2020 to Bring More Trade Uncertainty Between US, China, Panelists Say

There will be more trade uncertainty in 2020 than in 2019 despite a phase one deal with China, trade experts said during a Jan. 22 panel hosted by the Center for Strategic and International Studies. As trade tensions with Europe come to the foreground and as the U.S. potentially negotiates a more comprehensive deal with Japan, one expert said, the administration will not have enough time and resources to start on phase two of the deal with China as it tries to implement the first phase. Another panelist said the U.S. and China will likely come to a “narrow” phase two deal as the election approaches, but that deal will not provide relief for the international trade environment.

“If anyone thinks uncertainty has gone away because of the China agreement, you're wrong,” William Reinsch, a senior adviser at the Center for Strategic and International Studies and former undersecretary of Commerce for export administration, said during the panel. “This is going to be a year of more uncertainty.”

Reinsch said President Donald Trump “thinks uncertainty is a good thing” and will try to use the phase two deal as leverage during an election year. “He wants more victories,” he said, “and I think a full year gives him time to reach an agreement.” Reinsch said the deal “can’t possibly be more than” a narrow agreement because the Chinese “are never going to agree to a comprehensive phase two deal.”

Scott Kennedy, a senior China economics expert at CSIS, said both China and the U.S. will be focused on implementing phase one in 2020 and won’t have time for further negotiations. “They don’t want the phase one deal to break down,” Kennedy said, “and they are going to be too busy and too disinterested in phase two for there to be much work on that.” Kennedy underscored the long list of components that make up phase one and stressed that it will likely take “a lot of effort” to implement. “If the Chinese fulfill their purchase commitments, they are going to increase their imports from the United States this year by 91 percent,” he said. “That's a lot of work to do.”

Two panelists agreed that both countries have already taken steps to decouple their economies, and both governments will likely increase those efforts in 2020. Stephanie Segal, a senior fellow with CSIS and former co-director of the East Asia Office at the Treasury Department, said the recently released regulations for the Foreign Investment Risk Review Modernization Act (see 2001140060) that grants more authority to the Committee on Foreign Investment in the U.S. is a sign of decoupling. “We know that we have a certain degree of decoupling already because we have export controls and heightened CFIUS regulations on foreign investment,” she said. Even so, she said the two economies are too interconnected to successfully decouple. “All of our trading partners are very much integrated with those two economies,” she said, “so it’s not a practical solution.”

Reinsch said administration officials are seeking to decouple from China in U.S. sectors that impact national security, especially in the information and communications technology sector. “You’re going to see more of that by government directive” in 2020, Reinsch said. The Commerce Department is working on export controls on emerging and foundational technologies (see 1912160032) and had been considering a rule to further restrict foreign sales to Huawei before it was reportedly withdrawn (see 2001240012).

Although the administration will push for export controls to restrict Chinese access to sensitive U.S. technologies, Reinsch said, private industries will ultimately determine how much business is done between the two countries and whether they decouple. “Some people will decouple because they haven’t succeeded in doing business in China, or they think the costs are simply too large or the risks are too large,” Reinsch said. “But some people will persist.”