January 16, 2020 / 12:00 PM / 7 days ago

Trade deal no panacea for rocky U.S. relations with China

WASHINGTON/BEIJING (Reuters) - From Huawei to the South China Sea, deep political rifts between Beijing and Washington are set to persist, despite a trade relations breakthrough, as the United States pushes back against an increasingly powerful and assertive China.

Relations between the world’s two largest economies have deteriorated sharply since U.S. President Donald Trump imposed punitive tariffs in 2018, igniting a trade war.

“The broader, darkening picture is not going to be brightened much by this deal,” Bates Gill, an expert on Chinese security policy at Macquarie University in Sydney, said of the initial trade deal signed on Wednesday.

This backdrop spans China’s militarization of the South China Sea; rising tensions over Taiwan, which Beijing claims as its own; U.S. criticism over human rights in Hong Kong and Xinjiang, and a backlash against telecoms gear provider Huawei.

While the initial deal defuses an 18-month row that has hit global growth, experts say it is unlikely to provide much balm for broader frictions rooted in U.S. fears over an economically and technologically powerful China with a modernizing military.

“We can see Phase 1 as an emergency treatment to lower the temperature, but it has not addressed the fundamental problems,” said Wang Heng, a professor at the University of New South Wales in Sydney, who studies the China-U.S. economic relationship.

HOSTILITY

Washington is increasingly alarmed about the security implications of Chinese technology, and has tightened its rules to keep better tabs on the acquisition of key technology by China, setting in motion changes to the global supply chain.

FILE PHOTO: Chinese Vice Premier Liu He and U.S. President Donald Trump shake hands after signing "phase one" of the U.S.-China trade agreement during a ceremony in the East Room of the White House in Washington, U.S., January 15, 2020. REUTERS/Kevin Lamarque

“The Chinese leadership are not naive about this,” said Gill. “They are already making moves to be more autonomous and thinking about a future... in an environment of hostility.”

The Trump administration put Chinese telecoms equipment giant Huawei Technologies Co [HWT.UL] on a trade blacklist on national security concerns in May, banning it from buying supplies from American firms without U.S. government approval.

It has also taken measures to crimp exports of artificial intelligence software.

New U.S. rules tightening scrutiny of foreign investment go into effect on Feb. 13, extending the powers of the Committee on Foreign Investment in the United States (CFIUS), which has increasingly flexed its muscle against Chinese firms.

Intervention by CFIUS, which reviews mergers and stock purchases to ensure they do not harm national security, has dramatically slowed Chinese investment in the United States. Chinese foreign direct investment into U.S. fell 90% to $1.9 billion in 2019 from its peak in 2016, according to Refinitiv data.

The two countries are also at odds over Taiwan, which counts the United States as its biggest weapons supplier but which China sees as one of its provinces.

Taiwan’s President Tsai Ing-wen was re-elected on Saturday, vowing not to submit to Chinese pressure or control.

Tsai’s campaign was helped by seven months of anti-government protests in Hong Kong, which Beijing accuses Washington of helping to foment, eroding China’s case for a “one country, two-systems model” similar to Hong Kong’s for Taiwan.

FILE PHOTO: U.S. President Donald Trump stands between Chinese Vice Premier Liu He, U.S. Vice President Mike Pence, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer prior to signing "phase one" of the U.S.-China trade agreement with Liu in the East Room of the White House in Washington, U.S., January 15, 2020. REUTERS/Kevin Lamarque


U.S. Army Secretary Ryan McCarthy said last week that China “will emerge as America’s strategic threat” and that the United States planned to deploy two task forces to the Pacific over the next two years capable of information, electronic, cyber and missile operations against Beijing.

Treasury Secretary Steven Mnuchin told CNBC on Wednesday that the United States was concerned about other issues involving China but these should be dealt with separately.

“You have to negotiate different pieces at different times,” he said.

Reporting by David Brunnstrom, Phil Stewart, Echo Wang and Andrea Shalal in Washington and Cate Cadell, Stella Qiu and Tony Munroe in Beijing; Editing by Alexander Smith and Rosalba O'Brien

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