Phase one trade deal respects market rules, same as third parties
By Wang Tianyu

China and the United States have just signed the phase one trade agreement on Wednesday in Washington D.C. Having reached the deal, China will increase its imports from the U.S. and the latter one will suspend and reduce some of the previously imposed tariffs on China.

Chinese Vice Premier Liu He said after the signing ceremony that China will purchase 40 billion U.S. dollars in U.S. agricultural products, annually. The agreement sets a specific target to increase America's exports to China by exceeding the level of its exports in 2017 by an amount of 200 billion U.S. dollars over two years. These additional purchases will be for agricultural, energy, and other manufacturing products that China is in need of.

Some worry that the increase in China's imports from the U.S. will affect other trading partners, such as China's first and second-largest trading partners the EU and ASEAN. CGTN talked to three expert analysts, Bai Ming, deputy director of the Academy of International Trade and Economic Cooperation in Ministry of Commerce; John Gong, a research fellow at Charhar Institute and professor at the University of International Business and Economics, and Lucia Yang, a research analyst in Stansberry Research, to answer the worries.

Chinese Vice Premier Liu He stands with U.S. President Donald Trump after signing China-U.S. phase one economic and trade agreement in the East Room of the White House in Washington, U.S., January 15, 2020. /Reuters Photo

Chinese Vice Premier Liu He stands with U.S. President Donald Trump after signing China-U.S. phase one economic and trade agreement in the East Room of the White House in Washington, U.S., January 15, 2020. /Reuters Photo

Q: Will the agricultural sector agreement reached between China and the United States affect the interests of third parties?

Bai Ming: China is one of the largest agricultural markets in the world. I can understand that some countries may be concerned that China's increase in agricultural imports from the U.S. might affect their interests.

However, they should see things clearer before being concerned. China is a growing market with over 1.4 billion people and the country is not rich in terms of land. Chinese consumers seek a "good meal" instead of just a "full meal." In this case, China's demand for agricultural products is increasing gradually. There is a lot of room for growth. So, I believe other countries' benefits won't be hurt.

Q: Besides the agricultural sector, China will also expand the scale of other imports from the United States, including energy products, high-tech products, industrial goods and service products. Will this lead to a reduction of China's imports from other countries? What kind of measure does China have to cooperate with other countries in trade?

Bai Ming: Every trade agreement will more or less bring some kind of effect to other countries, even though it might just be between two countries. The phase one trade agreement between China and the U.S. is based on market principles. From the market perspective, to make a deal, China has to have the demand, and the U.S. has to have the ability to fill that demand.

So each country should play with its strengths. If the country has alternative products to substitute American products, it should compete in the market.

The agreement between the two countries is not exclusive. If it is, then how do you explain those free trade agreements between Western countries. This agreement just solves the trade unbalance problem.

John Gong: In my opinion, the total amount (of China's committed increasing import from U.S.) is actually very moderate.

Let's assume maybe 30 to 40 percent of those 200 billion U.S. dollars are going to be affected, that means 30 to 40 billion U.S. dollars a year might be reduced from other countries. But that's a quite small amount; China imports about two trillion U.S. dollars (worth of products) every year. In aggregate level, a reduction of 30 to 40 billion U.S. dollars a year out of two trillion U.S. dollars is just a drop in the bucket.

Lucia Yang: The door is always open for fair competition and nothing is stopping China from trading with other countries. One thing we've learned from the past two years is that there are plenty of countries willing to step up and trade with China if the U.S. steps back. It's really China's decision to buy from the U.S. under this deal… But this is not a negative thing. This is a deal that both sides wanted for a long time. And remember, China is much more concerned about its long-term internal efforts to develop advanced technology than who it buys soybeans from.

Q: The President of the EU Chamber of Commerce commented on Thursday that "The U.S. has always stood for fair competition, but it doesn't seem like it anymore. This kind of government managed trade is making purchases conditional and is exactly what we have been lamenting. The U.S. is limiting China's choice now, and by issuing import and export bans and tariffs, the U.S. government is also limiting American consumers' choices." What do you think of his accusation? In addition, how will the China-U.S. trade agreement affect the EU?

Bai Ming: EU is China's largest trading partner. China should value their concerns. But I don't see any exclusive terms in the agreement. It is fully under the market principle.

The relationship between China and the EU has been doing great in recent years, thanks to cooperation such as Belt and Road Initiative and China Railway Express. It brings a lot of opportunities to the EU.

I think the relationship between China and the EU won't be much affected by the relationship between China and the U.S.

Lucia Yang: It is a fair game under WTO principles. If the EU wants to complain about government-managed trade, they should look in the mirror to get a much fairer target of this criticism than the U.S. is. The EU is simply talking its book – not reality… They don't do it via technical trade barriers, but rather through government regulations about exports and import. To my knowledge, surveys have consistently shown European businesses complaining about this. And the WTO and U.S. have both for a long time complained about EU supporting Airbus.

Q: The signing of the phase one trade agreement marks the easing of trade tensions between China and the United States. What kind of economic impact will this bring to the world, and how will this affect the economic globalization?

John Gong: I think it will increase jobs in both countries. From a global perspective, I think it reduces some of the uncertainties associated with China-U.S. trade, especially on those countries in Northeast Asia. They have the world's most vibrant production network, which will benefit a lot from the stabilizing relationship.

It also stimulates investment opportunities. With these uncertainties gone, foreign investment might follow, and some of the investment decisions that have been previously suspended because of the uncertainties are now probably free to go ahead. So it definitely brings a positive impact to the world.

(Cover image: Corn is loaded into a grain cart from a combine harvester in Buda, Illinois, U.S., November 5, 2019. /CGTN Photo)