US-Chinese trade deal (Phase 1)

A three year trade war between the US and China, initiated by Donald Trump, created disruptions and uncertainties around the world, and cost the US billions of dollars, ‘phase 1’ of an agreement has been signed.

It’s hard to know whether the gains have been worth the pains.

Fox News:  US, China sign historic phase one trade deal

President Trump signed a landmark trade agreement with China, heralding a period of detente in a trade war between the world’s two largest economies fueled by decades of complaints that Beijing was manipulating its currency and stealing trade secrets from American firms.

The pact, detailed in a 94-page document, is only the initial phase of a broader deal that Trump has said may come in as many as three sections.

During two years of negotiation, there were occasional setbacks because “on some issues, we don’t see eye to eye,” noted Liu He, the Chinese vice premier who represented President Xi Jinping at the signing, but “our economic teams didn’t give up.”

The document specifies that both China and the U.S. “shall ensure fair and equitable market access” for businesses that depend on the safety of trade secrets. Specific measures that will protect pharmaceutical firms’ intellectual property, govern patents, block counterfeiting on e-commerce platforms and prevent exports of brand-name knockoffs are detailed.

The agreement, which was first reported on Dec. 12, includes commitments from Beijing to halt intellectual property theft, refrain from currency manipulation, cooperate in financial services and purchase an additional $200 billion of U.S. products over the next two years.

The purchases will include up to $50 billion of U.S. agriculture, according to Trump and Treasury Secretary Steven Mnuchin, $40 billion of which has been confirmed by Chinese sources. China will also buy $40 billion in services, $50 billion in energy and $75 billion to $80 billion worth of manufacturing, the sources said.

BBC – US-China trade deal: Winners and losers

Winner: Donald Trump

Some critics say there is little substance, but the signing offers an opportunity for US President Donald Trump to put the trade war behind him and claim an achievement heading into the 2020 presidential election.

Winner: President Xi Jinping

China appears set to emerge from the signing having agreed to terms it offered early in the process, including loosening market access to US financial and car firms. In many cases, companies from other countries are already benefiting from the changes.

Winners: Taiwan/Vietnam/Mexico

Globally, economists estimate that the trade war will shave more than 0.5% off of growth. But some countries have benefited from the fight, which redirected an estimated $165bn in trade.

Analysts at Nomura identified Vietnam as the country that would gain the most, while the UN found that Taiwan, Mexico and Vietnam saw US orders ramp up last year.

Loser: American companies and consumers

The new deal halves tariff rates on $120bn worth of goods, but most of the higher duties – which affect another $360bn of Chinese goods and more than $100bn worth of US exports – remain in place. And that’s bad news for the American public.

Economists have found that the costs – more than $40bn so far – are being borne entirely by US companies and consumers. And that figure does not even try to measure lost business due to retaliation.

Loser: Farmers and manufacturers

The new deal commits China to boost purchases in manufacturing, services, agriculture and energy from 2017 levels by $200bn over two years.

Mr Trump has said that could include as $50bn worth of agricultural goods a year.

But the official figures are lower, analysts are sceptical those are attainable and China has said the purchases will depend on market demand. So far, the primary effect on business has been pain.

Farmers, who have been targeted by China’s tariffs, have seen bankruptcies soar, prompting a $28bn federal bailout.

Among manufacturers, the Federal Reserve has found employment losses, stemming from the higher import costs and China’s retaliation.

BBC – US-China trade deal: Five things that aren’t in it

The US and China have finally – after almost two years of hostilities – signed a “phase one” deal. But it only covers the easier aspects of their difficult relationship, and only removes some of the tariffs.

The biggest hurdles are still to come, and could stand in the way of a second phase agreement – one that would in theory remove all of the tariffs, bringing some much needed relief for the global economy, which is in the interests of all of us.

So what didn’t make it into the agreement?

1. Industrial subsidies and ‘Made in China 2025’

The deal doesn’t address Beijing’s ambitious ‘Made in China 2025’ programme, which is designed to help Chinese companies excel and become world-class leaders in emerging technologies. It also doesn’t address the subsidies that China gives its state-owned enterprises, says Paul Triolo of the Eurasia Group.

2. Huawei

The trade deal won’t reduce US pressure on Huawei, the Chinese telecoms giant that has been caught in the crossfire of the trade war, with the US Treasury Secretary Steve Mnuchin saying the company isn’t a “chess piece” in the negotiations.

3. Access for foreign financial services firms

While the agreement does talk about opening up market access for financial services firms, some analysts have said it doesn’t go far enough to ensure they have equal market access.

4. Enforcement and interpretation

The deal has a dispute resolution mechanism in place, which basically requires China – once a complaint has been made – to begin consultations with the US, with the onus on Beijing to resolve it.

But what the deal leaves out is “how the US is going to monitor enforcement,” says Derek Scissors of the American Enterprise Institute.

5. Further reductions in tariffs

The deal doesn’t include a definitive timeline on when the tariffs that are still in place will go down.

According to research from the Peterson Institute for International Economics, average tariffs on both sides are still up about 20% from pre-trade war levels – six times higher than when the dispute began. That means companies and consumers are still paying more.

So a lot of the pain remains.

Also from BBC:

Bloomberg/Japan Times (opinion): Round one to Trump in U.S.-China trade war

It is too early to give a final assessment of the U.S.-China trade deal, the details of which have just been published, but it’s not too soon for a provisional opinion: China is badly shaken, and American credibility has been greatly enhanced.

In general, I am suspicious of detailed agreements when one of the parties claims the other does not respect the terms of their deals, as the United States does with China. If the U.S. holds up its end of the bargain and China doesn’t, you have to wonder what all the trouble was about.

So what about the potential benefits for the U.S.? Most of them concern credibility.

The U.S. has established its seriousness as a counterweight to China, something lacking since it largely overlooked China’s various territorial encroachments in the 2010s. Whether in economics or foreign policy, China now can expect the U.S. to push back — a very different calculus. At a time when there is tension in North Korea, Hong Kong, Taiwan and the South China Sea, that is potentially a significant gain.

Credibility is difficult to measure, as is the political effects of of trade issues.

The U.S. still is keeping $360 billion of tariffs on Chinese goods, hardly a propitious sign that China made a great bargain. There is even speculation that China will not report the full deal to its citizens.

That isn’t a great bargain for American businesses and consumers who have to pay the tariffs.

It is too soon to judge the current trade deal a success from an American point of view. Nevertheless, its potential benefits remain underappreciated, and there is a good chance they will pay off.

Some of the agreement will no doubt be beneficial to the US, but there’s definite downsides as well.

Politico (opinion): The U.S.-China Trade Deal Was Not Even a Modest Win

It’s generous to even call it a deal.

The deal simply restores the U.S.-China relationship to where it was pre-President Donald Trump, declares victory in areas that don’t matter as much as they did and has cost the U.S. billions in the meantime.

The A1 article in the Wall Street Journal was measured but said that the deal “contains wins for the U.S.” The New Yorker dubbed the deal “an uneasy truce.” On CNBC, the garrulous Jim Cramer heralded it as a win for Trump and America, saying “tariffs worked.” In general, while few outside the White House saw the agreement as transformative, the reception to it has been amicably positive, if only because it appears to arrest the destructive slide to more and more confrontation, higher tariffs and greater disruption and uncertainty.

Halting the onward march toward an all-out economic Cold War with China is a good thing. But given that the march began with impulse and barely any strategy on the part of the Trump administration and given as well that an even better pseudo-deal, with more agricultural purchases, could have been struck this spring without more escalation of tariffs, the agreement inked this week should be seen as an almost complete failure.

Here’s why. When Trump became president, he immediately latched onto the trade deficit in goods, which showed the United States importing hundreds of billions more goods than it exported to China. Many also assailed China for years of intellectual property theft and forced technology transfers and for restricting market access to U.S. financial companies. Those issues were at the heart of the decision to begin using tariffs to coerce China into changing its behavior.

At best, the Phase I agreement modestly revises the status quo before Trump came into office.

At a substantial cost in the meantime.

Politically much will depend on whether Trump can get any voters who aren’t already supporters to buy his “momentous” and “remarkable” and “righting the wrongs of the past” sales pitch.

The reality seems to be that this steadies things back to approximately where they were, with the addition of substantial new tariffs remaining in place. Success or otherwise is likely to be determined in the future, by what both the US and China actually do, and what they agree on in future phases of trade agreements.

 

Leave a comment

3 Comments

  1. Blazer

     /  19th January 2020

    if Cramer says its good,you know its a…dud.

    Always in favour of Govt prime pumping the economy to stimulate Wall St,he has a large following ,but is invariably…wrong.

    Reply
  2. Duker

     /  19th January 2020

    The ‘Trump shift’ to having a 180 degree turn on US support for ‘free trade ‘ to now only going for whats good for US is likely to be permanent .
    A little bump for buying US agriculture output hardly matters as Boeing alone has more exports than all US agriculture , food , beverages combined. ( of course their home market is massive for those items)

    Reply
  3. Alan Wilkinson

     /  19th January 2020

    Be interesting to watch US-UK trade negotiations. Boris wants to run these ahead of the EU to get max leverage over the EU.

    Reply

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