement, to cut the September 2019 list tariff rates on Chinese imports in half, rather than remove them entirely as was more widely expected was, from what we understand, in response to the lack of a clearer commitment from China to buy the $40 billion to $50 billion of US agricultural products in 2020 desired by Washington.

** And sources in Beijing say they did not expect the US side to actually take the initiative to announce the Phase One deal on December 12, given that the two sides had not reached a consensus yet on agricultural imports and tariff rollbacks. Their judgment was that while the December 15 tariffs would be taken off the table in a gesture of good will, the two sides would continue negotiations and seek a full agreement hopefully before the Chinese New Year, on January 25.

** With the important caveat that we have no way of independently confirming this, US Trade Representative Robert Lighthizer, known to be a tough negotiator, was also, under those circumstances, looking to continue negotiations rather than announce a deal concurrently with the postponement of tariffs. But President Trump overrode that, and personally announced, as promised, a deal with China – one might say a bit premature in its announcement.

** That said, while Trump’s decision and timing was a surprise to Beijing, sources say it was a welcome one, and a “good surprise.” Overall, they can and will point to the deal as a relatively fair one, where both sides got what they needed. China did not compromise on “issues involving the core interests of the country,” and the US also got the opportunity to “re-enter” agricultural products into the Chinese market.

** But in a not too subtle parting shot, and in an assessment undoubtedly targeted to domestic sensitivities, senior sources in Beijing insist that “clearly,” Trump did not win a big deal. The White House will certainly beg to differ with that. And as to the actual volume of purchases next year, we shall see.

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