MOSCOW (Pakistan Point News / Sputnik - 16th December, 2019) New disputes between the United States and China could emerge when the two countries try to implement the "phase one" trade deal they agreed upon last week after 18 months of trade war, experts told Sputnik.
On Friday, the United States and China announced that they reached the so-called phase one trade deal to resolve bilateral trade disputes. According to the fact sheet on the deal released by the US Trade Representative Office, China agreed to increase purchases of US products and services by at least $200 billion over the next two years.
During the press conference in Beijing, Wang Shouwen, China's vice minister of commerce, stressed that China's additional imports would be based on market rules and business principles.
"With the expansion of China's domestic market, Chinese enterprises will import more high-quality and competitive goods and services from countries including the United States under the WTO rules as well as market rules and business principles. The increase in imports is conducive to boosting the country's consumption upgrading and meeting Chinese people's growing needs for a better life," he said.
The new agreement has temporarily halted the bilateral trade war, with both sides agreeing to suspend tariff hikes planned for December 15. As part of the agreement, China said the United States agreed to phase out existing tariffs on Chinese goods.
The US Trade Representative Office said in a statement that the United States agreed to adjust existing tariffs on Chinese goods significantly, but would be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.
However, political analysts suggested that tensions could flare again since there was potential for new disputes to arise once both sides started executing the agreement.
"Where both sides seem to differ is either the speed or the amount or the requirements for those [US] tariffs to come down. In a normal scenario, one way you could see this happening is what we call a schedule. For instance, for every month China imports $20 billion or more from the United States, tariffs on the remaining amount [of Chinese goods] would go down 2 percent. But because both sides seem to have different interpretations and understanding or expectations about the speed of tariff reductions, that seems to leave open the prospects of there's going to being conflicts between the parties over exactly what should happen," Christopher Balding, an associate professor at the Fulbright University Vietnam who used to teach at the HSBC Business school in Shenzhen, told Sputnik.
According to the trade deal fact sheet, the agreement includes a "dispute resolution" chapter that establishes strong procedures for addressing disputes related to the agreement and allows each party to take "proportionate responsive actions that it deems appropriate."
For the agreement to include a specific target for China's expected increase in imported US products and a verification mechanism such as the "dispute resolution" chapter was indicative of the level of trust both sides had toward each other, Balding said.
"It [the clauses] speaks to the lack of trust the United States has in China to fulfill commitments. The reason there is insistence on the US side upon a number is that China can say 'we'll buy stuff.' But China has a state-owned economy. To say that the market will handle it is irrelevant, because it's not a free open market economy where firms can make their own decisions. The reason that it matters is that this is a verifiable and observable way to see if China is actively meeting their commitments," he said.
When announcing the United States had agreed to "a very large Phase One Deal with China" in a post on Twitter on Friday, President Donald Trump said both sides would "begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election."
During a press conference in Beijing on Friday, Chinese officials dismissed suggestions that both sides would immediately start negotiations on a "phase two" deal.
Balding believed both countries would wait for a few months to see how the first deal was implemented before engaging in further discussions on the matter.
"I would actually expect a little bit of a breather before the second phase [deal negotiations] start going. The reason I say that is they're probably going to take a couple of months to plan out how to approach phase No.2. During that time, they'll probably be watching if China is meeting its commitments. Why are you going to do a phase two, if they [China] are not even doing phase one? I just don't see China meeting all these commitments. I'd really be surprised if it happens," he said.
Chinese political analysts argued that Trump could also move away from his softer stance after the impeachment inquiry against him finishes in a few months.
"After the New Year's holidays, the impeachment process [against Trump] will be almost completed. Most observers believe the impeachment inquiry won't go through the US Senate. Trump would believe his chances of being reelected have improved. Under such circumstances, will Trump make more demands against China? That's definitely possible," Ding Xueliang, director of the Institute for China's Overseas Interests, Shenzhen University, told Sputnik.
The Chinese scholar explained that Trump agreed to the phase one deal during a period when he was most vulnerable.
"In a sense, the weeks immediately after the impeachment inquiry started were the period when Trump was most vulnerable since taking office in early 2017. Trump is under a lot of pressure to reach this [trade] deal. That's because the upcoming 2020 US presidential election is his top priority. Under such circumstances, he wouldn't be able to hold onto the previous tough demands the United States proposed, because China would never agree to such terms," he said.
According to figures from China's National Bureau of Statistics, the country's economic growth in the third quarter fell to 6 percent, the slowest pace of quarterly growth since 1992. The negative impact from steep US tariffs played a huge role in the slowed growth of China's export-oriented economy.
While the temporary truce in bilateral trade tensions could bring some relief to China's economic growth, uncertainties in future trade tensions could still hurt investors' confidence in committing to long-term projects in China, Ding suggested.
"The sluggish economic growth in China was indeed linked to the harsh US tariffs on Chinese products. But what's more important was that the trade tensions led to investors unwilling to make a decision on long-term projects in China. That's because big corporations had to make plans for 10 years in the future when committing to a project. This had much more serious adverse impact on China's economic growth. When negotiations on the phase two deal that touches structural issues of the Chinese economy, the Chinese government is unlikely to make more concessions despite possible economic losses," he said.
Nevertheless, the expert noted that China could use a large order of US products to ease possible tensions with the United States when implementing the phase one deal.
