EU Threatens WTO Legal Action On US-China Trade Deal
The ink has not dried on the US-China phase-one trade deal, and it already appears to be falling apart on multiple fronts. A multitude of experts warned over the past few months that this trade deal, hailed by US President Trump as a great success, is nothing more than a politically inspired act. It does nothing to alleviate global trade jitters, aside from calling for a truce in the mutual tariffs the two largest economies levied against one another. On the contrary, this trade deal may violate WTO rules and end up costing a lot more than it attempts to salvage.
EU Threatens WTO Legal Action On US-China Trade Deal
When the US initially applied tariffs on Chinese imports, Chinese President Xi quickly vowed to defend free trade. Now that the US has pressured a managed-trade outcome, rather than enforcing free trade. This directly violates WTO rules. Phil Hogan, the EU's Trade Commissioner, stated that “We haven’t analyzed the document in detail, but we will and if there’s a WTO-compliance issue of course we will take the case.”
He further added that “We’re not trigger-happy about taking cases to the WTO, we don’t want to create that impression. But we’ll stand up for our own economic interests. It will be interesting to see, is the deal that was announced, is it WTO-compatible?” Even if the EU finds that the deal violates WTO rules, it may take the slow-moving EU months to agree on the next steps to take. This will give the deal plenty of time to collapse on its merits.
$95 Billion Centerpiece of Deal Faces Doubt
The deal calls for China to purchase $200 billion worth of goods and services from the US over two years. At the center of this deal stand $95 billion worth of commodity purchases, and markets doubt the actual amount will come even close to it. The lack of clarity and enforcement of commodity purchases set up more future flashpoints between the US and China and traders should monitor how both sides will utilize the truce to bolster their defenses for a deepening rift. China is known for its patience, and this deal appears to give the rising superpower exactly what is needs throughout 2020.
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US-China Cold War to Deepen
Several analysts point out that trade was just the tip of the iceberg and the easiest one to tackle. The US and China are on opposing fronts of many different topics, including technology, territorial disputes, healthcare, military, foreign policy, and human rights. All of this resembles a new cold war, and traders should get used to the idea of issues related to the friction. Chinese President Xi urged US President Trump to “enhance mutual trust and cooperation between us.” This may be impossible to achieve, despite the best intentions.
Earlier this week, US Secretary o State Pompeo told technology executives in Silicon Valley that China is posing a series threat to the US. The Pentagon labeled China a strategic competitor in 2018 and both chambers of congress call for support of Hong Kong against China. The US is also selling military hardware to Taiwan, which China sees as a rogue Chinese state. It asked others to stop interfering with its internal affairs, a request ignored by the US.
President Xi may have given the clearest sign of where China is headed, after he called for a “new Long March”, referencing the 1934/1935 retreat by the Red Army, which eventually led to the rise of the ruling Communist Party of China. APCO Worldwide China Chairman James McGregor summed up the trade deal by noting that “This trade deal is a good thing if it can reduce tension. But only time will tell if it puts us on a path to finding a way for two incompatible development models to coexist and work together. That is something way beyond the parameters of any trade deal.”
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