Opinion: Let the Phase One Deal Put China-U.S. Relations Back on Track

The long-expected announcement of a phase one trade deal between China and the United State brought relief to the world as it called a truce in the bitter trade war that rattled the global economy. The interim deal could mark a turning point for the world’s two largest economies to move toward each other after moving apart during the year and a half of friction.

Both countries halted punitive tariffs on each other’s products that were scheduled to take effect Dec. 15, hitting the brakes on escalating tensions. The move also cooled speculation that the two countries were heading toward a technology “decoupling” or even a “new cold war.”

Global observers see the trade agreement as an indication that the two countries are capable of steadying their relations and of being willing to solve problems through negotiation in the face of multiple headwinds. The implications are even more important than the agreement itself.

It was a long year between Dec. 1, 2018, when top leaders of both countries meeting in Argentina agreed on a ceasefire and further talks, and Dec. 13, when the phase one deal was announced. During that time, the two parties reached a consensus that the disagreements should be resolved in stages.

As the U.S. presidential election approaches, many held low expectations for a first phase accord, saying it would merely address issues that are key demands of U.S. President Donald Trump, such as the American trade deficit and China’s agricultural purchases. But the framework of the agreement in the official announcements showed that much more is on the agenda.

In addition to trade expansion and agricultural purchases, the nine-chapter accord also includes a wide range of topics covering intellectual property, technology transfer, financial services, exchange rates and transparency. These are issues to be addressed as China moves to deepen domestic restructuring and further open up to the outside world.

Chinese policymakers at a key annual meeting last week outlined goals that echoed the trade agreement. China will “continue opening up in a wider and deeper way” and “remove institutional obstacles through reforms to release growth potential,” according to a statement issued after the Central Economic Work Conference (CEWC) concluded Dec. 12.

Leaders at the meeting set out plans to deepen reforms and opening-up in the health-care and other livelihood service sectors, reduce restrictions on foreign investment, accelerate international trade talks and slash overall tariffs. These pledges reflect China’s needs to deepen economic restructuring and shift to high-quality growth.

The trade agreement also pledged to set up a mutual assessment and dispute settlement mechanism, marking a significant step forward in intergovernmental exchanges in the 40-year diplomatic relationship between China and the U.S.

A bilateral strategic and economic dialogue mechanism formed during the Bush and Obama administrations created a platform allowing the two countries to regularly hold cross-department talks on multiple topics, which helped the two sides to understand each other’s culture and systems while seeking cooperation opportunities with mutual interests.

Now, the mutual assessment and dispute settlement mechanism proposed in the phase one trade deal will further enable the two sides to turn previous cooperative attempts into concrete measures. Sources close to the matter said the dispute settlement mechanism will include various levels of arrangements to tackle issues with different complexity, making the system more targeted and efficient. It will provide a new policy toolbox for the two countries to manage their increasingly complex relations.

The prolonged trade war only made it clearer that the economic interests of China and the U.S. are deeply intertwined. Even Trump said a trade deal is not only what China wants but also the U.S. Decoupling would be unaffordable to both countries. How the parties handle their relationship will have profound spillover effects to the rest of the world.

Putting China-U.S. relations back on track will not only encourage others to resolve disputes through negotiation but also push forward reforms to improve existing multilateral systems such as the World Trade Organization and promote consensus-building on global topics such as data, finance and climate change.

The trade war ceasefire removed some uncertainties hanging over investors and gave a boost to global markets. But it will require more long-term commitments to reverse the downward trend.

Climbing trade figures may be the most visible achievements in bilateral trade relations, but efforts to remove nontariff barriers will bring more long-term benefits. That will include more transparent and fairer rules regarding market entry, technology exchange on a voluntary basis, less administrative intervention in cross-border investment and a more stable and market-oriented foreign exchange system. Reforms to achieve these goals will benefit not only China and the U.S. but also the rest of the world.

The relationship between China and America is not only about business and trade. There are still unresolved misgivings between the two countries on geopolitics, security, cyberspace, military and culture. With China’s rising influence and its evolving roles on the global stage, clashes between China and the U.S. will continue to emerge.

There has long been a saying that trade is the “ballast stone” of China-U.S. relations. After the latest frictions, which expanded from trade to broader areas, it is proven that trade relations play such a role, bringing China-U.S. relations back to an even keel.

Only with effective implementation of the phase one trade deal can China and the U.S. restore mutual trust and expand confidence to other areas.

Both sides made compromises in the agreement, but neither made excessive concessions, creating a more sustainable accord. Negotiation is always a tough task in international affairs, but it may be even more difficult to make the conclusion of the negotiations accepted at home and put it into effect.

The achievement of the phase one agreement between China and the U.S. is good news for the world. But it marks only a starting point for the two countries to drive their relations back together, and more tests are ahead.

Xu Heqian is a world news editor at Caixin Media

Translated by Han Wei (weihan@caixin.com)