The photo that reveals who got the better of the US-China trade truce

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Opinion

The photo that reveals who got the better of the US-China trade truce

The US Treasury Department tweeted a revealing picture from a dinner between the US and Chinese trade delegations on Friday. The Chinese are beaming; the Americans look glum.

That picture perhaps conveys a better sense of the outcome of the negotiations than US President Donald Trump’s tweet that "the deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our country."

Secretary Steven Mnuchin and US Trade rep Robert Lighthizer with Chinese Vice Premier Liu He and the Chinese delegation at a working dinner during the 13th round of trade negotiations.

Secretary Steven Mnuchin and US Trade rep Robert Lighthizer with Chinese Vice Premier Liu He and the Chinese delegation at a working dinner during the 13th round of trade negotiations. Credit: Official White House photo by Keegan Barber

Actually, he’s probably not wrong there. China’s agreement to, over the next two years, scale up to purchases of $US40 billion to $US50 billion ($A60 billion to $A74 billion) a year of agricultural products – about twice their historical level – is a very big deal if it eventuates.

It is however, not the first time similar deals have been announced and proclaimed as "the biggest ever" by Trump.

China needs to buy soy beans and protein from somewhere, particularly as it has a pork crisis after a deadly swine flu epidemic. Not only has the deal been on the table since the trade conflict began to develop – but it is doubtful, and even Trump expressed the doubt, that the US could actually produce that amount of product.

The US thought it could coerce China into an agreement by ravaging its economy with the tariffs.

The commitment to agricultural purchases by China, and a US agreement not to proceed with a planned increase in the tariffs on $US250 billion ($A370 billion) of China’s exports that had been scheduled for this week, are the only concrete outcomes from last week’s trade talks.

And even they are subject to a final deal being agreed next month, probably at the Asia-Pacific Economic Co-operation forum in Chile next month.

China also made some vague promises to be more transparent about its interventions in currency markets and opening up access to its financial services sector (which it has already been doing) but the difficult and substantive issues, most notably China’s subsidies to state-owned enterprises, weren’t addressed.

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The US thought it could coerce China into an agreement by ravaging its economy with the tariffs.

There are tariffs on about $US360 billion ($A530 billion) of China’s exports to the US, with tariffs on another $US160 billion ($A235 billion) announced but yet to be implemented. The fate of that final tranche, which was deferred until December 15 to avoid impacting US consumers in the lead-up to Christmas, appears to remain open.

China has been hurt by the trade war. Its economic growth has slowed significantly, with some analysts even tipping that it will slide below 6 per cent when its September GDP numbers are released on Friday.

The US has, however, also suffered (self-inflicted) harm.

Its farm sector is in recession despite $US28 billion ($A41 billion) of state-provided aid and its manufacturing sector is shrinking. Business investment has dried up and employment growth has slowed, as has the wider economy despite Federal Reserve rate cuts and a blow-out in the US federal budget deficit to almost $US1 trillion ($A1.5 trillion).

With Trump battling the impeachment investigation and next year’s presidential election now very visible on the horizon, the trade war and its impact on a slowing US economy have become part of the political calculus. It is damaging Trump in his political heartlands and undermining any credibility his administration’s economic policies might have.

As the existing tariffs remain in place, with the possibility that more goods might be covered by tariffs in mid-December, the trade war will continue to damage the US and Chinese economies and undermine global growth.

Last week’s talks have therefore at least temporarily deferred an escalation of the conflict but not resolved it.

It is worth noting that the US and China have agreed deals in the past. Trump and Xi Jinping agreed a deal over dinner in Buenos Aires last December. Trump described the deal, which also involved huge purchases of US agricultural products, as "incredible." By May it had been forgotten and hostilities were resumed.

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In June, in Osaka in Japan (this time after a lunch) Trump announced that China would buy "a tremendous amount’’ of food and agricultural products from the US as part of a truce he had agreed with Xi Jinping. That time the truce lasted a month, at best.

This time it might be different because of the US political context.

The administration would presumably not want to take any further action to undermine US growth heading into an election campaign. By now it must have realised China isn’t going to suddenly accede to the core US demands and demolish the structure of its centrally-planned economy and relinquish its economic ambitions.

The Chinese delegates at Friday’s dinner were smiling, probably because they gave up nothing that they haven’t always been prepared to concede and nothing that inhibits China’s ability to pursue its economic and geopolitical aspirations.

The US representative were sombre, perhaps because they finally realised they had consistently under-estimated China’s resolve and the efficacy of the trade war. For this political cycle, at least, time has just about run out on their attempt to stymie the growth of a serious challenger to US economic and geopolitical dominance.

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