Editor’s Note: James D. Schultz is a CNN legal commentator and chair of the Government and Regulatory practice at Philadelphia-based law firm Cozen O’Connor. He served as senior associate counsel and special assistant to the president in the Office of White House Counsel during the Trump administration. The opinions expressed in this commentary are his own.
For decades, multiple presidential administrations did little while China flouted the rules and gained an unfair advantage in the international trade market. That changed when President Trump took office, and his consistently tough stance led to a “phase one” trade deal between the United States and China last week. And while it doesn’t solve all of the trade issues between the United States and China, it’s a good start.
In addition to easing tensions between the two nations, the deal requires structural reforms to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services and currency and foreign exchange, according to the Office of the US Trade Representative. It also includes a commitment by China to purchase $200 billion more in US goods and services over the next two years.
In the short term, the deal is a ceasefire. It releases some of the pressure on the US economy and will help farmers. The deal calls for China to purchase $32 billion in US agricultural products over the next two years.
It’s true that the trade war has claimed casualties. America’s farmers have been suffering. China responded to Trump’s tariffs by placing crippling tariffs of its own on American agricultural products. US production costs have also risen as the two economic superpowers take turns throwing haymakers.
Still, Trump has been right all along and China’s willingness to come to the negotiating table is proof. Trump’s tariffs have hit China where it hurts.
China’s growth has slowed significantly, especially in the area of industrial production.
The trade war has reduced the US trade deficit with China, as the Wall Street Journal reported, though China still exports far more manufactured goods to the United States than the other way around.
Looking forward, any long-term trade agreement with China will be a multi-step process. US tariffs will remain in place on $370 billion in Chinese goods. The president will use this as leverage in a future agreement. The new deal eases tensions — it doesn’t eliminate them.
The next phase of any agreement needs to make technology a priority. China allegedly strong-arms US companies into handing over their technology to Chinese companies in exchange for access to China’s vast market.
More Markets & Economy Perspectives
Innovation costs money. When US companies are forced to give up their technology, they often can’t recover their initial investment. It’s difficult to quantify the damage but some estimates show losses for US businesses in the hundreds of billions.
The new deal contains language which essentially says that any transfer of technology between the US and China should be voluntary. However, that particular section in the agreement lacks teeth.
It doesn’t require China to change any existing law or regulation. Changes in Chinese law must be part of “Phase Two” to ensure that China is complying.
Forced technology transfer reduces the incentive for innovation and China has been getting away with it for far too long. We shouldn’t be willing to simply accept China’s word that it’s going to stop.
“Phase one” is a start, not a finish. But, perhaps for the first time, the end of the trade war is in sight.
