US economy

US business waits on clearer outcome of China trade deal

US President Donald Trump presented the trade truce struck with China on Wednesday as a big bonanza for corporate America, making a point of calling out the names of top business executives in the audience for the White House ceremony. 

But while the agreement was met with clear relief in boardrooms, it has also left billions of dollars of US tariffs on Chinese goods in place, doubts about whether the truce will stick, and a desire for US officials to complete the work by extracting further structural concessions from Beijing. 

Corporate America has always had mixed feelings about Mr Trump’s trade war with China. Many US companies operating in the country had grown increasingly frustrated that the atmosphere for doing business under Xi Jinping, China’s president, had deteriorated, even though their operations remained profitable. But they were equally unhappy with Mr Trump’s deployment of tariffs, believing they were backfiring economically and casting a cloud on the global economy, and urged the administration to reach a settlement as tensions increased dangerously in the middle of last year. 

Now businesses are faced with a much lower risk of a new escalation in tariffs and tension in the near term — and possibly even until after the November 2020 presidential election — but not much clarity on whether this deal sets the stage for a lasting peace, or is simply a temporary reprieve on the road to new hostilities. 

“We are glad to see progress towards a resolution of the US-China trade war, but it is important to remember that there is a lot more work to do,” said Rufus Yerxa, president of the National Foreign Trade Council, a lobbying group in Washington representing multinationals ranging from Coca-Cola to General Electric and Google. “As with any trade agreement, the devil is in the details, and many of details of this deal are not clear yet.” 

Some large companies did receive very tangible gains from the deal: Boeing is expected to sell more aircraft to China at a time when it is struggling because of the crisis over the 737 Max, and Cargill cheered on provisions that would speed up its exports of approvals for new genetically-modified crops. Financial services groups such as Visa, Mastercard and American Express can now expect to be able to enter the Chinese market, in a win for them.

A gif showing total tariffs applied

Clete Willems, a partner at Akin Gump, and former Trump administration trade official, said the accomplishments of the first phase should not be underestimated. “This deal includes enforceable commitments from China on three of the four major pillars of the Section 301 report — forced technology transfer, non-market licensing of IP, and state-directed acquisition of sensitive technology,” he said. “It also includes extremely detailed and robust provisions on trade secrets . . . [a] longstanding issue for US companies.”

However, there is still broad concern in corporate America that the truce is fragile and limited. If the Trump administration believes that China is not living up to its commitments, it could quickly and unilaterally move to impose new tariffs on Chinese goods, leading to a new escalation.

Some fear this lingering scenario could be placed in an awkward position: should they complain to US officials about an alleged violation of the agreement, such as a Chinese demand for a transfer of technology, it might result in a resumed conflict between the world’s two largest economies.

Meanwhile, companies that rely heavily on imported goods are suffering under the weight of US tariffs that still apply to $360bn of Chinese imports, more than half of the total. Steve Lamar, the chief executive of the American Apparel and Footwear Association, said the deal did “little” to help US manufacturers in his industry, which would still be hit by levies on key inputs, but the enforcement mechanism could “lead to new tariffs at any time”. 

One hope expressed across the board in corporate America is that the US and China should move rapidly to the second stage of negotiations to tackle the thornier issues that they left on the backburner to secure the ‘phase one’ deal.

The US has been seeking deeper commitments related to cybertheft, market access in China for US technology companies, and a reduction in China’s reliance on industrial subsidies and state-owned enterprises, concessions that have all been elusive so far. The US has indicated that only at that point would it consider further tariff reductions, and it is far from certain a deeper agreement can happen before the November presidential election. 

Mr Trump did suggest he was betting on a much-improved environment. “We have a great relationship with China . . . and China fully understands that there has to be a certain reciprocity,” he said, after saluting his friends and allies in business who attended the signing ceremony, such as Steve Schwarzman of Blackstone, Sheldon Adelson, the casino owner, and Nelson Peltz, the activist investor, as well as representatives of companies including JPMorgan, UPS and ConocoPhillips. 

While many in business worry that a ‘phase two’ deal will never see the light of day, business leaders close to Mr Trump were far more optimistic. “I think the worry about escalation in the trade area is really behind us. The question is how productive can we make this,” Mr Schwarzman told Fox Business Network. “The Chinese are quite enthusiastic about pursuing a ‘phase two’ agreement, addressing other issues and, of course, there’ll be further rollbacks of tariffs when that happens.”


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