GREATEST DEAL

"The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our country. Thank you China!", US President Donald Trump tweeted on October 12.

On the next day, Trump shared a new tweet: "My deal with China is that they will immediately start buying very large quantities of our Agricultural Product, not wait until the deal is signed over the next 3 or 4 weeks. They have already started! Likewise financial services and other deal aspects, start preparing... "

What kind of a "greatest" deal is Mr. Trump talking about? Is it the verbal deal agreed on October 11 in Washington during the 13th round of negotiations between the United States and China on some controversial issues of trade?

Let's start a little earlier, October 8, when Larry Kudlow, Chief Economy Adviser to the President, made a briefing for his boss in the Oval Office with the participation of invited experts. At the meeting, Trump was informed that the continued escalation of trade tension between the US and China could jeopardize the national economy and reduce his chances of being re-elected in 2020. Opinion polls in September confirmed an upward trend in the number of Americans concerned about the escalation of the trade war with China. The approval rating of the president’s economic policy dropped to 46% from 51% in July.

Trump's once-high popularity in the farming states most affected by the protracted trade war gave way to disappointment. States like Iowa, for example, are heavily dependent on soybean sales to China, which before the trade war exceeded $12 billion annually. Last year, this figure was slightly over $3 billion, which ruined more than 12,000 American farms. From January to March 2019, American farmers' personal incomes fell $11.8 billion, the largest drop in three years. Therefore, it is not surprising that the increasing number of farmers declare that they will not vote again for Trump if the trade war is not over soon.

Three days later, the next Sino-American meeting did not bring any breakthrough in the negotiations. However, in anticipation of the meeting, it became known that the US postponed an indefinite increase in tariffs from 25 to 30% on Chinese imports ($250 billion), which was scheduled to take effect on October 15.

Immediately after the meeting, Trump gave a press briefing stating that China’s new purchases of agricultural products will be "two and a half, three times more" than before, or $40-50 billion. This is more than a two-fold increase in China's purchases from the US in recent years before the crisis of relations.

There is no written confirmation of such a deal. China is still silent about it. Chinese officials only confirmed that negotiations with the US were progressing, and perhaps some agreements could be concluded during a personal meeting between Donald Trump and Xi Jinping at the Asia-Pacific Economic Cooperation summit on November 16-17. In the meantime, purchases will be made in accordance with the needs of the Chinese market.

According to experts, China’s agreement to increase purchases of American agricultural products, if any, may be partly due to the urgent need to meet domestic demand for pork, as the outbreak of African swine fever has reduced swine population by more than a quarter. But even a verbal agreement is more like a temporary truce, which has happened more than once in the past 15 months of the trade war.

Déjà vu

In December 2018, during the G20 summit in Buenos Aires, the two countries agreed to postpone mutual sanctions until the final clarification of relations. Trump and Xi then announced that they would conclude an agreement within 90 days. China has resumed purchases of American soybeans. However, in May of the following year, the ceasefire was interrupted. Each of the parties accused the other of making serious changes to the draft agreement. As a result, the US increased its tariffs to 15% for Chinese goods ($200 billion), while China cancelled its obligation to amend the laws in each of the seven chapters of the draft trade deal: theft of US intellectual property and trade secrets, forced technology transfer, competition policy, access to financial services and currency manipulation.

On the eve of the G20 summit in Osaka (June 28-29), Washington and Beijing again agreed on a truce...

Is Trump Beijing's best friend?

According to an American magazine Foreign Policy, in numerous informal conversations with the Chinese government officials and scholars, there is a growing number of people in Beijing, who hope for Trump's re-election in 2020. Amidst the growing political and economic influence, as well as the military potential of China, they believe that by comprehensively weakening the global leadership of the US, Trump in fact has given Beijing a chance to expand its influence, and not only in Asia. Many Chinese concluded that Trump’s global policy, despite sanctions and economic pressure on Beijing, is strategically very good for China in the long run.

While Trump is pulling the country out of multilateral trade cooperation agreements (such as the Trans-Pacific Partnership, TPP), which have been central to the US international economic policy for many years, Beijing, by contrast, is working hard to create one. In addition to actively promoting the New Silk Road (Belt and Road Initiative), China is actively working on the creation of a Regional Comprehensive Economic Partnership (RCEP), which will bring together 16 countries of Southeast Asia, including long-term allies such as the US, Japan, Australia, Republic of Korea, New Zealand and India.

The total GDP of 16 member states of the proposed RCEP (49% of the world's population) is estimated at 30% of the global GDP. Thus, they may own a third of world trade. Until recently, the project was considered a counterweight to the American TPP. However, since the US refused to sign the TPP agreement, these two free trade zones may well find common ground and complement each other, leaving the US behind cooperation.

In addition, the actions and statements of the Trump administration make many countries doubt whether they can count on the US, like for example the fate of Syrian Kurds.

The situation sometimes becomes funny indeed. The last thing Chinese officials have ever expected was that the leader of the free world would ask Beijing, Washington's strategic rival, to intervene in the upcoming US presidential election, when he said that "China should start an investigation into the Bidens, because what happened in China is just about as bad as what happened with Ukraine," referring to rumours about the ties of the son of the former vice president, Hunter Biden, with a Chinese investment firm.

The answer came immediately from Chinese Foreign Minister Wang Yi: "China will never interfere in the internal affairs of the US, and we believe that the American people are capable of solving their own problems." Sounds pretty humiliating. Well, for Chinese Communist ideologists such a situation is just a gift - a direct confirmation of their words that democracy and the Western-style electoral system are clearly overrated.

By the way, for Beijing, the cease-fire concluded on October 11 is Xi's victory over Trump. After all, the US president calls the "greatest deal" not structural changes in China’s economic policy, which his administration had insisted on until recently, but only an increase in purchases of agricultural products that China already needs.

Mutual damage

The US and Chinese economies have been hit hard by the protracted trade war. China's GDP growth slowed to 6.2% in the second quarter, which is the weakest indicator in 27 years, but this is not the limit. Economists believe that by the end of the year, China may be short of 6%. The US economy grew from April to June by only 2%, while in the previous quarter it was 3.1%.

Both China and the US publicly declare that a trade war does more damage to the other side. But, of course, this is not true. The damage is mutual. Each side also declares that it has sufficient economic stability necessary to overcome the protracted conflict. America is certainly less dependent on foreign trade, but China, with its state monopoly in the economy, has more powerful financial, monetary and credit instruments.

And yet, under the pressure of sanctions or because of the slowdown in the country's economic development, which has been observed for several years, China nevertheless took some steps that would contribute to the openness of its domestic market. In particular, the Chinese securities regulator recently announced an imminent abolition of foreign ownership limits for futures, securities and mutual fund companies. Prime Minister Li Keqiang also said that China would remove restrictions on the activities of foreign banks, brokerage companies and fund management firms.

Thus, the problems intensifying in both countries may force their leaders to make mutual concessions and bring the current ceasefire in a trade war to a comprehensive agreement, which is yet to be implemented.