China and the US agreed to back down over the weekend from a trade war that could disrupt global commerce.
What the China-US trade agreement didn’t address
China will buy “significantly” more US goods and services to reduce the US trade deficit with China, according to a joint statement released on Saturday.
This, the statement said, will boost growth and employment in the US as well as meet the growing needs of the Chinese people.
If that sounds warm and fuzzy, it’s because the announcement was short on specifics.
“Both China and the US are playing up the outcomes because nothing concrete was really agreed upon,” Nick Marro, an analyst with the Economist Intelligence Unit, told Inkstone.
Larry Hu, chief China economist of Macquarie Capital, said the agreement was “a temporary truce.”
“It’s premature to completely rule out the risks of trade war,” Hu said in a research note.
The Saturday agreement between the US and China didn’t touch on numbers.
The US had wanted China to cut the trade gap between the two countries, which hit a record $375 billion last year, by $200 billion.
On Friday, the White House’s economic adviser Larry Kudlow said that China had offered precisely that amount: but that number was disputed by China’s Foreign Ministry that day, and was glaringly missing from the Saturday statement.
And the statement didn’t address the reason why the US first started threatening China with tariffs – over China’s plan to dominate the high-tech sector according to its “Made in China 2025” initiative.
“Kicking the can down the road ensures that that these issues will return with a vengeance,” said Marro.
A war ‘on hold’
After the Saturday announcement, representatives of both countries in the trade negotiation signaled a pullback from an imminent trade war.
China’s point man in the trade talks, Vice Premier Liu He, said the two countries pledged not to engage in a trade war, according to Xinhua, China’s state news agency.
But US Treasury Secretary Steven Mnuchin told Fox News only that a trade war with China was put “on hold,” suggesting that US threats of billions of dollars in tariffs are still in the cards.
Economists have warned that no one wins in a trade war, where countries impose trade barriers on each others’ goods, because it makes things expensive for everyone.