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How Did US and China Agree on a Pause in Trade War Escalation
By admin December 5, 2018

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After a dinner meeting at the G-20 Summit in Buenos Aires, President Donald Trump and Chinese President Xi Jinping agreed on a cease-fire on tariffs. The US will hold off on increasing the tariff on $200 billion Chinese imports after January 1, 2019. This positive sign toward a truce on the trade war pushed major markets, including S&P 500 and Nasdaq, higher on Monday. On the other side, the Chinese government has made several concessions.

China agrees to buy more US exports, including industrial and agricultural products. The expected increase will be “very substantial”, according to the White House. However, many analysts believe that the impact of such increase will be minimal given the large US trade deficit with China. The US traded approximately $710.4 billion in goods and services with China, among which 26.4% were exports and 73.6% were imports.

Additionally, The Chinese government said it will consider reconsidering Qualcomm’s $44 billion bid for NXP Semiconductors. Qualcomm, the US chipmaker, offered to buy NXP for about $38 billion in October 2016. It later raised the bid to $44 billion to get NXP’s shareholders on board. Fearing that the deal will hurt its domestic chipmakers, China, as one of the countries that needed to sign off on the merger before it could close, delayed the approval until Qualcomm had to abandon the acquisition.

This is an epitome of the fierce competition in technology and industrial leadership between the U.S. and China. Despite some progress at the G-20 Summit, there is little sign that China will change its policies in intellectual property protection and industrial development, which is a major grievance of the US. The US has been accused China of forced technology transfer and intellectual property theft. In the Special 301 Report on Intellectual Property Rights by the United States Trade Representative (USTR), China is on the Priority Watch List, which consists of countries with poor intellectual property protection enforcement, for 14 consecutive years. The lack of protection enforcement is a major barrier for companies relying on intellectual property to enter the Chinese market.

China made an ambitious plan to compete with the US, by announcing a “Made in China 2025” strategy. This strategy aims to develop 10 key sectors, including robotics, aerospace, and clean energy. Against this backdrop, China is highly unlikely to give up its industry development plan. Therefore, whether the US can change China’s stance on IP and industrial policies are still unclear.

 

FURTHER READINGS:

U.S., China Reach a Truce on Trade

China gets US tariff delay but movement on tech unclear

Qualcomm reportedly says it sees no prospect for NXP deal despite US-China trade truce

Forced tech transfers and intellectual property theft will likely dominate trade talks after Trump-Xi deal

Factbox: Made in China 2025: Beijing’s big ambitions from robots to chips

U.S.-China Trade Facts

USTR Releases 2018 Special 301 Report on Intellectual Property Rights


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