Phase one deal won’t have big impact: Lin

Reduces tensions, some tariffs

January 14, 2020

The United States and China are expected to sign phase one of a new trade deal on Wednesday that will help ease tensions between the two economic powers. But how much impact the new deal actually has will depend on further negotiations, Prof. Zhimin Lin of Valparaiso University told an audience of Culver  Academies students, faculty, and interested community members.

Lin specializes in Chinese politics and international relations. He was born in China in 1954 and received his Bachelor of Arts from Fudan University in Shanghai, China. He received his master’s degree from Princeton University and his doctorate from the University of Washington.

He spoke Friday evening at a special Global Studies Institute program set up by honors student David Shim ’21 (Seoul, South Korea), who is studying the U.S.-China trade war. Lin said the trade war is exactly that – a war. It is a “you hit me with something, I will hit you back” affair. In this case it is tariffs.

The biggest sticking point is the trade imbalance, which the United States says is more than $500 billion but the Chinese say is at slightly more than $200 billion. The different numbers are due to everything being shipped through Hong Kong, which takes in most of Southeast Asia and India along with China, Lin said. Most analysts believe a realistic number is approximately $350 billion. Much of that trade deficit is considered “low-level goods,” Lin explained, which have been imported into the United States for a long time.

Ending the trade war is so important that when the phase one announcement was made on Dec. 13 the South Korean stock market to jump 2 percent and the Hong Kong index rose 3 percent. That is because when the export market drops, the overall economy drops “much more,” he explained. It is estimated that 1,600 jobs are tied to every $1 billion in exports.

China needs to export 20 percent of the goods it produces to maintain its growth. The United States exports 10 percent. If the phase one agreement had not been reached, new tariffs would have gone into effect on Jan. 13, covering almost everything the two countries export. Lin said phase one does not do much more than allow “everybody to save face” before the additional tariffs went into effect.

The United States will also halve existing tariffs on approximately $120 billion of Chinese goods, including smart phones and laptops. The 25 percent tariff will remain on $250 million worth of imports. That figure could come down in future negotiations.

The phase one agreement calls for China to purchase $100 billion more per year in U.S. goods, including agricultural goods going from $40 billion to $50 billion, over the next two years. However, there are no specifics concerning what will be purchased. Besides agricultural products, airplanes, and liquefied natural gas, Lin said there is not much else the United States produces that the Chinese need.

Even more interesting will be the future negotiations that will cover opening Chinese markets to United States competition, he said. There will some major political pressures on both sides of this debate. While many Chinese companies are considered privately owned, the country does have some stake in the top 400 firms. Most of the time it is through loan forgiveness programs. Allowing U.S. firms to come in and compete against those firms would be politically and strategically damaging, Lin explained.

Since the Nixon administration normalized relations with China, the United States government has overestimated its ability to influence the Chinese, Lin said. During that time, the Chinese economy has grown much stronger and Chinese influence has spread across the world, especially in Africa and Latin America. That is why the rest of the world’s view of China is “more balanced” than in the United States.

But a country can’t maintain a large and dynamic economy when its scientists are cut off from the rest of the world, Lin said. Advancing new technologies cannot happen without scientists sharing critical information. The European nations have already proven this. That is why it is in China’s best interests to open its markets, Lin said. And the United States must be ready to take advantage when that happens.