Economic Perspective: Potential Elements of a China Trade Deal

MARY WALDEN:

“Today’s program looks at the elements of a China trade deal. Mike, the trade stalemate with China is continuing, but there is hope a deal will ultimately be made. If a new trade treaty is made with China, what will likely be the key elements?”

MIKE WALDEN:

“Well the good news right now is we are talking; we are negotiating. We actually had stopped negotiating with the Chinese for a while and now we’re back, and there’s been a 90-day window given by President Xi of China and President Trump of the U.S. to say, ‘Let’s try to get this resolved.’”

“And we hear reports almost on a daily basis that there is some optimism there. China’s already agreed to buy more U.S. farm products. They’ve agreed to reduce tariffs on U.S.-made autos. Now that’s actually just taking us back to where we were before the trade war.”

“A lot of experts think there are going to be two key elements to getting an agreement, at least from the point of view of the U.S. One is for China to publicly say that they are backtracking from their plans to really dominate the world in terms of all the major economic sectors. They’ve been very upfront with that in saying, ‘We really want to be the big actor in every major economic sector you can think of, and we’re going to use whatever methods we need to use to get there.’”

“That has really caused many people to say, ‘Hey, is China going to play unfairly? Is China going to perhaps use some of their big state agencies to keep out competition?’”

“And so if China backs away from that and says, ‘Hey, we’re going to play fair. We’re not going to try to dominate everything. We’re not going to try to obliterate everyone else.’ I think that’s going to be a major concession on their part.”

“Secondly China has to convince the world, and especially the U.S. in this case, that companies from the U.S. for example that want to sell in China will face a level playing field with China’s state-owned companies. Often times China has given preference to their own companies which are controlled in many cases by the government. We’ve complained about that. So if China says, ‘Hey we’re going to give everyone a fair shake,’ I think that will be a big concession, and I think if we have these two elements we could get a deal.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.