The ‘Phase One’ Trade Deal Is Still Hypothetical
The United States and China inked a preliminary agreement, but the question of its enforcement remains.
Welcome to Foreign Policy’s weekly China Brief. The highlights this week: The United States and China sign a preliminary trade deal, what Tsai Ing-wen’s victory means for China-Taiwan relations, and pork breeders profit amid swine fever shortage.
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U.S. and China Ink “Phase One” Trade Deal
U.S. President Donald Trump and Chinese Vice Premier Liu He signed a “phase one” trade deal on Wednesday in Washington. Trump described it as a “momentous step,” but the reality is less clear. While the deal isn’t insignificant—China has promised $200 billion in purchases—it is still somewhat hypothetical. The question of the deal’s enforcement remains. How will the two sides, neither of which has a trustworthy record, put mechanisms in place to ensure that its promises are kept?
So far, it doesn’t seem that they will. The sweeping U.S. goals to change the way China’s economy functions, from shrinking state-funded industries to strengthening intellectual property laws, are either absent from the deal or described in vague terms. The chances of such substantial change were always slim: China’s back would have to be up against the wall before the Communist Party gave up its key tools of economic control.
Who has leverage? In practical terms, the phase one deal forestalls further escalation rather than scaling back measures in the short term. The trade war’s existing tariffs will likely remain in place until the U.S. elections in November, giving the United States potential leverage to hold China to its commitments—and perhaps creating the opportunity to boost the markets to aid Trump’s campaign. While Chinese state media has remained relatively quiet on the deal, the general line seems to be that the trade war isn’t over yet.
Hawkish dissent. There has always been a split within the Trump administration between the China hawks and the business-minded voices, whose interest in China was more about markets than ideology. While the preliminary deal with China is a victory for the business-minded, the hawks still dominate in other policy areas. U.S. Secretary of State Mike Pompeo’s rhetoric toward the Chinese Communist Party has grown more aggressive, and tensions are still high over the Chinese technology giant Huawei.
What We’re Following
Tsai’s victory in Taiwan. The defeat of the challenger Han Kuo-yu by Taiwan’s incumbent President Tsai Ing-wen has sent relations with the mainland—already frozen—to Arctic levels. Tsai won on a platform to protect Taiwanese identity from Chinese intrusion, using advertisements explicitly comparing the Taiwan’s fate to Hong Kong’s. Han, in contrast, was seen as a sellout to China, as Lev Nachman argues in FP. China has responded to Tsai’s victory with insults and threats. It’s likely to take economic action as well as more active measures to disrupt Taiwanese life and politics.
The Wuhan virus. The pneumonia outbreak that originated in Wuhan, in Central China, is spreading, with Hong Kong authorities taking measures against a possible epidemic. Opinions differ sharply on whether China’s handling of the mystery virus has been dangerously opaque or promisingly open. SARS nearly destroyed the Hong Kong economy in 2002, and it permanently altered the landscape of Chinese transport: People rushed to buy cars to avoid the subway and buses. If the Wuhan virus scales up during the holiday travel season, it would be a huge deal.
Tragic death prompts anger. The public death of Wu Huayan, a severely malnourished 24-year-old, has horrified young people across China. Wu, who grew up in rural poverty, was under 4.5 feet tall and weighed less than 50 pounds. Her story shocked urban Chinese when it was shared online last October. Now, scandal is brewing around $140,000 in donations that were sent to Wu but allegedly never reached her: China’s charity sector is famously corrupt. The story has already been censored online.
Tech and Business
Pork profiteers. African swine fever has been a windfall for China’s pork breeders, who are profiting from the continued shortages after major culls last year. Qin Yinglin, the founder of a major pig breeder, Muyuan Foodstuff, became the richest man in the agriculture sector this year, with a net worth of $8.6 billion. That’s a risky position. Expect government officials to take a closer interest in the sector, whether for anti-corruption efforts or for personal profit.
Trucking industry crisis. Road fees and extortion by police are taking a serious toll on China’s beleaguered trucking industry. China has some of the world’s most expensive roads: 70 percent of all tollways are in China, often forcing dangerous overloading of vehicles. It is difficult to turn a profit, meaning that it is hard to invest in new equipment. One of the biggest food safety problems in China is the cold storage chain, despite recent growth in the sector.
Currency manipulations. Earlier this week, the United States reversed its designation of China as a currency manipulator, a label it slapped on Beijing in August 2019. The move came just days before the signing of the phase one trade deal. China has altered nothing substantial about how it handles its currency, highlighting the label’s use as a political tool.
What We’re Reading
“What Really Happened in Yancheng?” by Long Ling, the London Review of Books
This essay, written by a government official in Beijing—presumably writing under a pseudonym—describes the civil service examinations used to select personnel in China. Conventional problem-solving makes up about half of the test, with ideology making up the other half. The author zooms in on the degree to which the exams require regurgitating Marxist ideology: essentially, a test of one’s ability to follow the party line.
That’s it for this week.