Technology Five reasons why the phase one deal is not...

Five reasons why the phase one deal is not a real breakthrough

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Peking On Wednesday at 5:30 p.m. German time, the time has come: US President Donald Trump, Chinese Vice Prime Minister Liu He and a large delegation from both countries will gather in the East Room of the White House for a partial agreement in the trade dispute between China and the United States to sign.

The so-called “phase 1 deal” is 86 pages long and includes chapters on the protection of intellectual property, currency policy, financial services and the expansion of trade. Washington presents the agreement as a "great" stage win.

Beijing, on the other hand, is cautious. Many observers are controversial as to whether the "big, beautiful monster", as Trump recently called the agreement, is actually a breakthrough – for five main reasons:

Reason 1: A self-created problem is solved

Washington withdrew allegations on Monday that Beijing was manipulating its currency. The US made the allegation last August after the Chinese currency yuan fell to a historic low. Even the International Monetary Fund has confirmed that there is nothing to be said about Trump's allegations – at least not in recent years.

Reason 2: It contains an agreement that was already initiated

As part of the agreement, China should now also improve the protection of intellectual property. But that is already being promoted anyway – after all, it is increasingly benefiting Chinese companies, which have become market leaders in many areas. China already announced in November that it would tighten the sentence for violations of intellectual property rights. At the beginning of the year, the Chinese even set up an intellectual property appeals court at the Chinese Supreme People's Court.

On January 1, 2020, a law regulating foreign investment came into force that promises a more transparent business environment, better protection of intellectual property and the prevention of technology transfer. This also includes a ban on government officials from disclosing company secrets. If they do so, they face criminal proceedings. So far, however, it is unclear how this should be checked and implemented.

Reason 3: China's structural problems were not addressed

The really big issues, such as China's industrial policy or the unfair subsidization of Chinese state-owned companies, remain unsolved and should be addressed in phase 2.

Observers now see the partial agreement primarily as a temporary end to the escalations between the two largest economies in the world. "The costs were extensive, and the benefits from it are small and volatile," wrote Scott Kennedy of the US Think Tank Center for Strategic and International Studies. With the previous agreement, China could continue to hold onto its “mercantilist economic system” without having to change fundamentally unfair practices.

Reason 4: Observers are not expecting a phase 2 deal soon

Trump has announced that he will soon travel to China and continue to negotiate in the trade dispute. However, most observers are skeptical. "I doubt that any side will make further promises before the November presidential election," said Seth Carpenter, chief economist at UBS, Handelsblatt.

The President of the European Chamber of Commerce Jörg Wuttke goes even further. He believes that "if my children will be here at all" they will see the phase 2 deal closed.

Reason 5: Other controversial issues remain

The Partial Agreement stops the logic of new punitive tariffs, but the two superpowers continue to disagree on numerous other issues, such as human rights and the use of Chinese technology. It was only on Monday that the US tightened the takeover rules for foreign corporate buyers, especially with regard to China. The US sanctions against Huawei also remain in place.

The US has accused the Chinese tech maker of posing a threat to national security and has banned the company from using US products. China, in turn, is also working on a blacklist of "unreliable companies" who should no longer use Chinese products.

More: Economists are increasing their growth forecast for China. Another reason is the partial agreement in the trade war.

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