Donald Trump happy with US-China trade gains ... for now

Donald Trump is unlikely to embark on the next phase of a trade deal with China for fear of risking fresh trade tensions.

A ship at an automatic dock in Qingdao in China’s eastern Shandong province Picture: AFP

President Donald Trump is unlikely to embark on the next phase of a trade deal with China for fear of risking fresh trade tensions ­before this year’s presidential election, economists say.

China’s trade negotiator, Liu He, is expected to sign a “phase one” pact on Wednesday at the White House after months of ­arduous negotiations between the two economic giants.

While the deal is tipped to cut tariffs and increase China’s US farm and manufactured goods purchases, Mr Trump may be content to leave “phase two” talks until next year.

“You are seeing the President being more friendly on trade in the lead-up to the election,” former Federal Reserve official Bill Dudley told the UBS Greater China Conference in Shanghai on Monday. “The trade issue is not going to go away but it is not going to intensify going into the election.”

Mr Trump had indicated he would take the phase-one pact as a “win” of sorts into his campaign for re-election.

And he has said he may wait until after the election to sign a phase-two deal, which is expected to test US claims of intellectual property theft by China.

“For this year the administration has been more and more clear that they feel like they want to portray the phase-one deal as a meaningful victory,” UBS chief US economist Seth Carpenter told reporters.

Proposed new tariffs on China, due to take effect on December 15, were scrapped by the US after the two sides agreed to a preliminary deal expected to be signed this week.

“The phase-one deal has the elimination of the tariffs that were supposed to go on December 15. And on the Chinese side they will buy the same amount of agricultural products plus a little bit more, with the condition that it was consistent with Chinese domestic demand and if the ­prices were appropriate. That’s why I’m sceptical it’s a big win for the US,” Mr Carpenter said.

The economist, who worked as a Treasury Department official in the Obama administration, said intellectual property remained a point of tension.

“The IP side of things, you can make your own inferences as to how inflexible it is and how different it is,” he said. “The Chinese government seems to be moving in the direction of more protection of IP ­because there’s more being developed in China anyway. So the net win there in my view is not that big of a deal.”

China may look to implement aspects of the trade deal more quickly with a potential further reduction in tariffs, UBS chief China economist Tao Wang told the conference.

Former Indian central bank governor Raghuram Rajan said the world was nervous about how broader tensions between the two nations would play out.

“You start asking countries which side would you like to be on,” Mr Rajan told the conference. “My guess is when countries look at the future, at this point, economically they would choose China and politically they would choose the US. And there’s a great thorn in between. They’d like to be friends with both but if they’re forced to choose, this breaks up the world. Unfortunately, once these things erupt they’re very hard to put back in the box.”

Mr Rajan said the economic scuffles had sparked uncertainty for both investment and supply chains.

“Countries want to be friends with both,” he said. “It is extremely important to find a way to patch things up. Significant institutional reform is needed to bring back trust.”

The author travelled to Shanghai as a guest of UBS.