Davos WEF

US-China phase one deal is a 'disaster,' former senior economist at the White House says

Key Points
  • Experts speaking at the WEF said the deal is a "disaster" and simply an "intermediate step" to allow their tensions to calm down for a while.
  • Nonetheless, the head of the World Trade Organization, Roberto Azevedo said "The political impact of (the phase one deal) cannot be underestimated
Chinese Vice Premier Liu He shakes hands with US President Donald Trump during a signing ceremony for trade agreement between the US and China in the East Room of the White House in Washington, DC, January 15, 2020.
Saul Loeb | AFP | Getty Images

DAVOS, Switzerland – The U.S.-China phase one deal does not address structural problems in the bilateral trade relationship, a panel of trade experts at the World Economic Forum said Tuesday.

After about two years of a tit-for-tat tariffs dispute, the two largest world economies seemed to have calmed the debate last week with the signing of an initial agreement. The deal didn't roll back all tariffs imposed between Washington D.C. and Beijing, but both parties agreed to discuss that during the next round of trade negotiations.

However, experts speaking at the WEF said the deal is a "disaster" and simply an "intermediate step" to allow tensions to calm down.

"While this deal is great in the sense that it has calmed things, additional tariffs aren't going on, aside from that the deal is essentially a disaster. It doesn't address any of the systemic issues," Chad Bown, senior fellow at the Peterson Institute for International Economics, said.

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Doesn't look like China will meet 'phase one' commitments: strategist

Bown, who served as a senior economist for international trade in the White House, under Obama's leadership, said he is "very worried" about what's in the agreement.

China agreed to buy an additional $200 billion in U.S. goods over the next two years, as part of the deal. President Donald Trump, who addressed the Davos forum earlier on Tuesday, said the number of purchases could end up closer to $300 billion.

"These are unrealistic numbers, which puts the whole viability of the deal into question," Bown said, adding that the only way to reach these figures is by diverting trade away from other countries, such as soy beans away from Brazil and fish away from Canada.

Among the additional purchases of U.S. goods, China has committed to buy at least $40 billion worth of American farming products. However, a leading commodities expert at Goldman Sachs casted doubts over whether China will manage to do that. Speaking to CNBC earlier this month Jeff Currie said "there is still a lot of uncertainty about how you would achieve $40 (billion) or potentially even $50 billion of agricultural purchases."

However, most trade experts argue that the most difficult trade negotiations between the U.S. and China have yet to begin.

"When we think about the phase one deal it is the easier part of this, you can have Chinese people buying more U.S. goods and somehow the Chinese consumers will have to absorb the 2.4 billion dollars of American nuts and say goodbye to the New Zealand, Australians suppliers… but that's the easy part," Jin Keyu, associate professor at the London School of Economics (LSE) said at the WEF panel.

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"The difficult part is really much about the model that China has, the political economy model that uses strong state capacity," she added.

One of the main arguments used by President Trump in his dispute with China is the trade deficit between both economies. Data released earlier this month showed that the U.S. trade deficit with China fell to $43.09 billion for the month — the lowest level since October 2016.

However, Keyu warned the numbers could change.

"The grand irony is that if China actually did everything that the U.S. demanded it to do the result was going to be a much more successful Chinese economy and a much larger trade deficit in the U.S," she said.

Nonetheless, speaking at the same Davos panel, the head of the World Trade Organization, Roberto Azevedo said: "The political impact of (the phase one deal) cannot be underestimated."

Graciela Márquez Colín, the Mexican economy minister, also sitting at the panel explained that the deal is an "intermediate step" to calm down ongoing tensions.