A China-U.S. Trade Truce Could Enshrine a Global Economic Shift



Keith Bradsher | The New York Times

OSAKA, Japan — The spin from President Trump and China’s propaganda machines on Saturday portrayed a truce in a trade war that has shaken economies and markets around the world. Tariffs won’t rise further, at least not yet. And the United States will loosen its potentially devastating punishments against Huawei, China’s most successful multinational company.

Yet the outlines of the tentative peace accord President Trump reached on Saturday with his Chinese counterpart, Xi Jinping, could further cement a broad reshuffling of the global economic order that undermines China’s decades-long role as the world’s factory floor.

The details of the discussions between Mr. Trump and Mr. Xi on the sidelines of the Group of 20 summit in Osaka, Japan, still are not clear. The two sides have agreed to resume talks, but the ultimate results are not guaranteed. Their differences could still derail a fragile peace in an economic conflict that has thrown a shadow over the outlook for global growth.

Even a fragile truce could have lingering implications. The United States would keep in place broad tariffs on Chinese goods for months or perhaps years to come. Global companies would almost certainly respond by continuing to shift at least the final stages of their supply chains out of China.

“As long as the threat is out there, there are risks in depending on these long supply chains,” said Jacques deLisle, director of the Center for the Study of Contemporary China at the University of Pennsylvania. “Businesses don’t like uncertainty, and this prolongs the uncertainty.”

In that regard, the results of the Osaka talks are similar to those when Mr. Trump and Mr. Xi met in Buenos Aires on Dec. 1, resulting in a truce that left in place higher American tariffs on Chinese-made goods. That truce lasted until May, when the Trump administration accused China of backtracking on a partially completed agreement that would have replaced tariffs with broad structural changes in the Chinese economy.

Leaving tariffs in place for the indefinite future has long been seen as the second-best solution by both sides. The Americans want fundamental economic policy changes in China, where the government heavily subsidizes local rivals to American companies.

Beijing officials want the tariffs dropped entirely. But they refuse to overhaul an economic model based on industrial subsidies and state-owned enterprises that they see as successful in lifting hundreds of millions of people out of poverty over the past four decades.

For China, the Osaka talks represent a short-term success. Mr. Trump postponed new tariffs on roughly $300 billion a year in Chinese goods that he had threatened to impose at some unspecified date if Beijing did not come back to the negotiating table. He also said he would weaken limits his administration had imposed on the American technology that Huawei could use, without offering specifics. Those limits cut off the Chinese telecom equipment giant from the semiconductors and other technologies it needs, a shopping list that the company has said totals $11 billion annually.

Perhaps most important, China has persuaded the United States to return to the bargaining table without agreeing to any of the legislative changes that the Trump administration saw as essential, but which Beijing regarded as an affront.

“China will not concede its sovereignty and show weakness,” said Zhu Ning, a prominent economics professor at Tsinghua University in Beijing.

But an accord does little to reduce the trade barriers Mr. Trump has already erected. Last summer he put 25 percent tariffs on $50 billion a year in Chinese imports in crucial industries like car-making and the manufacturing of parts for nuclear reactors. Then he put 10 percent tariffs on $200 billion worth of a broader array of Chinese imports. In May, he raised tariffs on that latter set of goods to 25 percent.

In response, an array of companies, from shoemakers to electronics manufacturers, are moving their supply chains out of China. Many companies have been shifting that final assembly to Vietnam, producing a surge in American imports from Vietnam this year even as American imports from China have begun to falter.

“What this has shown is there is massive uncertainty, and we’re not going to go back to the way things were,” said Wendy Cutler, a former American trade official who is now a vice president of the Asia Society Policy Institute.

This shift will not happen overnight. China remains a manufacturing colossus with vast supply chains and a skilled labor force. Even those companies that continue to move final production out of China are continuing to buy Chinese-made components, particularly in electronics, a sector that China dominates. Despite the worsening trade tensions of recent weeks, Apple is planning to move production of a line of powerful personal computers to China from the United States.

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