The U.S.-China Trade Deal: Regulating China with U.S. Rules

The U.S. and China signed what many called a “history” and “significant” trade deal on Jan. 15. What are exactly in the deal and how should we look at it?  Here are some of my thoughts.

One of the most important parts, of course, is that China has agreed to buy billions of dollars of US products in the next two years. And this is written down in agreement.

Another very important part, as I see it, is trying to regulate China's behavior in many different areas, such as intellectual property protection, technology transfer and many other areas. Try to regulate China's behavior in these areas with American standard, American rules, and American norms, which are, of course, also the universal norms of the free world.

So, in many articles one can see that it says “China shall provide” this and that, and there are many items under that, to detail what China should do exactly.

But when it comes to the part of the U.S., there is only just one sentence, saying “The United States affirms that existing U.S. measures afford treatment equivalent to that provided for in this Article”. To put it in more plain language, this means that the current American rules have already have everything in place, so that the U.S. does not have to do anything or change anything.

But China has to abide by all those items to reach the standard of the US, or of the free world.

So now I understand why it needs so much time for such an agreement to be drafted, and agreed upon by both parties. I would say there must be tremendous works behind it. And on the American side, there must be different expert teams behind it too, because there are many very detailed technical regulations, rules and specifics in it.

Another issue to discuss is the enforcement mechanism.  Many people are worrying about it, because the Chinese regime’s track record of keeping their words is not that good.  So people are worrying that none of this agreement could be executed, or the Chinese regime will just try to ignore all these regulations or the items in this agreement.  How should we look at this issue?

Yes, the Chinese Communist Party ( CCP ) does have a very bad track record of keeping their words or promises, like in the case of Hong Kong. Freedom of speech and freedom of religion are all in China’s Constitution. But in reality, there is no freedom of speech or freedom of religion whatsoever in China. If they don’t even respect their own constitution, why should they respect an agreement with another country?

However, in this agreement, there is a termination article, which says, “Either Party may terminate this Agreement by providing written notice of termination to the other Party.” This means either party can choose to terminate this agreement without any preconditions. One party can just notify the other party and then this agreement is terminated.

So the worst case scenario is, if the CCP doesn't keep their words, or doesn't follow all the items of this agreement, the U.S. has the option to terminate this agreement. And then we go back to where we started, where there was no agreement.  And then of course the U.S. can put back the tariffs.

And there are many other tools that the US can use to put sanctions on China, in technology, financial, and many other areas.

Then one might ask: Does this mean that the U.S. has nothing to lose?

To answer this question, we must first of all understand what has brought China to the negotiating table in the first place. 

Since the trade war started, the Chinese regime has been encountering huge economic pressure and economic downturn. The economy is slowing down; the unemployment rate is very, very high. So the Chinese regimen was very desperate and had no choice.

However, with those said, I’d like to point out one more thing.

If the starting point for President Trump to start this trade war is to have a fairer trade relationship, perhaps he has achieved a small part of his goal.

However, the U.S. government should also realize that for China, any trade issue, or economic issue, is not only a trade issue or economic issue. Everything in China is tightly tied to this one party political system, to the CCP’s unique way of ruling the country and running the economy.

So, to try to have the CCP to behave, or to follow the rules of the free world, even in only economic sectors, it means that one has to touch upon the political system, the political structure of the CCP. Will the CCP allow the U.S. to shake that part, to touch upon the very basics of their ruling system? Or will they be willing to change their political system so that their economic system and behaviors can be changed accordingly?

This is an issue we have to wait and see.