US-China deal a small step on the long road to trade balance
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China and the U.S. reached some initial trade agreements last Friday — roughly the halfway point of the 100 days during which the two sides will develop a plan to reduce the trade imbalance. The plan was a key outcome of the Mar-a-Lago summit between Presidents Trump and Xi and the 100 days will be up around July 16. 

The initial set of agreements was a positive sign that the two countries can work together productively. At the same time, they illustrate the difficulty of negotiating with China. The agreement represents a modest set of openings, most of which had been promised in the past. It would take a lot of such agreements to make a dent in the trade imbalance. Last year, the deficit in goods trade was $347 billion; so far this year it is running slightly ahead of that pace.

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As a result of the new agreement, China has set firm deadlines to meet its previous commitments to open up markets for beef, electronic payments, biotech products and rating agencies. The U.S. beef industry has been kept out of China since an outbreak of mad cow disease more than 10 years ago, but U.S. beef will be approved for sale in China no later than July 16.

 

U.S. companies that make biotech seeds have been trying to get their genetically-modified seeds approved by China's Ministry of Agriculture. Under the new plan, China is expected to make decisions on outstanding safety certificates that would eventually allow the sale of those GMO seeds in China — potentially along with other U.S. biotech products. Companies eyeing China's market include Monsanto, DuPont and Dow Chemical. 

The Obama administration won a World Trade Organization case against China in 2012 to allow credit card companies, such as Mastercard, VISA and American Express, to issue Chinese yuan cards. However, uncertainties about regulations have prevented companies from actually issuing such cards. China has now agreed to issue implementation regulations by mid-July. 

Ratings agencies, such as Fitch, Moody’s and Standard & Poor's, operate in China through joint ventures. Last year, China proposed fully opening the ratings market and the new agreement sets a July 16 deadline for the change. Aside from providing new opportunities to these businesses, a higher-quality ratings industry should help with the development of China’s capital markets.  

Naturally, the U.S. had to make some concessions as part of the negotiations. Probably the most important change from the U.S. side is that it will allow Chinese companies to negotiate long-term contracts to purchase liquefied natural gas (LNG) from American suppliers. Beijing, in turn, will allow private and state-controlled companies to import U.S. LNG and encourage them to invest in import infrastructure. 

Building the facilities to make this happen in a big way is a long gestation, so this is not likely to make a large difference soon. But by 2030, the U.S. could be exporting a significant amount of natural gas to China, which would make a dent in the trade imbalance and be a symbol of trust between the two superpowers. (The U.S., of course, will have other buyers, and China other suppliers, so it does not take that much trust to move from zero to a moderate amount of LNG trade.)

The U.S. also agreed to allow imports of cooked chicken from China, something that the Obama administration had been reluctant to do because of safety concerns.

One concession from the U.S. side may seem low-cost: The agreement included a statement that the U.S. recognizes the importance of China’s One Belt, One Road initiative and would send a high-level delegation to the Belt and Road summit in Beijing, which concluded Monday. The One Belt, One Road initiative is President Xi's idea of supporting infrastructure development in countries west and south of China. 

The “Belt” is the ancient Silk Road from China through Central Asia to Europe. The “Road” consists of the sea routes from China through Southeast Asia into the Indian Ocean and beyond.

In some ways, recognizing the importance of the Belt and Road is simply recognizing reality. However, in the context of the U.S., withdrawal from the Trans-Pacific Partnership, there is a danger that Asian allies will see the U.S. acquiescing to China’s dominance in Asia in return for minor trade concessions.  

 

David Dollar is a senior fellow at the John L. Thornton China Center at the Brookings Institution. Follow him on Twitter @davidrdollar.


The views expressed by contributors are their own and not the views of The Hill.