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Jury Still Out As U.S. China Trade War Throws Up Winners, Losers

Enda Curran

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Donald Trump famously declared that trade wars are easy to win.

With the phase one trade agreement between the U.S. and China now inked, observers are hesitant to declare a winner. While most welcomed the truce they also cautioned that the toughest negotiations are yet to come.

For now, obvious beneficiaries include America’s farmers, refiners, crude and gas exporters who could see Chinese demand soar. U.S. finance firms including investment banks, credit card companies and ratings firms won allowances that will hasten their ambitions to grab a bigger slice of China’s $45 trillion financial industry.

On the Chinese side, the truce offers relief for a slowing economy and gives breathing space for the government to meet its growth targets.

Potential losers include Brazilian soy bean farmers and Australian suppliers of liquefied natural gas amid stiffer competition for their Chinese order book. The World Trade Organization has been left on the sidelines as globalization gives way to managed trade.

Even with the deal, Chinese goods remain levied with stinging U.S tariffs while American firms still face heavily subsidized Chinese competitors.

Trump hailed the agreement as “remarkable” and Xi Jinping described it as “good for China, the U.S. and the whole world.”

Here’s a sample of some other reaction:

Steve Schwarzman, chief executive officer of Blackstone Group Inc:

“You have to remember that the U.S. and China, other than the WTO deal in 2001, fundamentally haven’t had a trade agreement since the 1940s so what has been achieved is very, very significant. It provides a base line for a better world economy.”

Charles Freeman, Senior Vice President for Asia, U.S. Chamber of Commerce

“Let’s celebrate while we can and then we will regroup and move on. The enforcement tools are there and I believe both sides are sincere. This is one of those agreements where both sides could agree to do these things and get them done. With the best of intentions we can bank this and hope it goes forward and we can begin the hard work of negotiating on subsidies.”

Chinese state media

The deal’s signing received almost 20 minutes of live airtime on Chinese state television in the middle of the night. CCTV published a commentary on its app arguing the deal has two salient features: balance and equality and is a “win-win”.

The People’s Daily made a similar argument in an article published via WeChat, a social-media platform.

Hu Xijin, editor-in-chief of the Communist Party-backed Global Times, welcomed the deal in a tweet.

Joerg Wuttke, head of the European Union Chamber of Commerce in China:

“The good news is the downward spiral has been stopped for business, that means more predictability but unfortunately for the likes of EU business and others such as Brazil it means that for the next two years $200 billion will be traded between two nations without competition.”

Timothy Stratford, managing partner in Covington & Burling LLP and a former Assistant U.S. Trade Representative

“It is a fairly fragile truce. There are going to be a lot of challenges implementing the agreement.”

Tom Orlik, Bloomberg Economics

“China -- the main loser from the trade war -- is the main beneficiary of the truce. Our China team have raised its forecast for the country’s 2020 GDP growth to 5.9% from 5.7%. The composition of growth will also be a little more balanced, with less need for state investment to offset weak exports and private-sector capex.”

Former U.S. Treasury officials had a mixed response on what the deal will mean for the yuan’s stability.

Here’s Brad Setser, who worked at Treasury during the Obama administration and is now at the Council on Foreign Relations

And here’s Mark Sobel, a former Treasury and International Monetary Fund official

Wendy Cutler, a veteran trade negotiator now at the Asia Society Policy Institute

“It is a solid deal and the administration should get credit for achieving this deal, that said, it falls way below the expectations they set out at the beginning of this negotiation when they were going to address all the issues that are keeping U.S. companies out of the Chinese market. This negotiation proved a lot tougher than they thought.”

Andy Rothman, a former U.S. diplomat in Beijing who’s now an investment strategist at Matthews Asia.

“I have two serious concerns about the deal. First, the targets for increases in China’s imports from the U.S. appear to be unrealistically high, which could set up the deal to fail, leading to additional tariffs or even a full-blown trade war. Second, Lighthizer acknowledged today that “This deal will work if China wants it to work.” Over the long term, will the Chinese government want it to work if the Trump administration continues to pursue confrontational policies on almost every issue aside from this deal?”

Hubert Tse, partner at Boss & Young law firm in Shanghai, who advises global banks, insurers and financial institutions in China.

“The U.S. financial firms are clear winners, it’s a major step-forward for them in China. It’s unimaginable 10 years ago for Wall Street banks and financial institutions to have majority control in China ventures, let alone outright ownership.”

Michael Hirson, New York-based practice head for China and northeast Asia at Eurasia Group

“If serious frictions do arise – we see this as all but inevitable – will Trump once again raise tariffs on Chinese goods? The president will be somewhat cautious about taking actions that derail phase one, especially ahead of elections. However, his restraint has limits: criticism that he is failing to live up to the enforcement provisions of his deal could sting.”

Arthur Kroeber, a founding partner and managing director at research firm Gavekal Dragonomics

“Leaving aside the continuing risk to the tech sector, the implausibly high targets for increased U.S. exports to China leave open another source of risk. Under the terms of the deal, if China fails to live up to its commitments, the U.S. is free to reimpose tariffs. If, as is likely, it proves impossible to double U.S. exports to China within the next two years, a renewed trade war could well be a feature of a Trump second term. For the moment, though, it is probably best to enjoy the calm of the storm’s eye for as long as it lasts.”

--With assistance from Kismet Singh, Sharon Cho, Stephen Stapczynski, Miao Han, Jun Luo and Zhang Dingmin.

To contact the reporter on this story: Enda Curran in hong kong at ecurran8@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeffrey Black

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