US, China mini-deal offers ‘breathing space’ for Chinese economy

A truce in the US-China trade war offers Xi Jinping breathing space as he faces a slowing economy and political trouble in Hong Kong, but experts warn 2020 will be another tough year for the Chinese president.

The pared-down "phase one" deal announced Friday includes a reduction in US tariffs on China, in exchange for an increase in Chinese purchases of US goods and better protections for intellectual property.

But tussles over the most controversial Chinese trade practices — including steep state subsidies — have been left to future talks.

The trade war launched nearly two years ago by President Donald Trump isn't over, analysts say, as there's always the risk of Beijing not upholding its end of the bargain and the mercurial US leader throwing more tariff bombs.

The mini-deal is a "delay tactic to buy the Chinese Communist Party breathing space and allow it to stay in the game against overwhelming odds," said Larry Ong, senior analyst with risk consultancy SinoInsider.

Growth of the Chinese economy slowed to six percent in the third quarter– its most sluggish rate in nearly three decades — as demand for exports cooled and Chinese consumers tightened their belts.

In November exports fell 1.1 percent from a year earlier, the fourth straight fall, and exports to the US nosedived 23 percent as the trade war disrupted supply chains and left investors on edge.

Trump has cancelled a new round of tariffs that had been due to kick in on Sunday and would have affected smartphones, toys and laptops among other goods, while Beijing also called off levies planned in retaliation.

In another major concession, Washington will also slash in half the 15- percent tariffs imposed on $120 billion in Chinese goods, like clothing, that were imposed on September 1.

However, this "unexpected" tariff rollback will only have a "marginal" impact on China's economy, said Lu Ting of Nomura bank.

"The worst is not yet over and 2020 looks set to be yet another tough year."

'Different interpretations' 

On the political front, Washington's decision to back the pro-democracy movement in Hong Kong and to criticise China's mass detention of mostly Muslim minorities has cast a shadow over trade negotiations.

Xi has faced six months of increasingly violent demonstrations in Hong Kong, while on the other side of the world Trump is facing a congressional vote on impeachment for abuse of office next week.

And with Trump's 2020 reelection campaign gathering pace, he needs to show voters that his habit of starting bruising trade wars is bearing fruit.

Barry Naughton, an expert on China's economy at the University of California in San Diego, said the mini-deal — which caused US stocks to whipsaw — may have been announced too soon.

"People worry that both sides were under so much time pressure to conclude something before Sunday, that they may have once again prematurely announced an agreement," he told AFP.

US Trade Representative Robert Lighthizer said he expected the deal to be signed in early January, taking effect 30 days later.

US officials also said China has promised to import $200 billion worth of US goods — including farm produce, energy and services — over the next two years, but China declined to offer any details.

"Different interpretations of what has been agreed upon are potential obstacles to completing the deal," Lu from Nomura said.

Trump said existing tariffs of 25 percent on $250 billion of Chinese imports would stay in place pending further negotiations on a second-phase deal.

Although he tweeted Friday that talks will start "immediately", the Chinese side are treading more cautiously.

Starting talk on the next phase "will depend on the implementation of the phase one agreement", China's deputy finance minister Liao Min said.

"I expect things will grind to a halt," said Naughton. "China has no more it is willing to give. The US will slip into the wait-and-see mode, monitoring Chinese compliance."

Ong from Sinoinsider said the CCP is notorious for not living up to its promises and warned factional struggles among the party will make it harder to meet China's "phase one" deal commitments.

"We can expect President Trump to become a 'Tariff Man' again once China is found to have lapsed."