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Why China Isn’t Celebrating the Phase One Trade Deal
A preliminary agreement with the United States means no new tariffs, but the future of the economic relationship remains uncertain.
Welcome to Foreign Policy’s weekly China Brief. The highlights this week: What to make of the “phase one” U.S.-China trade agreement, the Communist Party tightens its grip on a prestigious university, and why China’s electric car market is in trouble.
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A Christmas Truce in the Trade War
After much anticipation, the “phase one” U.S.-China trade deal was announced on Friday, but an immediate stock market bump didn’t accompany it. Markets were at first lukewarm on the deal, though U.S. stocks have closed at record highs this week. For now, the partial agreement avoided $160 billion worth of tariffs that were set to take effect Sunday and significantly reduces others in exchange for Beijing’s commitment to buy more U.S. agricultural products.
The phase one deal is more of a big purchase agreement than a real trade deal, FP’s Keith Johnson explains. “In other words, the likeliest outcome after two years of expensive tariffs, bankrupt farmers, and nervous markets is that the United States might just be able to get back to where it was in the last year of the Obama administration,” he writes.
The U.S. and Chinese statements on the preliminary deal were noticeably different. The United States made claims about Chinese concessions that aren’t mentioned in the Chinese version, and the details of the deal’s implementation still remain sketchy. In particular, the claims that China agreed to halt forced technology transfer and protect intellectual property rights seem dubious, given that Beijing has used the same language since it acceded to the World Trade Organization in 2001.
Muted response. Tariffs remain far higher than before the U.S.-China trade war started. The response has not been celebratory on Chinese social media, where the overall feeling is that China gave away too much for too little. State media also seems cautious about celebrating the agreement. That could point to a reshaping of the deal in the new year—especially because there are signs that China is preparing for a long financial struggle with Washington, as Politico reports.
Agricultural worries. Among the $200 billion in U.S. purchases that Beijing has agreed is at least $40 billion of agricultural products, a target that will likely be difficult to reach despite talk of large-scale ethanol purchases. China has already substituted many U.S. farm goods, especially soybeans. Pork will be a major component of any deal: Prices in China are still double what they were last year, before African swine fever devastated pig herds. There will be some paper-shuffling to make the numbers work, such as around $10 billion of trade that will be routed through the mainland instead of Hong Kong.
What We’re Following
No more “freedom of thought” at Fudan. Students at the prestigious Fudan University in Shanghai are outraged after “freedom of thought” was removed as a core value from its charter. Meanwhile, references that strengthen Communist Party’s leadership have been added to the charters of Fudan and two other universities. On Wednesday, students gathered in the cafeteria at Fudan University to sing the school’s anthem, which specifically mentions “independent thinking.”
More sports censorship. The Turkish German soccer star Mesut Ozil, who plays for Arsenal, called out China’s treatment of Uighur Muslims in Xinjiang on social media on Friday. The statement sparked another minor sports row with China, following the NBA censorship debacle in October. Arsenal’s public neutrality on Ozil’s statement wasn’t enough for Chinese authorities, who pulled a live Arsenal game off the air. (In the end, they spared Chinese fans from watching Arsenal lose.)
China’s naval ambitions. China’s second aircraft carrier, the Shandong, was officially commissioned on Tuesday, a sign of the country’s growing naval ambitions. While the first carrier, the Liaoning, is a refurbished Soviet ship used mainly for training, the Shandong was built entirely in China. Two more are reportedly in the works. Now, the trickiest hurdle for the Chinese navy is its total lack of wartime experience: China’s last conflict with another state was in 1979.
China destroys paper trail. After recent leaks on its atrocities in Xinjiang, the Chinese government is systematically destroying documents and data concerning the internment and surveillance of Uighur Muslims and other minorities, the Associated Press reports. The decision adds new danger for Uighurs in China, who need papers to prove they’ve been released from detention or are allowed to travel.
Tech and Business
Electric car market in trouble. Thanks to government subsidies, the Chinese electric vehicle market has received plenty of press in the last few years. But its success was likely as much about using state-backed buzzwords as market conditions. As the authorities pull back on their EV enthusiasm, investors may be losing out. Many electric car investments were in self-driving vehicles, where progress is hitting major roadblocks.
U.S. tech exports to China limited. The Trump administration is finalizing rules on the export of sensitive, cutting-edge technology from the United States to rivals including China, and they are more limited than feared. The regulations would affect a wide swath of sectors including artificial intelligence and 3D printing, with semiconductor and quantum computing technology totally banned for foreign export.
Corporate uncertainty. Corporate debt defaults have jumped this year in China, another sign that companies have been having a financially difficult year. Chinese firms are also increasingly failing to meet deals with foreign companies, as the lawyer Dan Harris points out. Meanwhile, midsize U.S. enterprises have already started to pull away from Chinese supply chains.
What We’re Reading
The Center for Advanced China Research’s Party Watch Initiative has produced, as ever, an excellent collection of essays on the Chinese Communist Party this year, focusing on economic priorities and the role of President Xi Jinping. Isabel Hilton’s piece on clashing environmental and economic goals and the dream of a “beautiful China” is a particular standout.
A Moment in History
Li Zhi gives Matteo Ricci a present, 1600
Matteo Ricci and Li Zhi were two of the great minds of the Ming dynasty (1368-1644): one an Italian Catholic priest who traveled thousands of miles to immerse himself in a foreign culture, the other a dissident Confucian thinker who had gave up a cushy government job to write. When they first met in 1599, they were immediately enchanted with each other’s company, Li wrote of Ricci: “On the inside he is extremely clever, and on the outside he’s very down to earth … of all the people I know, none compares to him.”
Ricci stayed with Li on several occasions, and in 1600, Li presented him with fans inscribed with two poems dedicated to his friend. Despite his best efforts, Ricci never succeeded in converting Li to Catholicism, but the enduring friendship of two men born at opposite ends of Eurasia remained.
That’s it for this week.