By Zhao Minghao    Source: CGTN    Published: 2019-11-7

Simultaneous tariffs cancellation on each other's goods is an important condition for China and the U.S. to reach a "phase one" trade deal, said Gao Feng, spokesperson for China's Ministry of Commerce at a press conference held on November 7.

The phase one trade deal is an important step towards the unwinding of a trade war that has inflicted significant damages to the interests of both sides. As Republican Senator David Perdue of Georgia said, the amount of trade in the phase one deal is modest, but it can prevent the two countries from slipping into a "Cold War."

Contrary to the Trump administration's insistence on a comprehensive agreement, the phase one deal will show it is the right choice for the U.S. and China to resolve differences through consultations step by step.

However, there are rightful reasons to believe that the process of China-U.S. economic and trade consultations will not be smooth sailing. Firstly, the details of the Phase One agreement have not been finalized, and the negotiations on "structural issues" in the following phase remain a major challenge.

The U.S. should ditch the idea of completely "transforming" China through "maximum pressure." Beijing will not succumb on issues involving sovereignty or national law. In addition, the hawkish White House trade adviser Peter Navarro and his team are allegedly trying to include more Chinese companies in the "entity list" of the U.S. Department of Commerce, which will impede the negotiation process.

Secondly, the U.S. and China have yet to figure out practical solutions to the restrictions imposed on Huawei and the broader tech competition. The U.S. has exaggerated the technological challenges posed by China and misinterpreted tech competition as a zero-sum game.

The Trump administration's practice of confusing "economic security" with "national security" has been widely questioned. Most U.S. tech companies are against the restrictions on the supplying of parts to Huawei. Recently, the British government has tried to allow Huawei to participate in the construction of the "non-controversial" part of UK's 5G network.

The German government has also announced policies to provide a level playing field for 5G suppliers including Huawei. This approach should bring some useful clues to Washington.

Thirdly, the ghost of the U.S. waging a financial war against China or pushing for financial "decoupling" is still haunting the world. It is reported that the Trump administration is discussing how to limit U.S. investment in China, especially how to prevent U.S. pension funds from investing in China.

Although the amount of U.S. pension funds currently investing in China is not large, if implemented, it will be the first step in capital control against China. In response to the bluff of some American politicians trying to delist Chinese companies from the U.S. financial market, MSCI CEO Henry Fernandez said recently that if the United States, the world's most open and democratic country, imposes restrictions on global capital flows, then other countries will follow suit. Once the trade war escalates into a financial war, the global financial system will be severely damaged.

Fourthly, the U.S. Congress is playing a negative role. The current Congress has proposed more than 150 bills against China. In particular, many have recently introduced bills on sensitive and complex Hong Kong issues. This will cause damage to Sino-U.S. political relations. With the 2020 election season round the corner, some people in the Capitol Hill are reluctant to see the Trump administration hail the trade agreement with China as a win.

Rating agencies such as Moody's said that Trump will bring home an easy win in the next year's election as long as the U.S. economy does not suffer a serious downturn. In the coming period, the negative impact of the U.S. domestic political struggle on Sino-U.S. economic and trade consultations will be more serious.

In any case, the signing of the phase one trade deal is highly anticipated by all stakeholders. On October 22, the report released by Standard & Poor's showed that tensions between the United States and China were undermining the confidence of investors and businesses. In the meantime, China's economic growth rate has slowed to six percent, and China's exports to the U.S. have continued to decline.

The consequent pressure on employment, finance and social stability cannot be ignored. Therefore, China and the United States hope the meeting between the leaders of the two countries in due time will deliver some good news.

Zhao Minghao is a visiting fellow at the Chongyang Institute for Financial Studies at Renmin University of China.